Health Reform WK-EDGE Kentucky’s Medicaid work requirement is invalid
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Monday, July 16, 2018

Kentucky’s Medicaid work requirement is invalid

By Kathryn S. Beard, J.D.

Although the HHS Secretary is afforded significant deference to approve state demonstration projects for Medicaid, he never adequately considered whether Kentucky’s decision to impose work requirements on some recipients would promote a central objective of Medicaid, helping the state furnish medical assistance to its citizens. Without that consideration, the Secretary’s decision was arbitrary and capricious, according to the U.S. District Court for the District of Columbia, which vacated the approval and remanded the matter to HHS. The decision provides a basis for individuals in other states to challenge work requirements, and provides the Secretary with a blueprint for future approvals to possibly pass judicial muster (Stewart v. Azar, June 29, 2018, Boasberg, J.).

Medicaid work requirements. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) gave states the opportunity to expand Medicaid eligibility to nonelderly nondisabled adults with low income levels. The Trump Administration, which favors legislative repeal of the ACA including Medicaid expansion, has used federal agencies to change enforcement of the ACA while the law remains in effect. CMS has particularly taken aim at Medicaid expansion (see Did CMS just sound the death knell for Medicaid expansion?, March 15, 2017), including through its embrace of work requirements for recipients (see Trump’s CMS endorses Medicaid work requirements, January 11, 2018). States quickly moved to propose work and community engagement requirements for Medicaid beneficiaries, often restricted to members who received coverage after the ACA expanded eligibility.

Kentucky HEALTH. Kentucky expanded Medicaid under the ACA under a previous governor; the current governor, Matt Bevin, campaigned on promises to undo expansion (see Will the newly elected Kentucky governor send the ACA packing?, November 10, 2015), but in practice has pursued alterations to the expansion program rather than termination. After the Trump Administration’s March 2017 announcement that it would consider approving demonstration projects that include work requirements, Kentucky submitted a waiver proposal under Section 1115 of the Social Security Act. The waiver application, known as Helping to Engage and Achieve Long Term Health (KY HEALTH) included two components: (1) Kentucky HEALTH, which applies only to adult beneficiaries who do not qualify for Medicaid on the basis of a disability; and (2) substance use disorder (SUD) treatment, which is available for all Medicaid beneficiaries in the state.

Kentucky HEALTH features a community-engagement requirement, under which beneficiaries will lose their coverage unless they spend at least 80 hours per month on qualifying activities (which include employment, job-skills training, education, and community service). It also limits retroactive eligibility and non-emergency medical transportation, added reporting requirements and monthly premiums, and allows the state to lockout beneficiaries from the Medicaid program for up to six months in some circumstances. The state estimated that it would save $331 million by implementing this portion of the waiver, because approximately 95,000 fewer individuals would receive Medicaid coverage.

In January 2018, CMS approved the waiver, and Bevin issued an executive order directing that if one or more of the components of the KY HEALTH waiver were not implemented pursuant to a final judgment, the state would take action to terminate the expansion program. A group of beneficiaries—all of whom may lose coverage under the community-engagement requirement or face increased premiums under Kentucky HEALTH—filed a class-action lawsuit in federal district court challenging the waiver approval (see Class action says ‘radical’ Kentucky Medicaid work requirement is unlawful, Jan. 25, 2018). Kentucky intervened, and the D.C. court, finding the case was of "national, rather than local, significance," denied a motion to transfer the case to the Eastern District of Kentucky (see Court rebuffs effort to move Kentucky work requirements lawsuit, Apr. 11, 2018).

Adequate consideration. The D.C. court determined that Kentucky HEALTH, although "packaged inside the same application" as the SUD program, is wholly distinct. The two programs affect different groups of beneficiaries, have different start dates, and have different purposes. In addition, the Secretary "effectively treated" SUD and Kentucky HEALTH as separate demonstration projects by independently evaluating them for approval. The court then turned to arbitrary and capricious review, under which it cannot substitute its judgment for that of the agency, but can ensure that the agency engaged in reasoned decisionmaking. To that end, the court considered the objectives of Medicaid and the Secretary’s approval in this case.

Under the Medicaid statute, one of the program’s objectives is furnishing medical assistance to individuals whose income and resources are insufficient to meet the costs of necessary medical services (Soc. Sec. Act §1901). The court also noted that in National Federation of Independent Business v. Sebelius, the Supreme Court found that the ACA’s expansion "transformed" Medicaid "into a program to meet the health care needs of the entire nonelderly population with income below 133 percent of the poverty level." When the Secretary evaluated Kentucky HEALTH, however, the court determined that this objective—providing medical assistance to the expansion population—was ignored. Rather, he considered whether Kentucky HEALTH’s other objectives related to health outcomes, upward mobility, quality of life, and other factors. By entirely failing to address whether the program would help provide health coverage to Medicaid beneficiaries, and not analyzing whether the project would cause recipients to lose coverage or help promote coverage, the Secretary did not adequately analyze coverage. The court therefore held the approval of Kentucky HEALTH invalid in toto, and vacated the approval of Kentucky HEALTH—and not Kentucky’s SUD program—to preserve the status quo.

Other matters. The court also ruled on threshold issues in the case, finding that the plaintiffs had standing because (1) eligible recipients have a concrete interest in Medicaid benefits; and (2) increased premiums are economic harm. The matter is redressible, despite Kentucky’s argument that the executive order would "unexpand" Medicaid, because the plaintiffs would retain full Medicaid benefits without higher premiums in the interim before the state terminated the program. The court also found justiciability under the Administrative Procedure Act (APA) (P.L. 79-404) because Soc. Sec. Act §1115 waiver authority requires certain steps to comply with the Medicaid Act, which can be reviewed.

The case is Civil Action No. 18-152 (JEB).

Attorneys: Catherine A. McKee (National Health Law Program) for Ronnie Maurice Stewart. Deepthy Kishore, U.S. Department of Justice, for Alex M. Azar, II, Secretary, U.S. Department of Health and Human Services.

Companies: U.S. Department of Health and Human Services; Commonwealth of Kentucky

Cases: CaseDecisions NewsFeed AgencyNews CostSharingNews DemonstrationProjectNews MedicaidNews MedicaidExpansionNews PremiumNews DistrictofColumbiaNews

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