https://www.healthaffairs.org/do/10.1377/hblog20180213.18720/full/

Court decisions are likely to have an enormous impact on the future of the Medicaid program. On January 12, the Centers for Medicare and Medicaid Services (CMS) announced approval of a Medicaid demonstration waiver in Kentucky incorporating unprecedented restrictions on Medicaid eligibility for adults. These restrictions have been summarized by Sara Rosenbaum on Health Affairs Blog in the context of a powerful review of Medicaid demonstration law and policy. Kentucky’s new waiver includes not only a highly publicized “work/community engagement” requirement, but additional elements new to Medicaid including lockouts for beneficiaries who do not complete the annual renewal process or who fail to report changes in income.

Twelve days after the CMS approval announcement, the Kentucky Equal Justice Center, the Southern Poverty Law Center, and the National Health Law Program filed suit to stop the waiver in U.S. District Court for the District of Columbia, representing 15 Medicaid beneficiaries in Kentucky. Similar lawsuits are virtually certain as Medicaid waivers imposing new coverage and benefits restrictions on adults are approved in Indiana and likely other states.

Why The Current Round Of 1115 Waivers Are Different

As noted by Sara Rosenbaum, Nicholas Bagley, and others, there is a limited history of federal lawsuits challenging Medicaid section 1115 demonstrations. But it is important to note the reason there have been few of these legal challenges: until 2018, over its 50-plus year history, Medicaid waiver authority was almost exclusively used to expand Medicaid eligibility and benefits rather than to restrict them, or to try a different approach to delivering existing benefits. When I oversaw Medicaid 1115 waiver review from 2013 to early 2017, the Obama administration agreed to try a variety of conservative ideas under Medicaid waiver authority for the Affordable Care Act (ACA) adult expansion population. But each of these ideas was tied into a good faith hypothesis about potential improved access or benefits within the Medicaid program. Premiums were to be tested as an alternative to cost-sharing in some states or in combined premium/cost-sharing approaches that sought to encourage and incentivize healthy behaviors; private marketplace plan networks were to be tested and evaluated as an alternative to traditional Medicaid providers; the impact of the Non-Emergency Medical Transportation benefit on unmet need would be measured closely to see if eliminating the benefit helped or hurt self-reported access to care.

The approvals in Kentucky and Indiana, and possible pending approvals in other states, base their legal claim to be promoting the objectives of the Medicaid program on a far more brazen and cynical premise. The waiver approvals assert that taking away Medicaid from statutorily eligible individuals can act as an incentive that ultimately improves health: either by forcing the beneficiary to get a job to stay insured in the case of work requirements, or by “educating beneficiaries on enrollment requirements” in the case of lockouts from eligibility for beneficiaries who fail to complete an annual renewal or inform the state of income changes.

Because the hypothesized Medicaid objectives are so dubious, a lot more than these specific waiver requests rests on the plaintiffs’ case in these states. At risk are not only specific Medicaid eligibility principles, but the entire statutory enterprise of congressional legislation of mandatory Medicaid eligibility or benefits of any kind. Consider what it would mean for Medicaid law were the justifications upheld: if waivers can overturn congressional Medicaid eligibility guarantees and claim to promote Medicaid objectives because Medicaid itself is a barrier to health, or because cutting off eligibility is a way to teach people about private insurance or enforce compliance with new extra-statutory eligibility requirements, then there is no meaningful legal limit on state waivers of federal Medicaid eligibility law. Congress’s ability—in place since 1965 and upheld in hundreds of federal court decisions—to mandate that state Medicaid agencies cover specific categories of individuals for specific periods of time and with specific benefits will be subject to an extra-statutory waiver process in toto.

Will courts allow it anyway? After all, section 1115(a) defining the scope of the demonstration authority specifically references “the judgment of the Secretary”, suggesting executive branch latitude.

Will Courts Overturn Work Requirements?

But there are a number of important legal and contextual factors that point to court action to overturn these waiver approvals. First, the work requirement component of these waivers is a particularly blatant attempt to achieve under waiver authority what could not be achieved via statutory change. Both the House and primary Senate version of “repeal and replace” 2017 included state options to impose work requirements in Medicaid. These efforts—in a rather high-profile manner—failed to pass Congress. Courts will be considering the tactic of the executive branch trying to change the Medicaid program via demonstration waivers when it failed to change the law.

Second, the primary federal court precedent for judicial review of Medicaid section 1115 demonstrations sets a high bar for legal scrutiny. Although (as summarized by Nicholas Bagley) the courts historically authorized some restrictive state section 1115 waivers with regard to Aid to Families with Dependent Children (AFDC) cash welfare in the name of supporting transitions to independence, these decisions were tied to a statutory framework for the AFDC program that itself supported transitions to work as an explicit goal beginning in the 1960s. This is not true when it comes to Medicaid: Medicaid’s statutory framework is as an ongoing health insurance program, and it now covers 70 million people, many times the enrollment level in AFDC/Temporary Assistance for Needy Families (TANF) over its history. And the limited court challenges to Medicaid section 1115 waivers have had a high success rate, with courts insisting that not only meet the “promote Medicaid objectives” standard but that they meet an additional level of scrutiny regarding research or experimental value relative to the health policy literature. Strikingly, the court in Newton-Nations v. Betlach—the primary precedent for Medicaid waiver judicial review—approvingly cited expert testimony on the health policy literature as evidence for why further research on cost-sharing was not needed. If judges are citing literature reviews to question whether waiver hypotheses involve groundbreaking experiments, that does not indicate a high degree of judicial deference.

Third, we have had strong indications in the last year that federal courts are not working with an assumption of good faith in stated agency rationales, particularly when significant published information from Trump administration leaders contradicts those ostensible public rationales. Judicial skepticism has extended from presidential tweets cited as evidence of discriminatory intent in immigration cases, to asserting “invidious partisan intent” in drawing of voting districts. And the Trump administration has made abundantly clear that its reasons for supporting restrictions on adult Medicaid enrollment have nothing to do with health: CMS Administrator Seema Verma has repeatedly stated her broad opposition to Medicaid coverage of low-income non-disabled adults as such, and the Trump administration worked vigorously to undo the Medicaid expansion during the ACA repeal effort in Congress.

Fourth, the fact that states are pairing work requirement waivers with other extra-statutory restrictions on Medicaid eligibility undermines whatever health claims they are making regarding the work requirement. With the exception of Mississippi—a state with Medicaid income eligibility levels for adults that are so low virtually no employed adults qualify—every state that has proposed a work requirement has also proposed to waive Medicaid law in other ways to take away coverage. Kentucky’s and Indiana’s new “lockout” provisions that will bar people from Medicaid for six months if they fail to report a change in income or if they fail to submit an annual redetermination of eligibility will likely lead to dramatic reductions in Medicaid coverage, given the high rates of enrollment churn associated with Medicaid’s unique annual redetermination requirements. States that are trying to cut Medicaid coverage for adults in multiple ways and a federal Administration that opposes Medicaid coverage of non-disabled adults would appear to be attacking Medicaid coverage of adults any way they can. They will not make for persuasive exponents of the health benefits of work requirements.

The pending litigation will be the first time the courts have thoroughly defined the scope of executive branch section 1115 waiver authority in Medicaid. As a matter of law and policy, one way or another this important part of the Medicaid program and the American health system will likely be changed by the time the federal courts have completed their adjudication. Many thousands of lives will be at stake. But with multiple judicial imperatives at stake as well, there is good reason to expect that the courts will step in.