Kentucky's Medicaid work requirement faces reckoning in court

In a case with major national implications, the Trump administration and advocacy groups are set to argue in federal court Friday over whether the HHS secretary has the legal authority to allow Kentucky to establish a work requirement and other tough new conditions on people receiving Medicaid coverage.

U.S. District Judge James Boasberg, an Obama administration nominee, will hear oral arguments in the case, which was filed in January by the National Health Law Program, the Kentucky Equal Justice Center and the Southern Poverty Law Center. The groups, representing 16 beneficiaries, are suing to block Kentucky's unprecedented Medicaid waiver requiring beneficiaries to work or participate in "community engagement" activities such as job training, school or volunteering. The federal government never previously permitted states to impose work requirements as a condition of Medicaid eligibility. The central issue in the suit is the scope of the HHS secretary's authority to establish Section 1115 demonstrations, which have grown increasingly ambitious in reshaping state Medicaid programs. The beneficiary advocates claim HHS cannot transform Medicaid from its mission of providing medical assistance to the goal of moving people into employment and commercial health insurance without congressional action. They seek to vacate CMS approval of the five-year Kentucky Health waiver and the CMS guidance letter allowing states to apply for work requirement waivers. The Department of Justice has asked Judge Boasberg to toss the suit and argues Congress gave the HHS secretary broad discretion to approve demonstration waivers. It also says the HHS secretary offered ample evidence that work and other community engagement requirements would improve health outcomes. Kentucky projects that 95,000 fewer people will have Medicaid coverage in five years due to the new requirements, while outside experts predict bigger coverage losses. The outcome of the case, to be argued in Washington, could affect the fate of similar Medicaid work requirements approved by the CMS in Arkansas, Indiana, and New Hampshire shortly after the agency issued a guidance letter in January permitting such requirements. Arizona, Maine, Mississippi, Michigan, Utah and Wisconsin are seeking similar waivers. The judge has hinted he may issue a ruling before the work requirement takes effect in July, and legal experts say the case could have major ramifications for Medicaid. "It would be highly inappropriate and troubling for a judge to step in and limit the ability of the government to conduct experiments and allow states to try new things and see if they work," said James Blumstein, a health law professor at Vanderbilt University. "Courts tend to be reluctant to second-guess discretionary agency judgments," said Nicholas Bagley, a University of Michigan law professor. "But everyone knows Medicaid work requirements are a technique to winnow out people the administration thinks aren't sufficiently deserving. That's something HHS can't consider in deciding whether to grant a waiver." Kentucky's Republican governor, Matt Bevin, who pushed for the waiver, countersued the plaintiffs in U.S. District Court in Frankfurt, Ky., hoping to have the case handled by a more sympathetic, Kentucky-based judge. The Kentucky Hospital Association and the Kentucky Association of Health Plans have filed motions to intervene in support of Bevin's effort to protect the waiver. "Why should a working-age person not be expected to do something in exchange for what they are provided?" Bevin said in January. If the waiver is thrown out, he has threatened to end the state's Medicaid expansion, which was established by his Democratic predecessor and covers nearly 400,000 low-income adults. The hospital association has said it supports the waiver to protect the Medicaid expansion, which has helped cut the state's uninsured rate nearly in half and sharply reduced uncompensated care. "The governor has made a pretty compelling case that the waiver is needed to preserve the stability of the Medicaid program," said Wes Butler, the outside counsel for the hospital association. Even if Judge Boasberg blocks the Kentucky waiver, it's likely the waivers in the other states would have to be separately challenged in court, said Sara Rosenbaum, a professor of health law and policy at George Washington University, who opposes the Kentucky waiver. But if he throws out the CMS guidance letter on the grounds that the agency did not go through the proper rule-making process, it's possible that all the state waivers based on that guidance could be set aside, she added. The Kentucky waiver requires that starting in July, non-disabled beneficiaries have to complete 80 hours per month of employment or other community engagement activities to maintain their Medicaid eligibility. That applies to both the traditional Medicaid population and the expansion population. All beneficiaries will have to regularly document their compliance or prove that they qualify for an exemption. The waiver also establishes premium payments, cost-sharing, a lockout for failure to pay, an end to retrospective eligibility, and elimination of non-emergency medical transportation. The plaintiffs in the lawsuit are challenging the legality of all those provisions. There currently are more than 1 million Kentuckians on Medicaid, of which nearly 400,000 are low-income adults who qualify through the state's coverage expansion under the Affordable Care Act. The CMS and the Bevin administration argue that requiring people to work or participate in other community engagement activities will improve their health and help shift them into commercial health insurance. The Justice Department also contends in its brief filed last month that the waiver will save the state money and enable Kentucky to focus its finite fiscal resources on traditional beneficiary groups such as disabled people rather than on non-disabled expansion enrollees. A report by PwC in April said Medicaid work requirements could dramatically increase churning of people in and out of Medicaid programs, and cause disruption for providers and patients as people lose coverage and face interruptions in care. "We believe taking away access to coverage, especially for people with chronic conditions, will set patients back and they'll get sicker," said Jen Johns, director of government relations for the Cleveland Clinic, which has opposed Ohio's waiver request for a Medicaid work requirement. "We want people to be productive members of society, but they have to be healthy to do that." The Justice Department's initial brief in April argued that the HHS secretary's discretion in granting Medicaid Section 1115 waivers is not reviewable by the courts if the secretary makes the judgment that a demonstration project supports the Medicaid statute's objectives. While the Justice Department dismissed the lawsuit as a "policy disagreement, the plaintiffs maintained that "encouraging individuals to work may be a worthy policy goal, but it is manifestly not the goal of Medicaid." The two sides also disagreed sharply over the legality of Kentucky's new waiver requirement for Medicaid beneficiaries to pay premiums and cost-sharing. Under Kentucky's demonstration, premiums will range from $1 a month for people with little or no income and up to $37.50 a month for people at 138% of the federal poverty level. Those above the poverty line who fail to pay will be locked out of coverage for six months and must pay past-due premiums to regain coverage. Those below the poverty line who don't pay will have their reward accounts for receiving vision and dental benefits docked. Under amendments Congress passed in 1982, premiums and cost-sharing required in Medicaid waiver models must be previously untested, be limited to two years, provide benefits that are equal to the risks for enrollees, feature a sound experimental design and be voluntary. The government argues that the HHS secretary can waive compliance with those limitations. Bagley, who supports Medicaid expansion under the Affordable Care Act, said the case is likely to turn on whether the judge thinks the work requirement is consistent with Medicaid's statutory objective. "The plaintiffs' best argument is that depriving people of insurance coverage can't advance the purposes of a program meant to give people insurance," he said.