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Michael “Popjaw” Woods and his wife Sara live in Floyd County, Kentucky. Mr. Woods owns and runs a car repair shop. Mrs. Woods works cleaning homes, a local pawn shop and her husband's repair shop. Both their incomes vary dramatically from week-to-week. For Mr. Woods, his income depends on how many people need oil changes and basic car repairs any given week. For Mrs. Woods, who makes $10 an hour cleaning, it depends on which of her clients need her services each week.1
Mr. and Mrs. Woods have Medicaid coverage because the Affordable Care Act (ACA) expanded Medicaid to include all poor working age adults. As Justice Roberts wrote in Nat'l Fed'n of Indep. Bus. v. Sebelius, the ACA “transformed” Medicaid from a “program designed to cover medical services for four particular categories of the needy: the disabled, the blind, the elderly, and needy families with dependent children” “into a program to meet the health care needs of the entire non-elderly population with incomes below 133% of the poverty level.”2 Justice Roberts concluded,“[Medicaid] is no longer a program to care for the neediest among us, but rather an element of a comprehensive national plan to provide universal health insurance coverage.”3
The Trump Administration is seeking to undermine Medicaid's new goal of coverage for all. In March 2017, soon after being appointed, Seema Verma, Administrator for the Centers for Medicare and Medicaid Services (CMS), and Tom Price, then-Secretary of the Department of Health and Human Services (HHS) notified state governors that HHS now considered the ACA's Medicaid expansion “to non-disabled, working age adults without dependent children [] a clear departure from the core, historical mission of the program.”Reference Price and Verma4 The agency wanted to work with states to redirect Medicaid funding to serve the “truly vulnerable” rather than ACA working age adults.5
Work requirements are a centerpiece of HHS's strategy to undo the ACA expansion. According to Administrator Verma's letter to governors, “The best way to improve the long-term health of low-income Americans is to empower them with skills and employment.” The letter signaled CMS's intent to use its Section 1115 demonstration authority to approve state demonstration projects that include “training, employment and independence.”6 On January 11, 2018, HHS issued a State Medicaid Director Letter reversing long-standing HHS policy and announcing a new willingness to approve Section 1115 demonstration projects that impose work and other community engagement requirements as a condition of Medicaid eligibility.Reference Neale7
On January 12, 2018, HHS approved the first Section 1115 demonstration project that includes a Medicaid work requirement, for the state of Kentucky.Reference Musumeci, Rodowitz and Hinton8 The Kentucky demonstration project requires ACA expansion adults and low-income parents to spend at least eighty hours a month on specified work and community engagement activities including employment, job-skills training, education, community service, and substance use disorder treatment.9 People must file regular reports and submit verification to show they have met the hourly requirements or qualify for specified exemptions from work because of illness, disability, caregiving, or school. The demonstration also imposes premiums, reduces benefits, and locks people out of Medicaid coverage for up to six months for failure to report a change in income, failure to pay monthly premiums or timely renew eligibility.10
A work requirement and the reporting requirements that go with it will result in people, especially working people like Mr. and Mrs. Woods, losing Medicaid coverage. Most Medicaid enrollees already work, primarily in low wage physically demanding jobs with erratic hours and without employer-sponsored health insurance.Reference Garfield, Rudowitz, Musumeci and Damico11 Keeping track of ever changing work and volunteer hours and the documents needed to verify them is burdensome and difficult, especially for people with disabilities, for those for whom English is a second language, or for those with limited education.Reference Musumeci and Zur12
According to the state's own estimates, over 95,000 non-elderly adults will lose Medicaid if the demonstration project is implemented.13 A Kaiser Family Foundation study estimates a work requirement will result in 40,577 to 111,914 Kentuckians losing Medicaid coverage, and that 30,760 to 92,280 will be people who are complying with the work requirement but who are denied coverage because of red tape created by reporting requirements.Reference Garfield, Rudowitz, Musumeci and Damico14 An estimate by public health researchers predicts enrollment losses as high as 175,000 to 297,500 in the first year alone if appropriate administrative structures, computer systems, and beneficiary education are not in place.15
On January 24, 2018, fifteen Kentucky Medicaid enrollees, including Mr. and Mrs. Woods, filed Stewart v. Azar, a federal court class action lawsuit, claiming HHS acted illegally in issuing the work requirement policy and approving the Kentucky demonstration.16 On June 29, 2018, two days before the work requirement was to take effect, Judge James E. Boasberg ruled for plaintiffs, vacated HHS's approval of Kentucky's demonstration, and remanded Kentucky's demonstration application to HHS for further consideration.17
The decision on the merits is a narrow one. The judge held that the Secretary, in approving Kentucky's work demonstration, failed to address the most important issue: Does a work requirement help the state provide health coverage for Medicaid beneficiaries, both traditional beneficiaries and those newly eligible through the ACA expansion?18 The court acknowledged that the Administrative Procedure Act affords federal officials considerable discretion when approving Section 1115 demonstrations, but HHS may not ignore the core objective of Medicaid, which is to provide health insurance for those who qualify for it, both traditional beneficiaries and those newly eligible through the ACA expansion. HHS must address two basic elements: One, does the demonstration project cause beneficiaries to lose coverage? Two, does the project help promote coverage?19 The court concluded that the Secretary “neglected both.” HHS must provide a “bottom-line” estimate of how many people will loss coverage and the impact that loss of coverage will have on people.20
Judge Boasberg's opinion brings new clarity to the law of Section 1115 demonstrations. First, the opinion articulates a two-step legal analysis for courts to use when reviewing HHS approval of Section 1115 demonstrations under the Administrative Procedure Act. Second, Judge Boasberg's opinion firmly establishes that the central objective of Medicaid is to provide health coverage and that HHS may not ignore that goal when approving Section 1115 demonstrations.
Section 1115: The Two-Step Analysis
Stewart v. Azar is knotty from a legal standpoint because Kentucky's Section 1115 demonstration has lots of moving parts, including work requirements, new reporting rules, premiums, new cost sharing for emergency room use, and lockouts from Medicaid coverage for people who fail to report changes in income, pay a monthly premium, or timely renew eligibility. Each part involves requests for waivers of different requirements of the Medicaid Act. In approving Kentucky's demonstration project, HHS granted thirteen waivers of provisions in 42 U.S.C. 1396a and two waivers of other sections of the Medicaid Act.21 Plaintiffs nine-count complaint challenged the demonstration project as a whole and all its component parts.22
Large-scale demonstrations, like Kentucky's, present a Rubik's Cube dilemma: Where to begin the legal analysis? Judge Boasberg's opinion provides a road map for how courts should proceed in reviewing HHS action approving a Section 1115 demonstration that should be helpful to the agency and reviewing courts.
Judge Boasberg begins with the text of Section 1115. He quotes, as follows:
In the case of any experimental, pilot, or demonstration project which, in the judgement of the Secretary, is likely to assist in promoting the objectives of the [Medicaid Act,]
the Secretary may waive compliance with any of the requirements of section…1396a of this title, as the case may be, to the extent and for the period of time he finds necessary to enable such State or States to carry out such project, and
(A) cost of such project…shall, to the extent and for the period prescribed by the Secretary be regarded as expenditures under the State plan or plans.23
Judge Boasberg parses this text to adopt a two-step approach for judicial review of agency action approving a Section 1115 waiver: First, the court reviews the demonstration “project” as a whole per Section 1115(a): Did the Secretary of HHS abuse his discretion in determining that the Kentucky “project” was an “experiment[], pilot or demonstration” that “is likely to assist in promoting the objectives of the Medicaid Act?”24 At this stage, the court does not judge each component of the demonstration — be it the work requirement, premiums, or enhanced cost sharing for emergency room use. Instead, the court focuses on the entire “project,” its experimental value, and whether it furthers the objectives of the Medicaid Act.
Seema Verma and other Trump Administration officials at HHS have taken the position that the ultimate purpose of Medicaid is to promote health and wellbeing. HHS is endorsing work requirements on the theory that working people tend to be healthier; thus, requiring Medicaid eligible people to work will, in the long run, mean they are healthier.
Second, per Section 1115(a)(1) and (2), the court reviews the Secretary's grant of specific waivers of requirements in Section 1396a and approved expenditures.25 According to Judge Boasberg in this second stage, at a minimum, the court has authority to review two issues of law: One, did the Secretary make a finding that any particular waiver was “necessary” to carry out the demonstration project? Two, did the Secretary illegally “waive requirements beyond the 83 outlined in Section 1396a”?26
Judge Boasberg concluded that in approving Kentucky's demonstration project, HHS erred at step one. However, Judge Boasberg also holds that a court can review HHS of waivers of specific requirements of the Medicaid Act to determine whether they fall within the Secretary's grant of authority under Section 1115(a)(1) to waive requirements in Section 1396a of the Medicaid statute.27 One of the plaintiffs' key arguments in their briefs was that Section 1115(a)(1) only gives HHS authority to waive provisions in Section 1396a, and that limited “waiver” authority does not include license to impose additional conditions of eligibility that Congress has not included in the statute, like work requirements.Reference Watson28 The opinion confirms that the court can and is willing to address this issue should the need arise to address step two of the Section 1115 analysis.
Objectives of Medicaid
Seema Verma and other Trump Administration officials at HHS have taken the position that the ultimate purpose of Medicaid is to promote health and wellbeing.29 HHS is endorsing work requirements on the theory that working people tend to be healthier; thus, requiring Medicaid eligible people to work will, in the long run, mean they are healthier. According to HHS it doesn't matter if 95,000 people lose Medicaid because of a work requirement because in the long run their health will benefit from working.30 Instead of wading into the controversy over whether data supports HHS's assertion that work makes people healthier (rather than healthy people are more likely to be able to work), Judge Boasberg focused his analysis on the core objective of Medicaid which, he concludes, is to provide health coverage.31
To determine the objectives of Medicaid, Judge Boasberg begins again with text of the statute. Section 42 U.S.C. 1396-1 provides that Congress appropriates Medicaid funds
[f]or the purpose of enabling each State, as far as practicable under the conditions in such State to furnish (1) medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence or self-care.
The judge noted that the Medicaid statute defines “medical assistance” as “payment for all or part of the cost” of medical “care and services'” for a defined set of individuals.32 Citing other cases and adopting their language, Judge Boasberg held that the primary purpose of Medicaid is to provide health coverage to those who cannot afford it.33 While healthier people may be “one consequence” of providing Medicaid coverage, Medicaid's “central concern” is covering the costs of medical care.34
HHS is now reconsidering Kentucky's Section 1115 demonstration application in light of Judge Boasberg's decision and has opened a new public comment period. Judge Boasberg has admonished HHS that it may not ignore public comments about how work requirements will result in a loss of coverage and the negative impact that loss will have on people like Mr. and Mrs. Woods. HHS needs to address two basic elements: One, does Kentucky's demonstration project cause beneficiaries to lose coverage? Two, does the project help promote coverage? HHS must provide a “bottom-line” estimate of how many people will lose coverage and the impact that loss of coverage will have on people.
Judge Boasberg invoked Justice Roberts' “broccoli horrible” example from Nat'l Fed'n of Indep. Bus. v. Sebelius to illustrate the “bizarre results” that HHS's promotion of “health” rather “health coverage” spawns: Since eating broccoli promotes health, the Secretary could approve a Section 1115 waiver that conditions Medicaid coverage on consuming more broccoli and penalize those who do not comply with loss of coverage. According to Judge Boasberg, good nutrition is probably a more straightforward way to improve health than a work requirement, but also too “far afield of the basic purposes of Medicaid: reimburs[ing] certain costs of medical treatment for needy persons.”35
Judge Boasberg also held that the Secretary cannot ignore that the purpose of Medicaid is to provide health coverage to ACA expansion working age adults as well as to traditional categories of the “vulnerable” needy.36 Both HHS and the state of Kentucky argued in their briefs that because Section 1396-1 speaks specifically to furnishing “medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals” that the Secretary of HHS can “limit his focus” or “at least give preference to” the traditional, pre-ACA eligibility groups listed in 1396-1.37 Kentucky went so far as to argue, based upon the statutory language, that “Congress has no interest at all in furnishing medical assistance ‘to the expansion population.”38
Judge Boasberg firmly rejected these arguments pointing out that the ACA amended Section 1396a(a) (1) to add all non-elderly individuals with incomes below 133% of federal poverty line as a mandatory category of eligibility on “equal footing with other ‘vulnerable’ populations.”39 He quoted Justice Roberts' statement that the ACA “transformed” Medicaid “into a program to meet the health care needs of the entire nonelderly population with incomes below 133 percent of the poverty line.”40
Conclusion
Judge Boasberg's opinion never gets to the ultimate legal issue in Stewart v. Azur: whether, as a matter of law, demonstrations imposing work requirements on Medicaid beneficiaries can ever be lawfully conducted under Section 1115. However, the opinion roundly refutes — and declares illegal — HHS's overeaching policy aimed at blocking Medicaid coverage for working age ACA expansion adults like Mr. and Mrs. Woods. HHS may not disfavor and seek to disqualify hard-working ACA Medicaid expansion adults like Mr. and Mrs. Woods.
HHS is now reconsidering Kentucky's Section 1115 demonstration application in light of Judge Boasberg's decision and has opened a new public comment period. Judge Boasberg has admonished HHS that it may not ignore public comments about how work requirements will result in a loss of coverage and the negative impact that loss will have on people like Mr. and Mrs. Woods. HHS needs to address two basic elements: One, does Kentucky's demonstration project cause beneficiaries to lose coverage? Two, does the project help promote coverage?41 HHS must provide a “bottom-line” estimate of how many people will lose coverage and the impact that loss of coverage will have on people.42
The first round of Steward v. Azar is decided, but stay tuned: The case is not over.
