On June 29 Judge James Boasberg of the United States District Court for the District of Columbia vacated the approval by the Secretary of Health and Human Services of Kentucky HEALTH. Kentucky HEALTH was to be implemented on July 1. Kentucky HEALTH is the state of Kentucky’s section 1115 demonstration project that would have required Medicaid beneficiaries to engage in work or community engagement activities to remain eligible for Medicaid coverage. Judge Boasberg held that the purpose of the Medicaid program is to furnish medical assistance. Therefore, the Secretary of Health and Human Services’ (the Secretary) failure to adequately consider whether Kentucky HEALTH would help the state furnish medical assistance to its citizens renders his determination arbitrary and capricious.
Created in 1965, Medicaid is the largest government healthcare program, covering close to 72 million Americans. The majority of Medicaid beneficiaries are eligible because they are children, blind or disabled. The Affordable Care Act also expanded Medicaid to low-income adults without children. Thirty-three states and the District of Columbia have expanded Medicaid to individuals with household income up to 138% of the federal poverty level. Section 1115 of the Social Security Act permits the Secretary of HHS to waive certain statutory requirements for an experimental, pilot, or demonstration project that is likely to assist in promoting the objectives of the Medicaid program. Historically, section 1115 demonstration projects have been used to expand Medicaid coverage.
On January 11, 2018 the Centers for Medicare & Medicaid Services (CMS) released a letter to State Medicaid Directors announcing a commitment to support section 1115 demonstration projects that include work or community engagement requirements (HL Pulse summary here). On January 12, CMS approved Kentucky’s 1115 demonstration implementing work and community engagement requirements, known as Kentucky HEALTH. Additional information about the Kentucky HEALTH waiver can be found here.
Fifteen Kentucky residents sued HHS, alleging that the approval of Kentucky HEALTH violated the Constitution and the Administrative Procedure Act.
The Plaintiffs’ Complaint contained nine counts, but Judge Boasberg determined he only needed to adjudicate Count VIII, which challenged the Secretary’s approval of the demonstration as a whole. The Court examined Kentucky Health as a standalone demonstration project, separating it from the Substance Use Disorder demonstration that was part of the same application submitted by Kentucky, but separately approved by the Secretary. The critical fact for Judge Boasberg was that the Secretary “entirely failed to consider” Kentucky’s estimate that 95,000 people would lose Medicaid coverage under the demonstration. This alone renders the Secretary’s decision arbitrary and capricious.
Judge Boasberg begins his opinion by referencing the Trump administration’s intent to roll back the expansion of Medicaid. He points to the March 14, 2017 letter to Governors, which stated that the Affordable Care Act’s (ACA) Medicaid expansion “was a clear departure from the core, historical mission of the program.” A popular refrain of the Trump administration has been that the Medicaid expansion deprioritized the traditional Medicaid populations (elderly, blind, disabled, and needy families with dependent children). Judge Boasberg rejects this prioritization of coverage for the traditional Medicaid populations. He states that the ACA amended the program to “meet the health care needs of the entire nonelderly population with income below 133 percent of the poverty level” as part of “a comprehensive national plan to provide health insurance coverage.” The Secretary must evaluate the effect of Kentucky Health on all Medicaid recipients, and not prioritize certain groups.
The opinion contains an insightful examination of the objectives of the Medicaid program. Section 1115 of the Social Security Act permits the Secretary to approve “experimental, pilot, or demonstration projects” that in the Secretary’s judgment are “likely to assist in promoting the objectives” of the Medicaid program. CMS has not previously approved an 1115 demonstration with work requirements and instead “the agency has consistently denied these requests, finding that work requirements ‘could undermine access to care’ and were thus inconsistent with the purposes of Medicaid.” While Judge Boasberg acknowledges the objectives of section 1115 may be ambiguous, he notes that Courts have traditionally looked to 42 U.S.C. § 1396-1, which contains the appropriation authority for Medicaid. The statute allows states “as far as practicable” to “’furnish (1) medical assistance’ and (2) ‘rehabilitation and other services’ designed to ‘help individuals retain a capacity for independence.’” “Medical assistance” is defined at 42 U.S.C. § 1396d(a) as “payment of part or all of the cost of medical care and services”.
Plugging that into the statute, Congress evinced a clear interest in “enabling each State, as far as practicable,” to provide “payment of part or all of the cost of medical care and services.” Judge Boasberg found that the Secretary ignored this objective by failing to consider whether Kentucky HEALTH would help provide health coverage for Medicaid beneficiaries. He stated that the oversight of not providing a bottom-line estimate of how many people would lose Medicaid coverage is glaring, noting that this risk was “factually substantiated in the record.” Kentucky provided an estimate of 95,000 people losing cover over five years; Amici provided estimates between 175,000 – 297,500 people losing coverage; and the “vast majority” of commenters suggested reductions in healthcare access and utilization. The Secretary’s response that the demonstration project contains protections for vulnerable individuals “is no answer at all” because the Secretary’s review must consider coverage to all groups enrolled in the project. These protections were part of the project’s design and not a response to concerns raised regarding coverage losses.
The Court also rejected the Secretary’s argument that the 95,000 individuals may not lose coverage because they may transition to employer-sponsored or commercial coverage. Judge Boasberg states that the Secretary failed to provide any research or evidence to support such a premise. He is also critical of the Secretary’s argument that the community engagement requirement will assist an individual in shifting to private insurance. Judge Boasberg acknowledges that community engagement such as volunteering may have long-term benefits, but states that the Secretary “never discussed how they will promote a transition from Medicaid to commercial coverage.”
Judge Boasberg also finds the record lacking in support for the position that Kentucky HEALTH promotes coverage. Kentucky HEALTH would eliminate retroactive coverage, which typically provides coverage for up to three months prior to the individual’s application for Medicaid coverage. Retroactivity protects not only the beneficiary from the cost of medical care they have received, but providers from possible bad debt. Judge Boasberg dismisses the Secretary’s suggestion that the waiver of retroactivity would encourage beneficiaries to obtain and maintain coverage even when healthy, stating that “restricting retroactive eligibility will, by definition, reduce coverage for those not currently on the Medicaid rolls.”
Instead of examining the impact of Kentucky HEALTH on health coverage, the Secretary examined its impact on three other considerations: (1) health and well-being; (2) cost considerations; and (3) self-sufficiency. The Court held that these factors may not be used to justify ignoring whether Kentucky HEALTH would furnish medical assistance. The Secretary argued that the objective of Medicaid is to promote the health of beneficiaries. The Court rejected this argument:
The Secretary’s analysis, instead, fails for a more basic reason: it is little more than a slight of hand. At each step, the Secretary impermissibly conflated “improv[ing] health and wellness” with the Medicaid Act’s more specific stated purpose of “furnish[ing]…medical assistance” and “rehabilitative and other services”. Put another way, this focus on health is no substitute for considering Medicaid’s central concern: covering health costs. While improving public health and health outcomes might be one consequence of “furnishing…medical assistance,” the Secretary cannot choose his own means to that end.
The text and structure of Medicaid demonstrates the intent to provide health coverage. Congress also had an interest in making healthcare affordable to needy populations. To further clarify this point, Judge Boasberg included the following anecdote:
To be more concrete, imagine two Kentuckians, Joe and Dan. Both are diagnosed with Hodgkin’s Lymphoma. Joe has health insurance and is able to receive treatment for a co-pay of $100. Dan has no health insurance. He, too, is able to receive treatment, but he must pay out of pocket for the treatment costing tens of thousands of dollars. To do this, he and his wife must sell the family ranch, which had been in Dan’s family for over four generations. After 18 months, both Joe and Dan are cancer free; in other words, they are equally healthy. But Dan, unlike Joe, is in financial ruin.
Judge Boasberg was not persuaded by the cost consideration arguments and stated that they do not “excuse [the Secretary’s] failure to consider coverage losses here.” The Court also questioned whether “self-sufficiency” is a proper objective to consider, but even accepting that argument it would not overcome the failure to consider Kentucky HEALTH’s effect on coverage.
The Court’s ruling is a narrow one. It is important to note that the Court did not find that demonstrations requiring community engagement are incompatible with the Medicaid program or that a project that reduces enrollment must be fatal. Instead, the Court found that “the Secretary must adequately consider the effect of any demonstration project on the State’s ability to help provide medical coverage.” The Court also did not address the other eight counts in the plaintiff’s Complaint and whether any or all of the claims would have led to a determination that the Kentucky HEALTH program is impermissible.
Judge Boasberg held that the failure to consider the coverage losses “infected his [The Secretary’s] entire approval” and vacated the rule, remanding it to HHS. HHS has sixty days to seek an appeal before the United States Court of Appeals for the D.C. Circuit. This ruling only addresses Kentucky Health. HHS has also approved demonstrations with work or community engagement requirements in Arkansas, Indiana, and New Hampshire.