Medicaid is the largest health coverage source in the United States, covering approximately 70 million individuals including children, pregnant women, people with disabilities, elderly adults, and in states that have expanded their Medicaid programs under the Affordable Care Act, low-income adults without children with household income up to 138%. One of the unique designs of the Medicaid program is the statutory flexibility for state Medicaid programs to implement demonstration projects and test new ways to provide benefits to enrollees.

Section 1115 of the Social Security Act (“Section 1115”) gives the Secretary of the Department of Health and Human Services (“HHS”) the authority to waive certain statutory requirements for demonstration projects that are likely to promote the objectives of the Medicaid program. While Section 1115 waivers have historically been used to expand Medicaid coverage, the prior administration approved 1115 waivers permitting states to employ new eligibility requirements that had previously been considered contrary to the Medicaid statute. In particular, the Centers for Medicare & Medicaid Services (“CMS”) announced its support for work and community engagement requirements on January 11, 2018 in a Letter to State Medicaid Directors. [HL Pulse Summary available here]

Between 2018 and the end of the Trump administration, 19 states sought approval to implement Section 1115 waivers that included work and community engagement as a condition of eligibility, and CMS approved demonstrations in the following states: Arizona, Arkansas, Georgia, Indiana, Kentucky, Michigan, Nebraska, New Hampshire, South Carolina, Utah, and Wisconsin.

The work and community engagement waivers have been controversial and faced immediate legal challenges.  On January 12, 2018 Kentucky became the first state to receive approval for work and community engagement requirements.  Kentucky reversed course and rescinded the waiver in late 2019 after Democrat Andy Beshear was elected Governor.  Below we focus on Arkansas and New Hampshire since their 1115 waivers were revoked.  However, there has been litigation related to the Kentucky, Arkansas, New Hampshire, Indiana, and Michigan approvals.  A recent analysis from the HHS Assistant Secretary for Planning and Evaluation found that work requirements led to coverage losses, hampered access to health care and medications, and that other requirements were confusing and often had negative consequences for enrollees. The analysis also stated that:

Obstacles to finding new employment have likely grown even larger during the pandemic-related economic downturn of the past year, particularly since job and income losses have been highest among low-income and minority workers, who are disproportionately enrolled in Medicaid.

Arkansas

On March 5, 2018, CMS approved Arkansas’s request for an amendment to is Section 1115 demonstration project, named “Arkansas Works” (Project Number 11-W-00287/6) (the “Arkansas Waiver”), which, among other things, required most able-bodied beneficiaries of Medicaid coverage ages 19 through 49 to complete 80 hours per month of employment, education, job skills training or community service (collectively, “Community Engagement Activities”), as a condition to continued Medicaid eligibility. Non-exempt individuals who fail to report sufficient qualifying hours for three (3) consecutive months would be dis-enrolled under the Arkansas Waiver.

New Hampshire

On November 30, 2018, CMS approved New Hampshire’s request to extend its Section 1115 demonstration project, named “New Hampshire Granite Advantage Health Care Program 1115 Demonstration” (Project Number l l-W-00298/1) (the “New Hampshire Waiver”), which, among other things, requires non-disabled adjusts ages 21 through 64 to complete 100 hours per month of Community Engagement Activities, as a condition of continued Medicaid eligibility. Certain categories of beneficiaries are exempt, including caregivers for dependent children, pregnant women, and the medically frail. On July 8, 2019, New Hampshire enacted legislation that allowed for the suspension of the New Hampshire Waiver’s implementation up to but not after July 1, 2021.

Lower Courts Vacate Secretary’s Approvals

Arkansas

On March 27, 2019, Judge James Boasberg of the United States District Court for the District of Columbia vacated the Secretary’s approval of work and community engagement requirements in Arkansas (and a similar waiver in Kentucky). The Gresham v. Azar opinion may be read here. [HL Pulse summary]. Judge Boasberg found that the Secretary failed to consider the impact of the waiver on coverage, rendering its approval arbitrary and capricious and thereby preventing Arkansas from continuing implementation. HHS appealed to the U.S. Court of Appeals for the D.C. Circuit.

On October 11, 2019, the a three judge panel consisting of Judges Pillard, Edwards, and Sentelle of the U.S. Court of Appeals for the D.C. Circuit ruled in favor of the plaintiffs, finding that the HHS violated the Administrative Procedure Act in approving the Arkansas Waiver without considering its effect on Medicare coverage. (The case was originally consolidated with Stewart v. Azar, which challenged approval of a similar 1115 waiver in Kentucky; Stewart v. Azar was dismissed as moot after the newly elected Governor terminated the project.).

New Hampshire

On July 29, 2019, Judge Boasberg found that HHS’s approval of New Hampshire’s efforts to impose work requirements as a condition of Medicaid eligibility was arbitrary and capricious, again citing the state’s failure to consider coverage losses. Like the prior decisions related to the Arkansas and Kentucky Section 1115 waivers containing work and community engagement requirements, Judge Boasberg again determined that the Secretary had failed to consider coverage losses, stating: “The agency has still not contended with the possibility that the project would cause a substantial number of person to lose their health-care coverage. That omission is particularly startling in light of information before the Secretary about the initial effects of Arkansas’ markedly similar project.” As a result, the Court invalidated the approval. The Philbrick v. Azar opinion may be read here. [HL Pulse summary]

Supreme Court Postpones Oral Argument

In December 2020, the Supreme Court of the United States granted certiorari to consider whether Section 1115 authorizes HHS to approve demonstrations that compel work or community engagement as a condition of Medicaid eligibility related to the Arkansas Waiver and New Hampshire Waiver. On January 4, 2021, during her last week as CMS administrator, Seema Verma sent letters to states inviting them to sign a contract with CMS to keep Section 1115 waivers in effect for at least nine months after a CMS determination to suspend, terminate, or withdraw the waivers. The letters also set forth a hearing and briefing schedule to contest a CMS decision to rescind a waiver. On January 20, 2021, the National Health Law Program filed an administrative challenge, seeking HHS to withdraw the letters. On January 19, 2021, which was the last full day of the Trump administration, outgoing HHS Secretary, Alex Azar, filed HHS’s Supreme Court brief supporting the states’ waivers.

On January 28, 2021, the Biden administration announced its intention to reexamine the prior administration’s approvals of Section 1115 waivers authorizing Medicaid work and community engagement requirements in the Executive Order on Strengthening Medicaid and the Affordable Care Act. On February 1, 2021, oral arguments were scheduled for March 29, 2021. On February 12, 2021, CMS removed the January 11, 2018 CMS letter to state Medicaid directors, and Acting CMS Administrator, Elizabeth Richter, sent letters to both Arkansas and New Hampshire stating that, given the detrimental health and economic effects of the COVID-19 pandemic, CMS had made a preliminary determination that implementation of work requirements do not promote Medicaid’s objectives and that CMS was examining whether to revoke the waiver approvals.

On February 22, 2021, the Acting Secretary of HHS filed a motion to vacate the judgments of the court of appeals and remand, remove the cases from the March 2021 Supreme Court calendar, and hold further briefing in abeyance. On March 11, 2021, the Supreme Court removed the oral arguments from the Supreme Court calendar but did not dismiss the case. The Supreme Court asked the Department of Justice to provide a written brief on its request for dismissal by March 22, 2021.

CMS Withdraws Prior Approvals

As referenced above, on March 11, 2021, HHS released a report highlighting the negative impacts of the previously approved waivers with work and community engagement requirements, including “significant” coverage losses without actually improving employment. On March 12, 2021, the Georgia Department of Community Health sent a letter to CMS stating that, if CMS revokes the approval of the waiver, Georgia will challenge the decision.

In a move anticipated since Joe Biden’s election, on March 17, 2021, Acting CMS Administrator, Elizabeth Richter, sent a letter to Arkansas and New Hampshire, withdrawing CMS’s approval of the Arkansas Waiver and New Hampshire Waiver, respectively.

The letters state that early experience with the work requirements indicated that the work requirements risk rapid Medicaid coverage loss, referencing, in New Hampshire, almost 17,000 beneficiaries set to be suspended for non-compliance and, in Arkansas, 18,164 individuals dis-enrolled from coverage for noncompliance with work requirements from August 2018 through December 2018. The letters also note that, prior to the COVID-19 pandemic, the vast majority of the population that would be targeted by the work requirements already met the potential terms of such requirements or would qualify for an exemption. Therefore, it is unlikely that the work requirements would produce any meaningful impact on employment outcomes, “all while risking substantial coverage losses among those subject to the requirements.”

The letters also highlight the effect of the COVID-19 public health emergency on the risks associated with the work requirements being tied to Medicaid eligibility, noting that, among other things, during the COVID-19 pandemic:

  • There are fewer opportunities for full-time employment and reduced availability of childcare;
  • Job loss has been more severe in the low-income population who are disproportionately enrolled in Medicaid;
  • Low-income individuals’ lack of access to computers and reliable internet will result in fewer opportunities for Medicaid beneficiaries to “work from home” as more jobs have shifted to telework;
  • Many delayed seeking medical care due to concerns with out-of-pocket expenses or to avoid risk of contact with infected individuals, which is expected to greatly increase annual healthcare costs and may lead to substantial increases in mortality and morbidity;
  • There is uncertainty regarding the lingering health consequences of COVID-19 infections; and
  • There has been a disparate effect on the physical and mental health of Medicaid beneficiaries.

Based on these “significant risks and uncertainties” about the adverse effect of the COVID-19 pandemic and its likely aftermath, CMS withdrew its prior approvals on the basis that “the information available to CMS does not provide an adequate basis to support an affirmative judgment that the community engagement requirement is likely to assist in promoting the objectives of Medicaid.”

The withdrawals are effective on April 16, 2021, unless the applicable state timely appeals. Attached to the letters are the waivers, expenditure authorities, and Special Terms and Conditions reflecting the changes, which will govern from the effective date of the withdrawal until the demonstrations expire on December 31, 2021 (Arkansas) and December 31, 2023 (New Hampshire).

The Biden administration is expected to take additional actions to support the strengthening and expansion of the Medicaid program.  Norton Rose Fulbright lawyers will continue to provide relevant updates on the Medicaid program on the Health Law Pulse.