Kentucky's Medicaid Work Requirements Were to Begin Sunday, But a Judge Blocked Them

The federal judge in D.C. deemed the approval of Kentucky's waiver 'arbitrary and capricious' and sent the matter back to HHS for further review.

A federal judge in Washington, D.C., vacated the approval of Kentucky's Medicaid waiver Friday afternoon, just hours before the commonwealth was to begin implementing work requirements Sunday for some beneficiaries.

Kentucky was the first of four states, thus far, to secure approval for such work requirements. At least seven more have applications pending. But this decision could prove to be a major setback for the Trump administration's plans for the program.

D.C. District Court Judge James E. Boasberg wrote in an opinion that federal officials approved Kentucky's waiver request inappropriately because they failed to account for Medicaid's purpose, which is to provide for medical services.

"Although the Secretary is afforded significant deference in his approval of pilot projects like Kentucky's, his discretion does not insulate him entirely from judicial review. Such review reveals that the Secretary never adequately considered whether Kentucky HEALTH would in fact help the state furnish medical assistance to its citizens, a central objective of Medicaid," Boasberg wrote. "This signal omission renders his determination arbitrary and capricious."

There may be circumstances in which Health and Human Services Secretary Alex Azar could approve waivers that reduce Medicaid enrollment or coverage without violating the law, Boasberg noted.

"After all, the point of the waivers is to give states flexibility in running their Medicaid programs, and experimental projects may (at least inadvertently) adversely affect healthcare access," he wrote.

Kentucky Threatens Cuts

In a statement realeased by Gov. Matt Bevin's office, Kentucky Cabinet for Health and Family Services Secretary Adam Meier acknowledged the ruling as a setback, but he suggested the problem could be fixed with some additional review by the Centers for Medicare & Medicaid Services. The court concluded that HHS had "simply failed to consider the impact of Kentucky HEALTH on Medicaid coverage," Meier said.

"While we disagree with the Court's ruling, which delays implementation of Kentucky HEALTH, we look forward to working with CMS to quickly resolve the single issue raised by the Court so that we can move forward with Kentucky HEALTH," Meier's statement continued. "Without prompt implementation of Kentucky HEALTH, we will have no choice but to make significant benefit reductions."

The threat of cuts reiterates a message Bevin himself made in an executive order in January, when he threatened to end Medicaid expansion if "one or more components" of Kentucky's waiver request were blocked.

CMS Administrator Seema Verma expressed disappointment in Friday's decision without committing to a particular course of action.

"States are the laboratories of democracy and numerous administrations have looked to them to develop and test reforms that have advanced the objectives of the Medicaid program. The Trump Administration is no different," Verma said in a statement. "We are conferring with the Department of Justice to chart a path forward. In the meantime, we will continue to support innovative, state-driven policies that are designed to advance the objectives of the Medicaid program by improving health outcomes for thousands of low-income Americans."

Despite Kentucky's suggestions that the problem with its waiver approval can be resolved promptly, critics contend the plan isn't salvageable.

"From our perspective, you can dress up this program any way you want to, but it's still rancid because the underlying impact of the waiver is to drive people off of coverage," Eric Carlson, directing attorney with Justice in Aging, which contributed to an amicus brief, tells HealthLeaders Media.

"The state and CMS can do a better job to dress up their proposal a little bit more and consider various factors," Carlson added. "But from our perspecitve, if it's the same type of program, it's inconsistent with the objectives of the Medicaid program."

A Possible Blueprint

Although the decision does not directly affect waivers approved or pending for other states, it could provide a blueprint for other successful legal challenges, say Phillip Escoriaza, an attorney with the firm Feldesman Tucker Leifer Fidell LLP in Washington, D.C.

"You can extrapolate some lessons from what has just happened," Escoriaza tells HealthLeaders Media. "The court in [this] case was very generous in terms of explaining quite a few shortfalls in the process that led to the approval of Kentucky HEALTH that was challenged in this case. And I'll tell you: Other states that have or are planning on doing things similar to work requirements or community engagement requirements ... they really have to look at this decision."

Escoriaza, who helped prepare an amicus brief arguing that the approval of Kentucky HEALTH's waiver was illegal, said the matter primarily affects adult beneficiaries in Kentucky who are able-bodied, not elderly, and who became Medicaid-eligible in 2014 under the Affordable Care Act.

In a joint statement by the National Health Law Program (NHELP), the Kentucky Equal Justice Center (KEJC), and the Southern Poverty Law Center (SPLC)—which represent the 16 plaintiffs who challenged the waiver's approval—NHELP Legal Director Jane Perkins called the decision "a victory" for the program, its beneficiaries, and the rule of law.

"The Trump administration’s attempt to transform the Medicaid program through executive action has been restrained," Perkins said. "The purpose of the Medicaid Act is to furnish medical assistance, and this approval could not stand because it was doing just the opposite—restricting coverage."

NHELP Senior Attorney Catherine McKee noted that the plaintiffs expect Bevin and the Trump administration to appeal. 

Along Ideological Lines

Immediate reactions to the decision largely fell along ideological lines, with liberals praising the decision and conservatives expressing disapproval:

• "Justice served in federal court today as a judge tosses out Kentucky's harmful new Medicaid barriers. By law changes are supposed to strengthen coverage & improve health, but Kentucky's were designed to trip people up and kick people off. A ruling to save lives," tweeted Jason Bailey, executive director of the Kentucky Center for Economic Policy.
   
• "An important moment, a relief, a victory for law over lawlessness and brazen bad faith," tweeted Eliot Fishman, senior director of health policy at FamiliesUSA.
   
• "Obama-appointed judge blocks Medicaid work requirements in Kentucky. Today’s decision attempts to substitute the court’s judgment for that of the agency, ignoring record and evidence clearly showing work requirements would likely further the objectives of the program," tweeted Jonathan Ingram, vice president of research for the Foundation for Government Accountability.
   
• The Kentucky Democratic Party tweeted its approval: "Reason has prevailed once again against the Bevin and the Republican majority's agenda."
   
• Democratic Party chairman Ben Self added, "Bevin's work requirements for Medicaid recipients was not only immoral but goes against who our leaders should stand up for and who we are as Kentuckians.

The 60-page opinion is included below:

HealthLeaders Media associate editor Jack O'Brien contributed to this report.