The Kentucky Medicaid Waiver Approval:  How Do You Spell “Arbitrary and Capricious”?

Adorable little girl holding american flag outdoors on beautiful summer day. Independence Day concept.
Adorable little girl holding american flag outdoors on beautiful summer day. Independence Day concept.

Late last Friday, a federal District Court overturned the approval of the Kentucky HEALTH waiver by the Secretary of HHS and sent it back to the agency. As a result, Kentucky could not implement work requirements or other harmful changes – premiums, lockouts, elimination of retroactive coverage, etc. – on July 1, as it had intended to do. There is a lot going on in Judge Boasberg’s 60-page opinion.  Excellent explainers are available from the Kaiser Family Foundation and The Commonwealth Fund. Here are three key take-aways.

First, the Judge ruled that a “central objective” of Medicaid is “furnishing… medical assistance” for all populations eligible for the program.  (“Medical assistance” is the statutory term for payment for the cost of the services that Medicaid covers, like hospital care, physician services, etc.) Put another way, Medicaid is a health insurance program.  This doesn’t seem like a particularly remarkable proposition:  after all, who knew that Medicaid, along with Medicare and the Marketplaces and Employer-Sponsored Insurance, was part of the fabric of health care coverage  in this country?

But it seems to have come as news to the Secretary, who didn’t consider this objective when he approved the Kentucky waiver.  As a result, the judge struck down the approval, invalidating the waiver: “At bottom, the record shows that 95,000 people would lose Medicaid coverage, and yet the Secretary paid no attention to that deprivation.  Nor did he address how Kentucky HEALTH would otherwise help ‘furnish…medical assistance.’  Because “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,” the judge concluded that his approval of the waiver was “arbitrary and capricious” and therefore invalid.

Second the judge found not only that Medicaid is a health insurance program, but also that it is a health insurance program for expansion adults, not just for “traditional” Medicaid populations like low-income children and parents, individuals with disabilities, and seniors.  The division of Medicaid into two programs—one for “our most vulnerable citizens” and one for “working-age, able-bodied citizens”—has been a point of emphasis for CMS Administrator Seema Verma.’”

The judge rejected her effort to rewrite the Medicaid statute by administrative fiat:  “…the Medicaid statute—taken as a whole—confirms that Congress intended to provide medical assistance to the expansion population….[The Secretary” must thus evaluate the effect of Kentucky HEALTH on all Medicaid recipients, including low-income individuals, and he must do so without prioritizing certain groups over others.  Here, that means the Secretary had an obligation to at least consider the 95,000 people who would lose Medicaid coverage, even if those people were largely members of the expansion group.”  (Over 19,000 of those expected to lose coverage are parents in the “traditional” eligibility groups).

Finally, public comments matter. A lot. The judge had to determine whether or not the Secretary’s approval was “arbitrary or capricious.”  In doing so, he applied the legal standard in the D.C. Circuit:  did the agency “examine all relevant factors and record evidence” and did it “adequately explain its result”?

The judge went through the comments submitted during the 30-day federal comment period and observed: “Citing extensive research, including from past Medicaid demonstrations, commenters explained how each provision of Kentucky HEALTH…would likely reduce healthcare access and utilization.”  An extraordinary Appendix to the opinion sets forth excerpts from numerous comments relevant to the waiver’s impact on coverage submitted by providers (e.g., American Congress of Obstetricians and Gynecologists), disease groups (e.g., American Diabetes Association), and advocates (e.g., Community Catalyst, Families USA).

Reviewing the Secretary’s response to these comments, the judge concluded:  “For starters, the Secretary never once mentions the estimated 95,000 people who would lose coverage, which gives the Court little reason to think that he seriously grappled with the bottom-line impact on health care.  Nor did he ‘request…additional information related to the project’s impact on recipients’ or offer ‘any information refuting plaintiffs’ substantial documentary evidence’ that the action would reduce healthcare coverage.”

That is how you spell “arbitrary and capricious.”  And it all starts with public comments in the record that the agency can’t just blow off.

This decision is specific to Kentucky HEALTH and to the record in that waiver approval.  But the “arbitrary and capricious” standard is not specific to the Kentucky waiver.

It would apply to similar waivers already approved in Arkansas, Indiana, and New Hampshire, as well as any that he may decide to approve in the future.  The CMS Administrator wasted no time:  “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.”

Translation:  We will continue to approve work requirement waivers that will result in coverage losses. The best response is facts in the administrative record that will give other federal courts the opportunity to do their job the way Judge Boasberg did his.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.