D.C. Circuit on Medicaid Work Requirements: Read the Statute

For over two years, CMS Administrator Seema Verma has been on a crusade to impose work requirements on Medicaid beneficiaries.  Her agency has approved ten state “demonstrations” of work requirements under section 1115 of the Social Security Act.   When federal District Court Judge James Boasberg ruled on four separate occasions that the Secretary’s approvals of these “demonstrations” were invalid under the Administrative Procedure Act (APA), Administrator Verma did not reconsider.  Instead, she appealed the decision and lashed out at “those that want Medicaid to be business as usual are willing to weaponize the legal system to thwart state innovation at every turn.”

Last week, the legal system spoke again.  A 3-judge panel of the D.C. Circuit Court of Appeals ruled unanimously that the Secretary’s approval of the Arkansas work requirement waiver was “arbitrary and capricious” under the APA and affirmed Judge Boasberg’s decision to vacate the Secretary’s approval.  The opinion was written by Judge David Sentelle, who was appointed to the Court of Appeals in 1987 by President Reagan.  With over 30 years of experience on the D.C. Circuit—the main federal appeals court for reviewing the actions of federal agencies—Judge Sentelle has a clear understanding of what the APA requires of federal agencies in exercising their discretion.  (His colleagues, Judge Harry Edwards and Judge Cornelia Pillard, together bring an additional 47 years of D.C. Circuit experience).

Medicaid is complicated, but this decision is not.  Judge Sentelle’s opinion is brief and straightforward.  After explaining how the case got to the Court of Appeals, he makes it clear that he and his fellow judges took their own independent look at whether the Secretary’s approval of the Arkansas waiver was consistent with the APA. (p.9).

First question:  What’s the legal standard to be applied?  Answer: Under section 1115 of the Social Security Act, the Secretary may only approve demonstration projects that are “likely to assist in promoting the objectives of Medicaid.”

Second question:  What are “the objectives of Medicaid”?  Answer:  Read the Medicaid statute.  “The statute and the case law demonstrate that the primary objective of Medicaid is to provide access to medical care.” (p. 12).  To underscore this point, the Judge excerpts the relevant statutory language twice (p. 10 and again at p. 18).

Third question:  Are the alternative objectives advanced by the Secretary—improving health outcomes, incentivizing beneficiaries to engage in their own health care, and promoting beneficiary financial independence—found in the Medicaid statute?  Answer:  No.  “When Congress wants to pursue additional objectives within a social welfare program, it says so in the text. … Congress has not conditioned the receipt of Medicaid benefits on fulfilling work requirements or taking steps to end receipt of government benefits.”  (p. 14)

And in a key sentence Judge Sentelle writes: “The text of the statute includes one primary purpose, which is providing health care coverage without any restriction geared to healthy outcomes, financial independence, or transition to commercial coverage.” (p. 16)

Last question:  Was the Secretary’s approval of the Arkansas waiver “arbitrary and capricious” and therefore invalid under the APA?  Answer:  Yes.  “The Secretary’s analysis considered only whether the demonstrations would increase healthy outcomes and promote engagement with the beneficiary’s health care…Failure to consider whether the project will result in coverage loss is arbitrary and capricious.” (p. 17).  (As my colleague Joan Alker noted, it did not help the Administrator’s cause that her agency dismissed the coverage concerns of many commenters “in a handful of conclusory sentences.”)

Based on their own analysis that the Secretary’s approval was “arbitrary and capricious,” Judge Sentelle and his colleagues affirmed Judge Boasberg’s ruling vacating the Secretary’s approval of the Arkansas waiver (p. 19).

Memo to Secretary: Read the statute; leave the rewriting to Congress.

Preliminary indications are that the Administrator is likely to stay her ideological course.  In response to the decision, a CMS spokesperson stated that the agency “remains steadfast in our commitment to considering proposals that would allow states to leverage innovative ideas.”  This could mean a request to the Supreme Court to review Judge Sentelle’s ruling.  It could mean more litigation in the New Hampshire case, now on appeal to the D.C. Circuit, as well as in cases that are now before Judge Boasberg (Indiana; Michigan).

It could mean new litigation in Ohio, South Carolina, Utah, and Wisconsin, where CMS has also approved work requirements waivers.  It could mean the approval of even more “demonstrations” in states with applications pending, and even more litigation in response.  Time will tell.

In the interim, states considering the imposition of work requirements may want to consider their litigation risk.  Judge Sentelle’s opinion makes clear that this is a garden-variety APA case, so even if the Secretary petitions for review, the Supreme Court may not accept the case, and if it does, it could well affirm his ruling (this would be an opportunity to rein in the Administrative State).. Unless and until overturned by the Supreme Court, Judge Sentelle’s decision is binding on both the Secretary and on Judge Boasberg.  Any court challenges to the Secretary’s approval of a work requirements “demonstration” under section 1115 will likely be brought in the D.C. Circuit (not the 5th Circuit) and heard initially by Judge Boasberg, who has ruled that the Secretary’s approvals were “arbitrary and capricious” not just in Arkansas, but also in cases involving Kentucky (twice) and New Hampshire.  Nothing in Judge Sentelle’s decision suggests that Judge Boasberg’s rulings are anything but spot on.

Most recently, CMS announced its “Healthy Adult Opportunity” (HAO) initiative, which is designed to give states greater “flexibility” in running their Medicaid programs in exchange for a cap (either aggregate or per capita) on their federal Medicaid matching payments.  Among the “flexibilities” is the ability to impose work requirements as a condition of eligibility (p. 5).  The agency cites section 1115(a)(2) expenditure authority as the legal basis for the HAO.  This provision, like its better-known counterpart, section 1115(a)(1) waiver authority, is governed by the overarching legal standard applied by Judge Sentelle:  is the demonstration “likely to assist in promoting” the primary objective of Medicaid—i.e., coverage.  If any state actually applies for and is approved for this HAO “demonstration,” and if that approval is challenged, we may have a chance to see what the D.C. Circuit has to say about this attempted end run.

On the legislative front, the President’s Budget for FY 2021 proposes to mandate work requirements in Medicaid, cutting federal spending by $152.4 billion over ten years by disenrolling millions of beneficiaries. The justification: “The Budget would improve consistency between work requirements in federally funded public assistance programs, including Medicaid, Temporary Assistance for Needy Families, Supplemental Nutrition Assistance Program, and rental assistance, by requiring able-bodied, working-age individuals find employment, train for work, or do community service in order to receive welfare benefits.”  (Major Savings and Reforms p. 148.)

This is a crystal clear articulation of the objective of Administrator Verma’s ideological agenda for “reframing” Medicaid. And the Congress is the right place to go to ask that the Medicaid statute be rewritten to achieve this objective. Until Congress says otherwise, however, Medicaid is still a health insurance program, and coverage is still its primary objective.

Read the statute.

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