Medicaid Wars: The Unwinding Begins (Episode I)

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Over the past four years, the Trump Administration has tried to undermine Medicaid by capping federal funding and stigmatizing its beneficiaries.   This relentless ideological assault continued to the bitter end, even after the January 6 attack on the Capitol.  As my colleague Joan Alker has explained, Secretary Azar and CMS Administrator Verma took actions on their way out the door to make it as difficult as possible for their successors to get Medicaid back on track.

Running a program as large as Medicaid relies on, among other things, the use of regulations, sub-regulatory guidance, and section 1115 demonstrations to clarify the rules of the road for states, providers, managed care plans, and beneficiaries.  Knowing this, the former Secretary and Administrator imposed new paperwork burdens on HHS and CMS in an effort to kneecap their own agencies—after their departures.   This past week, the Biden Administration began to unwind these actions.  Here’s where things stand as of Day 13:

Regulations.   On January 19, just under the wire, Secretary Azar published the final “SUNSET” rule, designed to tie up HHS with retrospective reviews of thousands of existing regulations, including those implementing Medicaid and CHIP.  The next day, the new Chief of Staff, Ron Klain, issued a memorandum imposing a freeze on all “midnight” regulations. In the case of regulations like the final “SUNSET” rule that have been published in the Federal Register but have not taken effect (the effective date is March 22), the memorandum directs the head of each executive branch agency to “consider postponing the rules’ effective dates for 60 days” from January 20 and during that time opening a 30-day public comment period.

The Klain memorandum also directs each agency head to “consider further delaying … such rules beyond the 60-day period,” which ends March 21.  As it happens, that is the day before the SUNSET rule becomes effective.  This lays out a clear path for the unwinding of the SUNSET rule:  suspend implementation while the rule is being rescinded through formal notice-and-comment rulemaking.  (For those who are actually concerned about periodic review of outdated regulations, President Biden has also instructed his OMB Director to develop recommendations for modernizing regulatory review).

Sub-regulatory guidance.  On January 6—yes, that was the day of the failed insurrection—Secretary Azar’s final “Good Guidance” rule took effect.  This rule governs guidance such as State Medicaid Director Letters and Frequently Asked Questions that CMS uses to communicate with Medicaid stakeholders.  The rule makes it easy for CMS to rescind existing guidance and considerably more burdensome to issue new guidance that announces a different policy direction—the kind that a new Administration might want to put forth.  The rule implements Executive Order (EO) 13891, “Promoting the Rule of Law Through Improved Agency Guidance Documents,” issued by President Trump.

On his first day in office, President Biden issued an EO revoking a number of Trump Administration EOs, including EO 13891. The Biden EO requires executive branch agencies to “promptly take steps to rescind any orders, rules, regulations, guidelines, or policies, or portions thereof, implementing or enforcing” the Trump EOs, consistent with the Administrative Procedure Act.  Again, there is a clear path, opened up by the revocation of EO 13891 and enabled by an unambiguous Presidential directive, for rescinding the “Good Guidance” rule through notice-and-comment rulemaking.

Section 1115 Demonstrations.  Having failed to persuade Congress to cap federal Medicaid funding and allow states to impose work requirements, Administrator Verma pivoted to trying to rewrite the statute herself in, of all things, guidance.  (It goes without saying that these State Medicaid Director letters, relating to work requirements and caps on federal funding, were issued well before the new “Good Guidance” regulatory regime).  She followed that up with approvals of section 1115 demonstrations enabling 11 states to impose work requirements.  The federal courts intervened, and no state is currently implementing; the matter is pending before the Supreme Court.  On January 8, just  two days after the attack on the Capitol, Administrator Verma approved a 10-year demonstration for Tennessee that caps federal matching payments to the state and rewards it with federal funds for cutting program spending.  This demonstration is currently in effect.

On January 28, President Biden issued an Executive Order on “Strengthening Medicaid and the Affordable Care Act.”  The EO states that “it is the policy of my Administration to protect and strengthen Medicaid and the ACA and to make high-quality healthcare accessible and affordable for every American.”  The EO directs HHS to review all agency actions for consistency with this policy, including demonstrations and waivers (or elements of demonstrations and waivers) that “may reduce coverage under or otherwise undermine Medicaid or the ACA.”   Finally, the EO directs HHS “as soon as practicable” to “consider whether to suspend, revise, or rescind” those agency actions that are inconsistent with this policy.

The message is clear:  demonstrations that include work requirements (or other provisions that “may reduce coverage under or otherwise undermine Medicaid”) are disfavored by the President and will not be allowed to continue.   The exact pathway for unwinding these demonstrations, in whole or in part, is left to the agency.  In the case of section 1115 demonstrations, the pathway will depend on the waivers, expenditure authorities, and Special Terms and Conditions specific to each demonstration.  Because Secretary Azar’s approvals of work requirement demonstrations in Arkansas and New Hampshire are under review by the Supreme Court, all demonstrations containing work requirements will likely undergo a different analysis than the Tennessee demonstration or the 10-year extensions for Florida and Texas approved just five days before the Biden Administration took office.

One complication is a “letter of agreement” that Administrator Verma sent to Governors on January 4 purporting to guarantee them at least 9 months of continued funding and extensive procedural protections in the event a new Secretary withdraws approval of part of all of their demonstration.  As Nicholas Bagley observed, the letter is “a brazen, cynical attempt to protect work requirements long enough for the Supreme Court to rule on them.”  The Chairmen of the Senate Finance Committee and the House Energy and Commerce Committee wrote that the “letters plainly violate federal law and, therefore, cannot stand.”  And the National Health Law Program has petitioned CMS to rescind the letters under the “Good Guidance” rule.  (Unlike the SUNSET rule, the “Good Guidance” rule remains in effect during the notice-and-comment rulemaking process to rescind it, so it is available to quickly rescind damaging guidance, including guidance masquerading as a “letter of agreement”).

In his January 28 Executive Order, President Biden signaled his intention to make Medicaid work again:  “It is the policy of my Administration to protect and strengthen Medicaid and the ACA and to make high-quality healthcare accessible and affordable for every American.” That starts with ridding the program of the destructive regulations, guidance, and demonstrations approved by the previous Administration.  The unwinding will not always be straightforward, it will take some time, and there may be litigation along the way.  But the ideologues are out the back door, and the “welcome mat” for Medicaid (and CHIP) is back out front.

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