Medicaid Wars: Rescind and Withdraw (Episode II)

The Biden Administration has a long list of bad Medicaid policies to unwind.  As chronicled in Episode I, the groundwork for the unwinding was laid in a Presidential Executive Order, “Strengthening Medicaid and the Affordable Care Act,” issued on January 28. Among other things, the E.O. directs the Secretary of HHS to review section 1115 demonstrations and “suspend, revise, or rescind” those that “may reduce coverage or otherwise undermine Medicaid.”   This week, the rescinding began in earnest with the formal withdrawal of the Arkansas and New Hampshire work requirements waivers.

The early buildup to this week’s actions, documented by my colleague Joan Alker, was methodical.  It started on February 12, which turns out to have been a busy day at CMS.  First, the agency rescinded the January 2018 work requirements letter to State Medicaid Directors by removing it from and the HHS Guidance Portal.  Under the terms of the prior Administration’s “Good Guidance” rule, removal from the Portal had the effect of rescinding the letter.  Poof.

That same day, CMS sent letters to 10 states with approved work requirements waivers (Michigan’s letter was sent a few days later) informing them that it is “commencing a process of determining whether to withdraw the authorities provided in [the state’s section 1115 demonstration] that permit the state to require work and other community engagement activities as a condition of Medicaid eligibility.”  CMS gave each state 30 days to submit “any additional information that in the state’s view may warrant not withdrawing those authorities.”   Seven states responded:  Arkansas, Georgia, Indiana, Nebraska, Ohio, South Carolina, and Utah.

Finally, the agency sent a letter to all 47 states with approved section 1115 demonstrations reaffirming that the procedures for suspending or withdrawing approvals were set forth in the Special Terms and Conditions (STCs) of the approvals themselves.  This should be self-evident, but on January 4, the previous CMS Administrator sent a letter to all states asking them to enter into an “agreement” with her that if CMS modifies or withdraws approval of a demonstration, the modification or withdrawal would not take effect for at least 9 months. Seventeen states (AL, AK, AZ, AR, CO, FL, GA, IL, LA, MS, MO, OH, OK, SC, SD TN, and UT) signed this “agreement.” The February 12 letter rescinded the January 4 letter and all signed “agreements.”

On March 11, the HHS Assistant Secretary for Planning and Evaluation (ASPE) posted an issue brief summarizing the research evidence on the impact of Medicaid demonstrations on health coverage, including those demonstrations involving work requirements.  The brief concluded: “While one of the stated motivations for several of these demonstration features has been the desire to improve beneficiary health, the loss of coverage evident in multiple studies of these policies suggests they carry a significant risk of having the opposite effect – harms to access to care and adverse health effects.”

On March 17, CMS formally withdrew approval of the work requirements in the Arkansas and New Hampshire demonstrations.  In lengthy letters to each state, CMS determined that “on balance, the authorities that permit [the state] to require work and community engagement as a condition of eligibility are not likely to promote the objectives of the Medicaid statute.”  In both cases, CMS withdrew approval only of the work requirements in the demonstrations, not the underlying demonstrations themselves (i.e., Arkansas Works, which expires at the end of this year, and Granite Health Advantage, which expires at the end of 2023).  The withdrawals are effective April 16 (30 days after the letter) unless the state within that timeframe requests a hearing before the Departmental Appeals Board, which, among other things, reviews state disputes with CMS involving Medicaid.

The withdrawal letters make detailed factual findings about the early experience with work requirements in each state and the impact of the COVID-19 pandemic and its aftermath, with extensive references to the research literature—78 citations in the letter to Arkansas, 73 in the letter to New Hampshire.  The letter to Arkansas also addresses the state’s arguments in response to the February 12 CMS letter, concluding that the state did not “demonstrate that it has the infrastructure in place—such as subsidies for job-skills training, transportation, and child care—that may be necessary to make compliance with the community engagement requirement feasible for beneficiaries and prevent large-scale coverage losses.” (New Hampshire did not submit a response).

It’s almost as though these letters were written with litigation in mind.

As it happens,  Arkansas is now before the Supreme Court as a party to Cochran v. Gresham, where it, along with the Solicitor General, is appealing the decision of the D.C. Circuit Court of Appeals overturning the previous Secretary’s approval of its work requirements demonstration.  In that decision, the D.C. Circuit upheld the District Court’s decision to vacate and remand the Arkansas demonstration to HHS on the grounds that the approval was “arbitrary and capricious.”  Arkansas wants the Supreme Court to overturn the D.C. Circuit ruling, which would allow the previous approval of its demonstration to stand.  However, CMS has now withdrawn approval of the work requirements (but not the entire demonstration).

For its part, the Supreme Court has taken the case, originally scheduled for oral argument on March 29, off the calendar, but it still seems to be expecting the Solicitor General’s reply brief on behalf of the Secretary on March 22.  Since CMS has now formally withdrawn its approval of the demonstration, it’s not clear what overturning the D.C. Circuit decision would accomplish.  There’s no more controversy: CMS and the D.C. Circuit are now on the same page. CMS withdrew its approval; the D.C. Circuit vacated it. Either way, Arkansas does not have a demonstration that allows it to impose work requirements on its Medicaid beneficiaries.

Whatever the Court decides to do, one thing is certain:  the rescinding has just begun.  Nine other states (AZ, GA, IN, MI, NE, OH, SC, UT, WI) have approved work requirements demonstrations.  And in its withdrawal letters to Arkansas and New Hampshire, CMS pointedly reminded each state that it “is also reviewing the other authorities that CMS previously approved” in their demonstrations. Tennessee, Florida and Texas—all states that have not taken up Medicaid expansion—have problematic last-minute, 10-year extensions of “windfall” demonstrations from the previous Administration.  The “Good Guidance” and “SUNSET” rules are still in place.  And on and on.  The newly confirmed Secretary of HHS, Xavier Becerra has his rescinding job cut out for him.

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