Medicaid Wars: The Unwinding (and Litigation) Continues (Episode IV)

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It’s been seven months and change since the Biden Administration took office. What it found waiting for it on January 20 was not just a crisis of democracy and a global pandemic and a surge of unaccompanied children at the border, but also a large pile of policy intended to undercut the Administration’s ability to make Medicaid work for the 75 million low-income Americans it covers. In this pile were, among other things, 11 approved work requirements waivers, new regulatory procedures designed to drown the Department of Health and Human Services (and the rest of the federal government) in a bathtub of paperwork, and three sweetheart section 1115 demonstrations approved on the way out the door (post insurrection).  In short, lots to unwind.

In late January, President Biden issued an Executive Order directing the Secretary of HHS to unwind agency actions that are inconsistent with strengthening Medicaid and the Affordable Care Act. The political appointees needed to lead the day-to-day unwinding—CMS Administrator Chiquita Brooks-LaSure and CMCS Director Daniel Tsai—were not in place until the end of May and the end of June, respectively. Nonetheless, HHS, which took point on pandemic response and implementation of the Medicaid and provider relief provisions in the American Rescue Plan Act, was, in its spare time, able to begin some of the unwindings, as chronicled in Episodes I (The Unwinding Begins), II (Rescind and Withdraw), and III (Litigation Risk) prior to their arrival.  Since then, a good deal of additional progress has been made.

On the work requirements front, as my colleagues Allie Gardner and Ryan Lee have explained, the Biden Administration has rescinded work requirements waivers for nine of  of the 11 states granted such waivers. In June, Nebraska announced its intent to withdraw its work requirements demonstration. The remaining state with a work requirements waiver in place, Georgia, has postponed implementation and is currently in discussions with CMS. Of course, as a practical matter, states can’t implement work requirements during the Public Health Emergency (PHE) because of the disenrollment freeze in effect, which prevents work requirements from accomplishing their purpose:  disenrollment by red tape.

While it is increasingly clear that the days of work requirements are numbered, some loose ends remain. Most notably, the Supreme Court has not yet acted on the appeal by the Trump Administration and Arkansas of a February 2020 D.C. Circuit Court of Appeals decision invalidating the March 2018 approval of Arkansas’s work requirements as “arbitrary and capricious.”  The Biden Administration has rescinded the Trump Administration’s January 2018 guidance inviting proposals for work requirements and has withdrawn the Trump Administration’s approval of the Arkansas work requirements waiver but not, concerningly,  its appeal of the DC Circuit’s ruling. For now, the case remains “Noted” for the Supreme Court’s October 2021 Term as “held in abeyance pending further order of the Court.”

On the regulatory front, on his first day in office President Biden revoked the Executive  Orders underpinning the SUNSET Rule (EO 13777)  and the“Good Guidance” Rule (EO 13891). On March 23, HHS announced  a one-year delay in the implementation of the SUNSET Rule,  buying itself some time to rescind it altogether through notice-and-comment rulemaking. As for the “Good Guidance” Rule, HHS has maintained its Guidance Portal but it has sent a Notice of Proposed Rulemaking to OMB for clearance that would rescind the Rule. The NPRM is scheduled for publication this month. In the meantime, CMS is no longer putting the ridiculous caveat that “this document does not have the force and effect of law….” on all of its Medicaid subregulatory guidance. The most recent example of a caveat-free guidance is the August 13 letter to State Health Officials relating to the phase out of the PHE continuous enrollment requirement.

The unwinding of the three 10-year on-the-way-out-the-door approvals—for Florida(1/15/21), Tennessee  (1/8/21), and Texas  (1/15/21)—has been considerably less straightforward. All three include, among other things, billions of dollars in federal funding pools intended to support safety net hospitals and clinics that are providing large amounts of uncompensated care to low-income, uninsured patients.  Of course, the providers are in this predicament in large measure because their states have refused to take up Medicaid expansion, which would allow them to cover over one million of their uninsured low-income citizens, with the federal government paying 90 percent of the cost.

This refusal, it should be noted, persists despite extraordinary financial incentives for the non-expansion states to reverse course. Whether provider access to funding pool dollars enables this refusal is a fair question.

As of this writing, there has been no visible activity on the Florida demonstration, other than a February 12 CMS letter notifying the state that, should CMS reconsider its last-minute approval of the demonstration, the regular procedural protections for the state would apply. Tennessee and Texas?  There is lots to see.

The TennCare III demonstration not only extends federal funding pools but also radically alters the financing of Medicaid in Tennessee by placing a population-adjusted aggregate cap on federal matching funds.  It also allows the state to impose unprecedented limitations on the coverage of prescription drugs. In April, 13 Tennessee Medicaid beneficiaries with chronic, disabling conditions filed suit in federal district court in the District of Columbia seeking to overturn the approval. As Sara Rosenbaum and her colleagues explain, this lawsuit calls the question not just on TennCare III but also on the entire section 1115 enterprise. On August 10, CMS opened up a new 30-day federal comment period on TennCare III, which is currently in effect, in exchange for an agreement from the plaintiffs to put the case in abeyance.

Which brings us to the Texas demonstration, a particularly convoluted and litigious matter. On April 16, CMS rescinded its January 15 approval and reinstated the demonstration in effect at the time (which was not scheduled to expire until September 30, 2022), explaining that its decision to exempt the state from the federal comment period was “erroneous.”  Texas responded by having one of its Senators place a hold on the confirmation of the CMS Administrator,  filing a lawsuit in federal district court in Texas,  filing an appeal with the HHS Departmental Appeals Board (DAB), and resubmitting the demonstration as approved on January 15 to CMS. Under DAB procedure, the state’s appeal keeps the January 15 approval in effect until the DAB rules. Nonetheless, on August 20, in the midst of the federal comment period, the court entered a preliminary injunction against the Secretary barring the Department from implementing the April 16 rescission of the January 15 approval.

Will the federal courts intervene to prevent the Biden Administration from unwinding the policies of the Trump Administration to undermine Medicaid? Stay tuned.  You can be sure Arkansas and Florida and Tennessee are.

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