Kentucky Medicaid Work Requirements: Too Bold to Be Lawful?

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By Meg McEvoy

A federal court June 15 will hear arguments on whether Kentucky’s program imposing work requirements, premiums, and other conditions on certain of the state’s Medicaid recipients is unlawful.

The federal government defendants, officials from the Department of Health and Human Services and the Centers for Medicare & Medicaid Services, argue that the waivers enable states to “be bold” in enacting Medicaid reforms. On the other side of the aisle is a class of Kentucky residents enrolled in the state’s Medicaid program who say the CMS overstepped Congress’s authority in attempting to rewrite the Medicaid statute by executive “fiat.”

Judge James Boasberg of the U.S. District Court for the District of Columbia has indicated he will rule before the work requirements take effect July 1. His ruling will decide how much leeway states have to implement reforms to their Medicaid programs.

Either party is likely to appeal an adverse ruling, and the case may become ripe for Supreme Court review.

Kentucky’s HEALTH Project

In January 2014, Kentucky expanded Medicaid to the “expansion population”—adults who are not elderly, disabled, or pregnant; do not fit into another Medicaid eligibility category; and have household income below 133 percent of the federal poverty line. This expansion group became eligible for Medicaid under the Affordable Care Act.

The expansion enabled more than 428,000 Kentuckians to gain access to Medicaid, according to the plaintiffs’ complaint.

In August 2016, Kentucky Gov. Matt Bevin (R) requested a waiver of Medicaid Act requirements from the HHS secretary to implement the Kentucky HEALTH project, which was aimed at “comprehensively transform[ing] Medicaid.”

Section 1115 allows for the HHS secretary to grant waivers of some of Medicaid’s requirements to “any experimental, pilot, or demonstration project” that is “likely to assist in promoting the objectives” of Medicaid.

The CMS and HHS approved the waiver in January 2018 following public comment periods at the state and federal levels.

New Requirements

The Kentucky HEALTH program waiver affects the Medicaid expansion population, as well as parents and caretaker relatives, individuals receiving transitional assistance, pregnant women, and former foster care youth.

Under the program, enrollees will have a deductible account with $1,000 in it, and the costs of nonpreventive services will be deducted from the balance. Enrollees will also have a My Rewards account to pay for vision, dental, and over-the-counter drugs, which will no longer be covered by Medicaid. Money is added to the account for engaging in “healthy behaviors” like work-related activities and not seeking unnecessary emergency room care, according to the plaintiffs.

The work requirements are 80 hours per month of employment or community engagement activities. The requirements do not apply to pregnant women, former foster care youth, or “medically frail” individuals.

The Kentucky HEALTH program also imposes premiums of up to 4 percent of household income. The waiver enables the state to adjust premium amounts without the HHS’s approval.

The program’s effect in Kentucky, according to the state’s estimates, will be to reduce Kentucky’s Medicaid enrollment by 95,000 adults and reduce state payments for Medicaid by $2.4 billion.

Unless blocked by the court, Kentucky HEALTH goes into effect July 1.

Too Bold?

According to the federal government defendants, Kentucky HEALTH is an innovative health-care program that falls under the HHS secretary’s broad discretion to approve state “demonstration” projects that have the potential to improve the Medicaid program.

“Section 1115 is designed to allow States to be bold” in designing and testing new ways of dealing with public welfare problems, the federal defendants said in court documents.

Kentucky has some of the unhealthiest conditions in the nation, according to the federal defendants. Kentucky’s program will encourage members of the Medicaid expansion population to engage in “healthy behaviors” and “empower[] them to access preventive services.”

The defendants also argue that the program does not contain “work requirements”; rather, they are “community-engagement requirements.”

“There is nothing irrational in requiring able-bodied adults who are capable of performing community service, working, or going to school to do so as a condition of Medicaid eligibility,” the defendants wrote in court filings.

The plaintiffs argue that Kentucky’s waiver “sharply deviate[s] from the congressionally-established requirements of the Medicaid program” and that the HHS’s approval of the waiver exceeded the lawful exercise of the secretary’s waiver authority.

Plaintiffs argue that the HHS secretary’s actions violate both the Administrative Procedure Act and the Constitution.

“The Kentucky HEALTH program imposes a work requirement on individuals to maintain their Medicaid benefits—the first time such a requirement has been permitted in the 50-year history of the Act,” the plaintiffs argued in court documents.

“It also (among other things) imposes premiums on very low-income people, imposes high cost sharing for non-emergency use of the emergency department, implements lockouts for failure to pay premiums, limits retroactive eligibility, and eliminates non-emergency medical transportation,” they said.

Plaintiffs’ Burden

The plaintiffs have a heavy burden to challenge the HHS secretary’s discretion under the federal Administrative Procedure Act. For the plaintiffs to prevail, they need to show that the HHS secretary abused his discretion in granting the waiver and that the HHS’s actions in approving the waiver were arbitrary and capricious.

The plaintiffs have also raised constitutional arguments: namely, that the waiver for the Kentucky HEALTH program violates Article II, Section 3, Clause 5 of the U.S. Constitution, the take care clause. The plaintiffs allege that the HHS, as part of the president’s administration, is seeking to, effectively, take power from Congress by rewriting the Medicaid statute.

“Defendants’ actions here reflect not a reasoned agency effort to effectuate the text and purpose of the statute Congress enacted, but instead an effort by an Executive to take by regulatory fiat what it could not accomplish in Congress and to ‘fundamentally transform Medicaid,’” the plaintiffs wrote.

Nationwide Effects

The Kentucky program is also a threat to Medicaid enrollees nationwide, the plaintiffs allege, because the CMS sent a letter to state Medicaid directors announcing its new policy of approving work requirement waivers for “any State wishing to follow Kentucky’s lead.”

The CMS approved waivers in Arkansas, Indiana, and New Hampshire that include similar work requirements. Waivers containing a work requirement are pending in seven states: Arizona, Kansas, Maine, Mississippi, Ohio, Utah, and Wisconsin.

The plaintiffs argue the agency lacked the authority to send the letter changing its policy on approving waivers without notice and comment.

Other states looking to justify or implement their Medicaid waiver programs will be watching for Boasberg’s decision following the June 15 hearing.

The case is Stewart v. Azar, D.D.C., No. 1:18-cv-152, hearing on motions for summary judgment, 6/15/18.

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