In a pair of rulings issued on Wednesday, March 27, 2019, Judge James E. Boasberg of the U.S. District Court for the District of Columbia blocked Medicaid waivers that would have allowed the implementation of Medicaid work requirements in Arkansas and Kentucky.

Each state adopted, and gained approval for, the work requirement waivers pursuant to Section 1115 of the Social Security Act, which permits the U.S. Department of Health and Human Services Secretary to approve “any experimental, pilot, or demonstration project,” provided the Secretary finds the proposed waiver is likely to assist in promoting Medicaid’s objectives. The cases make clear that Medicaid’s central objective is to furnish health care coverage to those who cannot afford it, and U.S. Department of Health and Human Services Secretary Alex Azar’s failure to adequately consider this objective rendered his approval of the waivers “arbitrary and capricious.” Accordingly, each of the Secretary’s approvals failed to meet the procedural standard required under the Administrative Procedure Act. The approvals were vacated and remanded to the U.S. Department of Health and Human Services for reconsideration.

In the Arkansas case, Judge Boasberg found Secretary Azar failed to consider the coverage objective in approving the proposed waiver, and instead considered only Medicaid’s other goals, including improving health outcomes, addressing behavioral and social factors that influence health outcomes, and incentivizing beneficiaries to engage in their own health care and achieve better health outcomes. Despite consideration of such other objectives, the Secretary’s failure to consider the proposed waiver’s potential risks to coverage and potential for promoting coverage was a fatal omission.

Secretary Azar’s approval of Kentucky’s proposed work requirement waiver at issue in the Kentucky case was his second bite at the apple. The Secretary first approved Kentucky’s proposed waiver in January 2018, but his approval was similarly vacated by Judge Boasberg on June 29, 2018, for not considering Medicaid’s coverage objective. Secretary Azar then reapproved the proposed waiver in November 2018, attempting to cure the procedural deficiency. In the most recent ruling however, Judge Boasberg found the Secretary still failed to “adequately analyze” the coverage objective.

Neither of Judge Boasberg’s rulings struck down Medicaid work requirements generally, because the rulings addressed only the adequacy of the Secretary’s considerations in approving each state’s proposed waiver.  Accordingly, the rulings block only the current Arkansas and Kentucky waivers, leaving other states free to continue pursuing and implementing similar work requirement waivers.  Further, in addition to the government’s ability to appeal Judge Boasberg’s rulings, Secretary Azar is free to reconsider and potentially reapprove each state’s proposed waiver, as he had done previously in the Kentucky case.

The Centers for Medicare & Medicaid Services first announced its support for work requirement waivers in a letter to State Medicaid Directors on January 11, 2018. Since adopting this new policy, nine states have obtained approval for work requirement waivers, and another six states have submitted similar proposals pending approval by the Secretary.

Despite these recent rulings, work requirement proponents have signaled that they will continue their pursuit of implementing such waivers.  In response to the ruling, Arkansas Governor Asa Hutchinson has been outspoken in urging for an appeal of the decision, and Kentucky Governor Matt Bevin has vowed to end the state’s Medicaid expansion program if the state is unable to implement its proposed work requirement waiver. Further, on Friday, March 29, 2019, just two days after Judge Boasberg’s recent rulings, Secretary Azar approved Utah’s work requirement waiver.

With Judge Boasberg’s narrow rulings on procedural grounds as well as the federal and certain state governments’ continued support for work requirement waivers, it is important to recognize the potential impact such waivers’ may have on providers.

As work requirement critics point out, the implementation of such requirements will likely cause some Medicaid beneficiaries to lose coverage, and could potentially claw back the coverage gains achieved under the Affordable Care Act. In fact, approximately 18,000 individuals were unenrolled from Medicaid in 2018 for failure to comply with Arkansas’s work requirement waiver according to Arkansas Department of Human Services monthly reports.[1]

A significant loss in Medicaid coverage, as predicted, could trigger negative financial implications for providers.  First, it follows that a decrease in Medicaid coverage would reduce providers’ Medicaid revenues. A recent study by the Commonwealth Fund estimates the loss in Medicaid revenues across all states seeking to implement work requirement waivers would total between $3.7 billion and $4.5 billion in 2019.[2] Further, as Medicaid beneficiaries lose coverage, many will become uninsured, which, in turn, would presumably increase providers’ uncompensated care costs. The increase in uncompensated care costs across all states seeking to implement work requirement waivers is estimated to total between an additional $2.5 billion and $3.7 billion in 2019 according to the same Commonwealth Fund study. Such decreased Medicaid revenues coupled with increased uncompensated care costs could put significant pressure on providers’ operating margins, though the financial implications to each provider could vary drastically based on various factors including the provider’s payer/demographic mix and the population that is subject to the work requirement waiver in the community served by such provider.

The Arkansas case opinion can be found here.

The Kentucky case opinion can be found here.

[1] See Arkansas Department of Human Services, “Reports, Toolkits, and Infographics.” (DHS)

[2] See Randy Haught, Allen Dobson, and Phap-Hoa Luu, “How Will Medicaid Work Requirements Affect Hospitals’ Finances?” (Commonwealth Fund, March 2019).