Ark. Ruling Leaves Little Path Forward for Work Requirements

Reprinted with AIS Health permission from the February 24, 2020 issue of Health Daily

A three-judge federal appeals court panel on Feb. 14 sided with a lower court and unanimously ruled that Arkansas’ Medicaid work requirements are unlawful because they don’t align with the chief objective of the Medicaid program — providing access to medical care to those who can’t afford it. The ruling is likely to have implications for states, Medicaid managed care companies and other stakeholders beyond Arkansas’ borders, policy and legal experts tell AIS Health.

“This certainly puts a damper on their plans,” says Joan Alker, a research professor and executive director of the Georgetown Center for Children and Families, referring to other states’ hopes to set up similar Medicaid waiver demonstrations. “This is a signature initiative of [CMS] Administrator [Seema] Verma, and the court decision could not have been more clear that this was an unacceptable overreach by the administration and that they had moved into territory where only Congress could go.”

An opinion written by Republican-appointed Judge David Sentelle states that “we agree with the district court that the alternative objectives of better health outcomes and beneficiary independence” — which HHS cited as justification to approve Arkansas’ demonstration program — “are not consistent with Medicaid.”

“The text of the statute includes one primary purpose, which is providing health care coverage without any restriction geared to healthy outcomes, financial independence or transition to commercial coverage,” Sentelle wrote. Therefore, HHS’s approval of Arkansas’ waiver was “arbitrary and capricious,” he added.

According to data released by Arkansas’ Dept. of Human Services, which the appeals court opinion cited, more than 18,000 people lost coverage between August and December 2018 as a result of the “Arkansas Works” program — or about 25% of those subject to the new requirements that Medicaid beneficiaries be employed, volunteer or meet other “community engagement” standards.

In addition to Arkansas’ program, CMS has approved Medicaid waivers that include work requirements in Arizona, Indiana, Kentucky, Michigan, New Hampshire, Ohio, South Carolina, Utah and Wisconsin (see graphic, p. 7). Both Kentucky and New Hampshire’s waiver programs have been struck down in court, and Kentucky has since abandoned its appeal after a Democratic governor, Andy Beshear, replaced Republican Matt Bevin.

SOME STATES SUSPENDED PROGRAMS

Arizona and Indiana voluntarily suspended their programs, Alker noted in a Feb. 14 blog post, while Michigan’s has been challenged in court. The remaining states haven’t yet been sued over their programs, but if they are, the cases will be reviewed by the same judge — James Boasberg — who struck down the Arkansas, Kentucky and New Hampshire waivers, Alker wrote. Meanwhile, an additional 10 states have applied for Medicaid waivers that include work requirements.

“I do think it [the appeals court ruling] will likely inhibit states from moving forward with work requirements waivers that have already been approved by CMS,” Charles Luband, a partner in the health care practice of the law firm Dentons, tells AIS Health.

In theory, “it is possible that in approving new waivers, CMS could better articulate its decision to conform to what the courts specified as sort of the primary aim of the Medicaid program, which is to expand coverage,” Luband says. “So it is possible that CMS will continue to accept requests for work requirements and may even continue to approve them, but if they do, CMS is going to have to try harder to meet the standard that’s set out here.”

CMS, for its part, is reviewing and evaluating the appeals court’s opinion in order to determine next steps. In a statement after the ruling, Arkansas Gov. Asa Hutchinson (R) wrote: “The D.C. Court of Appeals ruled that the Medicaid Act does not permit a work requirement for able-bodied recipients even though one of the purposes of the Medicaid law is ‘to help families be independent.’ Arkansas implemented a work requirement in order to help recipients get worker training and job opportunities while receiving benefits. It is difficult to understand how this purpose is inconsistent with federal law.”

APPEAL TO SUPREME COURT IS FLOATED

Hutchinson added that he hopes the Supreme Court will review the ruling in the case, Gresham v. Azar (No. 1:18-cv-01900).

However, Luband says that may not be likely. “The [Supreme] Court generally likes to take cases when there is a split between the circuits, and there’s none here,” he says. “There are other times that the court is likely to take up cases when it’s sort of an issue of particular importance, but I don’t see it right now.”

In his statement, Hutchinson also argued that the court’s ruling “undermines broad public support for expanded health care coverage for those struggling financially.” Indeed, while the concept of Medicaid work requirements is “misguided,” there is a concern that disallowing such programs may have other negative effects, says Jerry Vitti, founder and CEO of Healthcare Financial, Inc.

“Having work requirements gives red state governors and legislatures cover if they want to expand Medicaid,” by allowing them to tie that expansion to conservative principles, he says. “Having that lever taken away could slow down expansion.”

To date, 36 states and the District of Columbia have expanded Medicaid under the Affordable Care Act. If the remaining states opted for expansion, a total of 4.8 million nonelderly uninsured adults would be newly eligible for Medicaid, according to a Jan. 14 issue brief from the Kaiser Family Foundation.

Vitti also suggests that without the option to impose work requirements in Medicaid, some states might instead turn to a Healthy Adult Opportunity (HAO) demonstration as outlined in recent CMS guidance (HPW 2/3/20, p. 3), which allows states to cap federal Medicaid funding, share in potential savings and test other program flexibilities. That could potentially affect more Medicaid enrollees in Arkansas, for example, than the 18,000 who lost coverage due to its work requirements, Vitti says.

But Luband points out that the legal precedent set by the Gresham v. Azar case could come into play if an HAO-inspired waiver program were ever challenged in court. CMS’s guidance, he notes, is chiefly an invitation to states to use the existing section 1115 waiver structure to propose a certain kind of demonstration project. “And in that sense, it really needs to meet all of the same standards that are at issue in the Gresham case” when it comes to complying with the intent of the Medicaid statue, he says.

In fact, setting up work requirements for Medicaid beneficiaries is one of the program flexibilities that CMS encourages states to test through an HAO waiver, Luband notes.

WHAT ARE IMPLICATIONS FOR MCOS?

Of the seven states where Medicaid work requirements waivers have been approved but not struck down by the courts, all of them contract with managed care organizations to help provide benefits to enrollees, according to AIS’s Directory of Health Plans. Regarding MCOs’ views of Medicaid work requirements, “it’s clear that they’ve had concerns about this,” Alker says, though she adds that generally, they’ve expressed those concerns “more privately than publicly.”

Alker also points to a Government Accountability Office (GAO) report that makes it clear managed care companies have played a role in states’ work requirements programs — and they were compensated for it.

The report, published in October, audited Medicaid administrative spending in five states with approved work requirements waivers — Arkansas, Indiana, Kentucky, New Hampshire and Wisconsin — between August 2018 and September 2019. In addition to finding that federal oversight of work-requirements-related administrative spending needs improvement, GAO noted that Indiana, Kentucky and New Hampshire either required or planned to require MCOs to perform a number of activities to implement work requirements. Those tasks included providing information on options to satisfy work requirements, helping beneficiaries report compliance with work requirements, and providing referrals to state work requirement resources.

“To fund these activities, officials in these states said that they plan to increase their capitation payments” to MCOs, GAO wrote, adding that states receive at least a 90% federal matching rate for most of those payments under the ACA. “It is unclear, however, whether including these activities in capitation payments is allowable,” GAO noted. Kentucky chose to rebid its managed care contracts after Beshear’s decision to abandon the work requirements waiver (HPW 2/2/20, p. 1).

View the court’s opinion at https://bit.ly/2V6PGdO and the GAO report at https://bit.ly/2wzmstU. Contact Alker at jca25@georgetown.edu, Luband at charles.luband@dentons.com and Vitti via Joe Reblando at joe@joereblando.com.

by Leslie Small