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Gresham v. Azar

United States District Court, District of Columbia

March 27, 2019

CHARLES GRESHAM, et al., Plaintiffs,
v.
ALEX M. AZAR II, et al., Defendants.

          MEMORANDUM OPINION

          JAMES E. BOASBERG, UNITED STATES DISTRICT JUDGE

         Adrian McGonigal is 40 years old and lives with his brother in Pea Ridge, Arkansas. He used to have a job working in the shipping department of Southwest Poultry, a food-service company located nearby, although he received no medical insurance through his employer. Like many Americans, he has several serious medical conditions. Beginning in 2014, McGonigal was able to receive medical care - including regular doctor visits and numerous prescription drugs - through the state's expanded Medicaid program. In mid-2018, however, McGonigal learned that he would be subject to new work requirements, which he would have to report online, as a condition of receiving health benefits. These were imposed by the Arkansas Works Amendments (AWA), approved by the U.S. Secretary of Health and Human Services in March 2018. Despite his lack of access to, and difficulty working with, computers, he was able to report his employment in June 2018, but he did not know he needed to continue to do so each month. As a result, when he went to pick up his prescriptions in October, the pharmacist told him that he was no longer covered, and his medicines would cost him $800. In the absence of Medicaid, he could not afford the cost of the prescriptions and so did not pick them up. His health conditions then flared up, causing him to miss several days of work, and Southwest Poultry fired him for his absences. He thus lost his Medicaid coverage and his job.

         Anna Book is 38 years old and lives in Little Rock. She currently rents a room in an apartment but was homeless for most of the last eight years. In July 2018, she got a job as a dishwasher in a restaurant, for which she works about 24 hours each week. Before that, she was unemployed for two years. She nevertheless also had health care provided through Arkansas's Medicaid program, which a local pastor helped her sign up for in 2014. Book learned last August that, pursuant to AWA, she would have to report 80 hours each month of employment or other activities to keep that coverage. While she reported her compliance in August and September with the pastor's help - she does not have reliable internet access - Book has several health conditions and worries that she will not maintain sufficient hours at her job to keep her coverage.

         Russell Cook is 26 and also lives in Little Rock. He is currently homeless. While he has spent time working as a landscaper, he is not presently employed and has minimal job prospects. The state's Medicaid program has previously given him access to health care for various health conditions, including a torn Achilles tendon and serious dental problems. Cook, however, does not believe he will be able to comply with the new AWA work requirements, which began applying to him in January 2019. Lacking access to the internet or a phone, he also worries that he will be unable to report compliance with those requirements. He thus expects to lose his Medicaid coverage.

         These are three of the ten Arkansans who come to this Court seeking to undo the work requirements the state added in 2018 to its Medicaid program. They sued the Secretary of Health and Human Services in August 2018, arguing that the federal government's approval of the state's new requirements violated the Administrative Procedure Act and the Constitution.

         Plaintiffs' suit does not offer an issue of first impression. Indeed, this Court just last summer considered a challenge to the Secretary's approval of very similar changes to Kentucky's Medicaid program - including work or “community engagement” requirements - in Stewart v. Azar, 313 F.Supp.3d 237 (D.D.C. 2018) (Stewart I). There, it vacated the agency's decision because it had not adequately considered whether the program “would in fact help the state furnish medical assistance to its citizens, a central objective of Medicaid.” Id. at 243. Plaintiffs point to the identical deficiency in the record in this case. Despite the protestations in its (and intervenor Arkansas's) briefing, HHS conceded at oral argument that the administrative decision in this case shares the same problem as the one in Stewart I. See Oral Argument Transcript at 6-7. The Court's job is thus easy in one respect: the Secretary's approval cannot stand.

         Yet a separate question remains: what is the proper remedy? In Stewart I, the Court vacated the approval and remanded to the Secretary. Here, however, the Government argues that vacatur is improper both because, unlike Kentucky, AWA is already active and halting it would be quite disruptive, and because any error is easily fixed, just as it has been for Kentucky. The challengers disagree, positing that the deficiency in the approval is substantial and that any resulting disruption is outweighed by the ongoing harms suffered by the more than 16, 000 Arkansans who have lost their Medicaid coverage. Given the seriousness of the deficiencies - which, as this Court explains in a separate Opinion issued today, the remand in Kentucky did not cure - and the absence of lasting harms to the Government relative to the significant ones suffered by Arkansans like Plaintiffs, the Court will vacate the Secretary's approval and remand for further proceedings.

         I. Background

         As it did in Stewart I, the Court begins with an overview of the relevant history and provisions of the Medicaid Act. See 313 F.Supp 3d. at 243-44. It then turns to Arkansas's challenged plan before concluding with the procedural history of this case.

         A. Legal Background

         1. The Medicaid Act

         Since 1965, the federal government and the states have worked together to provide medical assistance to certain vulnerable populations under Title XIX of the Social Security Act, commonly known as Medicaid. See 42 U.S.C. § 1396-1. The Centers for Medicare and Medicaid Services (CMS), a federal agency within the Department of Health and Human Services, has primary responsibility for overseeing Medicaid programs. Under the cooperative federal-state arrangement, participating states submit their “plans for medical assistance” to the Secretary of HHS. Id To receive federal funding, those plans - along with any material changes to them - must be “approved by the Secretary.” Id; see also 42 C.F.R. § 430.12(c). Currently, all states have chosen to participate in the program.

         To be approved, state plans must comply with certain minimum parameters set out in the Medicaid Act. See 42 U.S.C. § 1396a (listing 83 separate requirements). One such provision requires state plans to “mak[e] medical assistance available” to certain low-income individuals. Id. § 1396a(a)(10)(A). Until recently, that group included pregnant women, children, and their families; some foster children; the elderly; and people with certain disabilities. Id In 2010, however, Congress enacted the Patient Protection and Affordable Care Act (ACA), colloquially known as Obamacare, “to increase the number of Americans covered by health insurance.” Nat'l Fed. of Indep. Business v. Sebelius, 567 U.S. 519, 538 (2012). Under that statute, states can expand their Medicaid coverage to include additional low-income adults under 65 who would not otherwise qualify. See 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII).

         Generally, a state must cover all qualified individuals or forfeit its federal Medicaid funding. Id. § 1396a(a)(10)(B). That was originally so for the ACA expansion population as well. See 42 U.S.C. § 1396c. In NFIB, however, the Supreme Court held that Congress could not, consistent with the Spending Clause of the Constitution, condition previously appropriated Medicaid funds on the state's agreeing to the expansion. See 567 U.S. at 584-85. The result was that states could choose not to cover the new population and lose no more than the funds that would have been appropriated for that group. Id. at 587. If, however, the state decided to provide coverage, those individuals would become part of its mandatory population. Id. at 585- 87 (explaining that Congress may “offer[] funds under the Affordable Care Act to expand the availability of health care, and requir[e] that States accepting such funds comply with the conditions on their use”). In that instance, the state must afford the expansion group “full benefits” - i.e., it must provide “medical assistance for all services covered under the State plan” that are substantially equivalent “in amount, duration, or scope . . . to the medical assistance available for [other] individual[s]” covered under the Act. See 42 U.S.C. § 1396d(y)(2)(B); 42 C.F.R. § 433.204(a)(2).

         The Medicaid Act, in addition to defining who is entitled to coverage, also ensures what coverage those enrolled individuals receive. Under § 1396a, states must cover certain basic medical services, see 42 U.S.C. §§ 1396a(a)(10)(A), 1396d(a), and the statute limits the amount and type of premiums, deductions, or other cost-sharing charges that a state can impose on such care. Id. § 1396a(a)(14); see also id. § 1396o. Other provisions require states to provide three months of retroactive coverage once a beneficiary enrolls, see id. § 1396a(a)(34), and to ensure that recipients receive all “necessary transportation . . . to and from providers.” 42 C.F.R. § 431.53. Finally, states must “provide such safeguards as may be necessary to assure” that eligibility and services “will be provided, in a manner consistent with simplicity of administration and the best interests of the recipients.” 42 U.S.C. § 1396a(a)(19).

         2. Section 1115 of Social Security Act

         Both before and after the passage of the ACA, a state is not entirely locked in; instead, if it wishes to deviate from the Medicaid Act's requirements, it can seek a waiver from the Secretary of HHS. See 42 U.S.C. § 1315. In enacting the Social Security Act (and, later, the Medicaid program within the same title), Congress recognized that statutory requirements “often stand in the way of experimental projects designed to test out new ideas and ways of dealing with the problems of public welfare recipients.” S. Rep. No. 1589, 87th Cong., 2d Sess. 19, reprinted in 1962 U.S.C.C.A.N. 1943, 1961-62. To that end, § 1115 of the Social Security Act allows the Secretary to approve “experimental, pilot, or demonstration project[s]” in state medical plans that would otherwise fall outside Medicaid's parameters. The Secretary can approve only those projects that “in [his] judgment . . . [are] likely to assist in promoting the [Act's] objectives.” 42 U.S.C. § 1315(a). As conceived, demonstration projects were “expected to be selectively approved by the Department and to be those which are designed to improve the techniques of administering assistance.” Supra S. Rep. No. 1589 at 1962. Once the Secretary has greenlighted such a project, he can then waive compliance with the requirements of § 1396a “to the extent and for the period . . . necessary to enable [the] State . . . to carry out such project.” Id. § 1315(a)(1).

         While the ultimate decision whether to grant § 1115 approval rests with the Secretary, his discretion is not boundless. Before HHS can act on a waiver application, the state “must provide at least a 30-day public notice[-]and[-]comment period” regarding the proposed program and hold at least two hearings at least 20 days before submitting the application. See 42 C.F.R. §§ 431.408(a)(1), (3). Once a state completes those prerequisites, it then sends an application to CMS. Id § 431.412 (listing application requirements). After the agency notifies the state that it has received the waiver application, a federal 30-day public-notice period commences, and the agency must wait at least 45 days before rendering a final decision. Id §§ 431.416(b), (e)(1).

         B* Factual Background

         1. Arkansas Works Amendments

         Arkansas's Medicaid program dates back to 1970. For most of the program's history, the state maintained among the most stringent eligibility thresholds in the nation for adults, covering only the aged, disabled, and parents with very low incomes. See ECF 53-6, Exh. 54 (Ark. Health Care Independence Program Interim Report) at 16. That changed with the passage of the AC A. While states had a choice after NFIB not to expand Medicaid, Arkansas was one of those that opted to do so. Under its expansion program, which began January 1, 2014, Medicaid-eligible persons were given the opportunity to enroll in private insurance plans financed by the state. See AR 71. In its first two years, the program provided health coverage to more than 278, 000 newly eligible individuals, helping to lower the uninsured rate from 19% to 11%. See AR 1274. The program became known as Arkansas Works in January 2017.

         That month featured another significant change in the political landscape, as the Trump administration took over from President Obama. In March 2017, then-Secretary Thomas Price and CMS Director Seema Verma sent a letter to all 50 governors announcing the administration's view that the ACA's expansion of Medicaid was “a clear departure from the core, historical mission of the program.” See AR 85. They thus alerted states of the agency's “intent to use existing Section 1115 demonstration authority” to help revamp Medicaid. See AR 86. Together they promised to find “a solution that best uses taxpayer dollars to serve” those individuals they deemed “truly vulnerable.” Id. Heeding HHS's call, Governor Asa Hutchinson proposed three substantial amendments to Arkansas Works under Section 1115. See AR 2057. First, he proposed to shift income eligibility for the expansion population from 133% to 100% of the Federal Poverty Line. Id. Second, he proposed to “institute work requirements as a condition” of continued Medicaid coverage. Id. Third, he proposed to eliminate retroactive health coverage. Id. The state did not estimate the effects these amendments would have on Medicaid coverage. CMS held a public-comment period from July 11 to August 10, 2017, and numerous organizations offered their views and analysis of the changes.

         On March 5, 2018, the Secretary approved the work requirements and limits to retroactive coverage, concluding that they were “likely to assist in improving health outcomes” and “incentivize beneficiaries to engage in their own health care.” AR 2-4. Under the new work requirements, most able-bodied adults in the Medicaid expansion population ages 19 to 49 must complete each month 80 hours of employment or other qualifying activities - or earn income equivalent to 80 hours of work. Id. Compliance was required to be reported monthly through an online portal. See AR 29. Various groups of persons are exempt, including the medically frail, pregnant women, full-time students, and persons in drug- or alcohol-treatment programs. See AR 28. Nonexempt individuals who do not report sufficient qualifying hours for any three months in a plan year are disenrolled from Medicaid for the remainder of that year and not permitted to re-enroll until the following plan year. See AR 14, 30-31. The work requirements took effect for persons age 30 to 49 on June 1, 2018, and for persons age 20 to 29 on January 1, 2019. See ECF No. 26-3 (Arkansas Works Eligibility and Enrollment Monitoring Plan) at 7-8. As to retroactive coverage, the Secretary approved a reduction from the three months required by the Act to one month; the more drastic proposal of eliminating such coverage entirely was abandoned, as was the Governor's request to reduce eligibility down to 100% of the FPL. See AR 12, 22.

         According to Arkansas's Department of Human Services, only a small percentage of the persons required to report compliance with the work requirements actually did so during the first six months of the program. In October, for example, only 12.3% (1687 out of 13653) of persons not exempt from the requirements reported any kind of qualifying activity. See ECF No. 42-1 (Arkansas Works Reports June-November 2018) at 47, 52. Since the program began, more than 16, 900 individuals have lost Medicaid coverage for some period of time for not reporting their compliance. Id at 18, 27, 36, 45. It is not known what percentage of these individuals completed the work requirements but did not report versus those who did not engage in the work itself.

         2. Kentucky HEALTH

         Arkansas was not the only state interested in the new administration's proposal to rethink the Medicaid Expansion. The Commonwealth of Kentucky proposed a demonstration project - called Kentucky HEALTH - with similar community-engagement requirements and cutbacks to retroactive coverage. (It also contained other elements not relevant here.) Kentucky, unlike Arkansas, did estimate the coverage effects of its project, explaining that thousands of persons would lose their Medicaid benefits over the course of the project; indeed, their estimate corresponded to about 95, 000 persons losing Medicaid for one full year. As it did in Arkansas, the Secretary approved that project on the ground ...


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