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From Health Reform WK-EDGE, April 5, 2019

Court again blocks Kentucky’s proposed Medicaid program

By Brian Craig, J.D.

The federal district court in D.C. has ruled once again that Kentucky’s proposed Medicaid program with work or community-engagement requirements, Kentucky HEALTH, violates the federal Administrative Procedure Act.

Concluding that the HHS Secretary’s reapproval of Kentucky HEALTH is arbitrary and capricious for failing to adequately consider the proper objectives of the Medicaid Act, the federal district court in Washington, D.C. has once again blocked Kentucky’s proposed Medicaid program which includes work or community-engagement requirements. The court found that the HHS Secretary’s reapproval of Kentucky HEALTH, set to take effect on April 1, violates the federal Administrative Procedure Act for failing to adequately consider the central objective of Medicaid to furnish medical assistance to needy populations (Stewart v. Azar, March 27, 2019, Boasberg, J.).

Background. HHS initially approved Kentucky HEALTH on January 12, 2018, which would condition Medicaid eligibility for a large portion of its beneficiaries on work or community-engagement requirements and impose several additional obligations intended to make Medicaid more like commercial insurance. On June 29, 2019, the federal district court issued its first opinion concluding that Kentucky HEALTH violated the Administrative Procedure Act as arbitrary and capricious. Stewart v. Azar, 313 F. Supp. 3d 237 (D.D.C. 2018) ("Stewart I"). Following the Stewart I decision and with modest changes in the plan, the Secretary reapproved Kentucky HEALTH on November 20, 2018. The plaintiffs, Kentucky residents currently enrolled in Kentucky’s Medicaid program, once again challenged the Secretary’s approval contending the plan violated the Administrative Procedure Act. Kentucky HEALTH was set to take effect on April 1, 2019. The parties cross-moved for summary judgment.

Medicaid Act objectives. After concluding that proper jurisdiction exists, the court analyzed whether the HHS Secretary’s reapproval of Kentucky HEALTH violates the federal Administrative Procedure Act. The Administrative Procedure Act requires courts to hold unlawful and set aside agency action, findings, and conclusions that are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706(2). Agency action is arbitrary and capricious if, for example, the agency entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.

The court found that the Secretary’s approval is arbitrary and capricious for not adequately considering the objectives of the Medicaid Act. The court held that a central objective of the Medicaid Act is furnishing medical assistance to needy populations. Rather than adequately addressing Kentucky HEALTH’s potential to cause loss of medical coverage, the court found that the Secretary promoted alternative proposed objectives of beneficiary health, financial independence, and the fiscal sustainability of Medicaid. The court found that the goals relating to beneficiary health and financial independence are not objectives of the Medicaid Act. Regardless, the Secretary’s failure once again to adequately consider the effects of Kentucky HEALTH on coverage is alone fatal to the approval. The court found that states cannot refashion Medicaid "in any way they choose" but must follow the objectives of the Medicaid Act to promote health coverage for people. The court also found Kentucky HEALTH’s objectives in saving the state of Kentucky money and theorizing that people are healthier if they are forced to search for employment because a job will teach them self-sufficiency do not relate to the fundamental purpose of Medicaid. The court concluded the HHS Secretary failed to weigh the benefits of self-sufficiency against the consequences of coverage loss, which would harm and undermine the financial self-sufficiency of others.

Coverage loss. The court also found that the HHS Secretary’s approval of Kentucky HEALTH without knowing how many people in Kentucky would lose coverage is arbitrary and capricious. The HHS Secretary nominally acknowledged that approximately 95,000 people could lose coverage. Others estimated that between 175,000 and 297,500 could lose coverage under the new plan. Whatever calculation is used, the court determined the number is undoubtedly substantial and that HHS Secretary’s estimate of the people who would lose coverage did not involve reasoned decision-making that arbitrary-and-capricious review requires. Therefore, the court vacated the HHS Secretary’s decision reapproving Kentucky HEALTH and remanded to HHS for further review.

The case is No. 1:18-cv-00152-JEB.

Attorneys: Devi M. Rao (Jenner & Block LLP) for Ronnie Maurice Stewart. James Mahoney Burnham, U.S. Department of Justice, for Alex M. Azar, II.

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