Setting Hard Limits: A Federal District Court Puts up Major Hurdle to the Reworking of Medicaid in Stewart v. Azar

Health and Human Services Secretary Alex Azar testifying in front of Congress in June. HHS has come under scrutiny for its use of 1115 waivers.

By Carmel Shachar

Since the Republican controlled Congress failed to repeal the Affordable Care Act in 2017, the Trump administration has been trying to implement its more conservative vision of Medicaid through waivers. On June 29, 2018, however, the D.C. federal district court issued a decision in Stewart v. Azar which would make it significantly more difficult for an administration to rework Medicaid without a congressional mandate.

This case, should it survive subsequent appeals, will represent an important turning point in the ability the Department of Health and Human Services has to shrink or undermine Medicaid through the use of administrative waivers.

Revising Medicaid Through Waivers

The Secretary of the Department of Health and Human Services (HHS) is empowered to approve “experimental, pilot, or demonstration projects” that are likely to advance the objectives of Medicaid, through the use of 1115 waivers. Section 1115 of the Social Security Act has since 1965 allowed states to radically rework Medicaid by waiving certain requirements in favor of funding novel programs.

For example, Massachusetts used an 1115 waiver to partly fund health care coverage expansion a decade ago and most states have used 1115 waivers to implement Medicaid managed care.

The Trump administration, now that Congress has failed to undo the ACA, began to aggressively encourage states to use 1115 waivers to implement changes that reduce access to care for Medicaid beneficiaries. This began when then-Secretary Tom Price and CMS Administrator Seema Verma issued a letter to state Medicaid leadership calling for states to submit “innovative solutions to Medicaid’s challenges” and continued with their new policy of welcoming Medicaid work requirements in waiver proposals.

This call resulted in the submission and approval of 1115 waivers that included barriers to care such as benefit restrictions, additional payments for beneficiaries, coverage restrictions, and most controversially, work requirements. Before this administration, these types of Medicaid modifications had been generally considered inappropriate because of the clear negative impact they have on enrollment and access to care.

The first of these new, coverage unfriendly waivers to be approved was Kentucky’s, in January 2018. Many feared that the approval represented the start of a new phase of Medicaid, one marked by decreased coverage and access to care that operated in contrast to the objectives of the original Medicaid statute and the Affordable Care Act.

Stewart v. Azar

A group of Medicaid beneficiaries filed suit in D.C. federal district court challenging HHS’s approval of Kentucky’s 1115 waiver. The court issued a decision vacating the waiver approval and remanding it to HHS to evaluate the waiver’s impact on the objectives of the Medicaid program. This is notable because, before this case, there were only a handful of cases reviewing 1115 waivers, with even fewer invalidating approved waivers.

The court first rejected HHS’s argument that the Secretary’s decisions on 1115 waivers should not be subject to judicial review. Instead, the court argued that the Secretary has limits on what he may approve via 1115 waiver because he cannot exceed the authority bestowed on him by Congress. Therefore, courts can review his decisions to ensure that he is complying with the limits of his statutory authority.

The court also found that the approval of Kentucky’s 1115 waiver was arbitrary and capricious—meaning that it violated the Administrative Procedure Act—because the Secretary failed to consider the impact the waiver would have on providing affordable health care coverage to the low-income populations served by Medicaid.

The court noted that the Secretary never explored how many people would lose coverage under Kentucky’s waiver. This oversight is especially egregious in light of Kentucky’s own estimate that 95,000 individuals would lose coverage, and a significant number of public comments submitted to HHS highlighted research and concerns that the waiver would negatively impact coverage. To underscore this oversight the court even included an appendix to the decision excerpting public comments raising concerns with the waiver and citing research regarding potential coverage losses.

The court rejected the argument that it was sufficient that the Secretary considered the impact the waiver would have on the promotion of beneficiary health as a substitute for considering the coverage implications. The court emphasized that the Secretary must consider impact on access to affordable coverage because it is an objective of the Medicaid program, as articulated by Congress.

The Impact of Stewart v. Azar

The decision is broader than just the implementation of work requirements in Kentucky. Originally, 1115 waivers were intended for smaller demonstration projects, which were not even statewide in scope.

In the intervening years, however, 1115 waivers have grown by leaps and bounds to be a significant tool in implementing changes to Medicaid. By making it clear that the Secretary’s approval of 1115 waivers is not above judicial review, the court has limited the use of a tool that can be used to significantly modify Medicaid without Congressional authorization. By then invalidating the waiver because it determined that the Secretary had not complied with the objectives of Medicaid, the court further reminded HHS that 1115 waivers are not an appropriate vehicle for reimagining Medicaid entirely, especially when that re-envisioning would result in decreased access to care for lower income individuals.

We live in the golden age of the administrative state, and this case alone is unlikely to change that, even if the decision survives the inevitable appeals.

Nevertheless, this case represents an important hard stop on the ability of a presidential administration to circumvent the need for Congressional authorization when it comes to important programs such as Medicaid. It may prevent the Trump Administration from truly making its mark on Medicaid or put pressure on Congressional Republicans to revisit health care legislation in order to properly make these significant changes to the program.

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