Michealle Gady, JD
President, Founder, & CEO
This week all eyes were on the Supreme Court as it heard arguments in Texas v. California, a case that once again challenges the constitutionality of the Affordable Care Act (ACA). Given the monumental importance of this decision including its immediate impact on tens of millions of people that benefit from the ACA’s coverage expansion, and the implications for our almost $4 trillion healthcare system, that focus is fully merited. However, there is another case making its way to the SCOTUS that is also critically important to tens of millions of people: Alex M. Azar, II, Secretary of Health and Human Services, et al., Petitioners v. Charles Gresham, et al. This case will determine whether the Centers for Medicare and Medicaid Services (CMS) granting authority to states to impose work requirements on individuals receiving health insurance through the Medicaid program is in compliance with applicable law or if they have to go back to the drawing board.
SOME HISTORY: THE ORIGINS AND OBJECTIVES OF MEDICAID
Medicaid was signed into law by President Johnson in 1965. The objective then (and now) was to provide health insurance to individuals with low incomes.[i] In creating the Medicaid program, Congress recognized the critical role that health insurance coverage plays in ensuring economic and health wellbeing. Individuals have to meet income and asset requirements in order to qualify, in addition to falling into one of the eligible categories. The program was initially targeted to individuals who were typically not in the workforce, particularly at that time, including children, mothers, and individuals with disabilities or a serious illness.
The narrow scope of the program, targeting a population popularly perceived as the ‘deserving poor’ was intentional, but it was never intended to be the end of the story. As documented by numerous memoirs and political history analyses, Medicaid and Medicare were intended to provide an incrementalist pathway towards universal coverage.[ii] Of course, one of the downsides of incrementalism is the danger of inertia; 45 years passed before there was any considerable progress in that direction. It wasn’t until the passage of the ACA in 2010, expanding coverage to tens of millions of people through subsidized private insurance or through expansion of Medicaid, that the federal government began to untether eligibility from the age-old classification of the deserving and undeserving poor. Through the ACA, Congress extended coverage to all individuals under the age of 65 with incomes below 133% of the federal poverty limit.
AN EXERCISE IN THE APPLICATION OF ADMINISTRATIVE LAW
While CMS, which is housed within the U.S. Department of Health and Human Services (HHS), is responsible for administering the program, it is Congress that has the power to structure the Medicaid program, including setting eligibility and coverage criteria. Through Section 1115 of the Social Security Act, the Secretary of HHS has the authority to waive certain Medicaid requirements so that states can experiment with new and innovative ways to provide Medicaid coverage. A key requirement of such waivers is that they must promote the objective of the Medicaid program, which, remember, is to provide health insurance to individuals with low incomes.
With that historical overview and context in mind, let’s now talk about work requirements as a criterion for Medicaid eligibility. Work requirements as a pre-requisite for a given public benefit are not a new phenomenon, but it is new for Medicaid. And, like in other “welfare to work” efforts, the primary objective is to reduce expenditure by limiting access through the imposition of administrative hurdles and restrictive criteria.
WHAT ARE MEDICAID WORK REQUIREMENTS?
In January 2018, the Trump administration issued guidance to encourage states, through 1115 waivers, to impose work requirements on individuals otherwise eligible for Medicaid. In its State Medicaid Director Letter, the agency invited states to “test incentives that make participation in work or other community engagement a requirement for continued Medicaid eligibility or coverage for certain adult Medicaid beneficiaries in demonstration projects authorized under section 1115 of the Social Security Act.” For clarity, this is directed specifically at the population eligible for Medicaid as a result of the ACA’s expansion. In the letter, CMS states that the programs should be designed to “promote better mental, physical, and emotional health” and/or “help individuals and families rise out of poverty and attain independence” both of which are “in furtherance of the Medicaid programs objectives.” These are lofty goals but they are not Medicaid’s goals. Medicaid’s objective is to provide health insurance coverage to individuals with low incomes: no more and no less.
This letter thus constituted a fundamental shift in CMS’s policy, which the Agency acknowledged frankly. While it seemed to prioritize abstract “wellness” goals over the practical mandate to provide insurance coverage, this initiative was the first time that the agency has actively encouraged states to put in place program changes that will have the express effect of limiting eligibility for the program. While waivers to eligibility requirements have been granted in the past, those have only ever expanded eligibility or removed administrative requirements.
The letter also set another record across the federal administration of public benefit programs. While the Trump Administration referenced existing work requirements in other social support programs, specifically the Supplemental Nutrition Assistance Program (SNAP) (previously known as the food stamps program) and in the Temporary Assistance for Needy Families (TANF) (previously known as welfare), each of these eligibility restrictions only followed express Congressional authority. More specifically, the cited work requirements were imposed by Congress in legislation that reformed both of these programs, as opposed to administrative action in direct contravention of the criteria as established by legislation.
HOW DID STATES RESPOND?
Since that time, a number of states have taken up the Trump Administration on their invitation and submitted waivers that included work requirements. CMS ultimately approved 12 such waivers and there are currently 7 additional waivers pending approval. Arizona, Arkansas, Georgia, Indiana, Kentucky, Michigan, Nebraska, New Hampshire, Ohio, South Carolina, Utah, Wisconsin all had work requirements approved. Alabama, Idaho, Mississippi, Montana, Oklahoma, South Dakota, and Tennessee waivers are pending approval. In many cases, the target of these work requirements are individuals in the expanded Medicaid population created by the ACA. However, some states seek to require work or community engagement among certain adults traditionally covered by Medicaid, principally parents.
WHAT HAPPENED IN THE COURTS?
Not surprisingly, with such a significant shift in agency policy, litigation ensued. Residents of Kentucky and Arkansas sued the Secretary of Health and Human Services in the District Court of the District of Columbia. In two separate cases, Stewart v. Azar and Gresham v. Azar, Judge James Boasberg held that the Secretary of HHS acted in an arbitrary and capricious manner when authorizing work requirements through 1115 waivers because the agency did not consider whether the demonstration would promote Medicaid’s objective, which is the provision of medical assistance (or health insurance). In the approvals of Arkansas and Kentucky’s waivers, Judge Boasberg determined that, while the Agency may have evaluated whether certain improved health outcomes would be promoted, the Agency did not consider the effect on coverage and stated that “focus on health is no substitute for considering Medicaid’s central concern: covering health costs through the provision of free or low-cost health coverage.” Judge Boasberg vacated Kentucky’s waiver and blocked Arkansas’ program, which was already implemented.
The Secretary of HHS then appealed to the Circuit Court of the District of Columbia. By this time, Kentucky had already ended its work requirements program and so was dismissed from the case while Arkansas continued. The Circuit Court, consisting of a three-judge panel (with both Democrat and Republican appointees) agreed with Judge Boasberg and held that the agency’s decision was arbitrary and capricious, stating that in making its decisions to authorize work requirements, the agency failed to consider the one and only statutory objective of Medicaid: the provision of health insurance. The Agency is not permitted to consider non-statutory objectives, especially at the exclusion of the only statutory objective of the program.
Despite the same ruling at both the district court and the circuit court, the Secretary appealed to the Supreme Court in July 2020. The parties are filing briefs and other proceedings with the Court. The Supreme Court has not indicated whether it will accept the case.
A FAULTY HYPOTHESIS
The implication of this policy is that individuals who qualify for Medicaid, whether under traditional eligibility requirements or the ACA’s expanded eligibility, are not sufficiently engaged in employment or other activities, such as going to school, volunteering, or caring for children or other family members. However, the data do not support this position. An analysis by the Kaiser Family Foundation found that the vast majority of enrollees (82%) do, in fact, work, either full-time or part-time; are enrolled in school, or are caring for dependents. Importantly, the analysis found that of those who are employed, about 10% have more than one job. Of those not working or engaging in community activities, 11% were ill or disabled, while the remaining 7% are retired, unable to find work, or not working for other reasons.
Further, those who are employed, most often work for small companies or in industries with low rates of employer-provided insurance. Such industries include food service, construction, retail, home care workers, maids and cleaners, and landscaping. These also tend to be low-wage jobs, which means that individuals are not able to access insurance in the individual market or on the state exchanges because they fall below the income levels that would allow them to qualify for subsidies.
Many workers face considerable barriers to work, including poor health and structural barriers like lack of reliable transportation, homelessness, and limited or no childcare. It is notable that in its letter to states, CMS acknowledged that such barriers exist and encouraged states to put programs in place that would address such barriers but also clearly stated that Medicaid dollars could not be used to pay for such services.
WHAT IS THE EFFECT OF MEDICAID WORK REQUIREMENTS?
Loss of Medicaid has significant implications on an individual and community level. Whether work requirements lead to increased work or community engagement and improved economic wellbeing is not an untested hypothesis. As mentioned above, both SNAP and TANF have had work requirements in place since the mid-1990s. Multiple studies have demonstrated that work requirements result in loss of benefits without an increase in employment. The persistence of work requirements in other programs (despite the demonstrated failure of its lofty goals) demonstrates exactly what work requirements are: Administrative barriers. Administrative barriers and program complexity are tried and tested tools to restrict the access and retention of benefits.
We also have evidence that work requirements in Medicaid have resulted in the same outcomes experienced in other programs: reduced benefits and no change in employment. As a result of the Court’s decision to halt Arkansas’ demonstration after it had been in place for almost a year, we are able to evaluate the impact of the requirement during that time. The analysis showed that 18,000 people who were eligible (meaning they were engaged in work or community activities) lost their coverage. The confusion around the program, the limited means of reporting activity, and other barriers resulted in this loss of coverage. When the work requirement was suspended, Arkansas saw enrollment levels increase. There was no evidence of an increase in employment or other community engagement.
States that have a reduction in Medicaid enrollment have a corresponding increase in the uninsured rate because those in need of Medicaid are often not able to obtain coverage through other means. High rates of uninsured have a direct impact on the health of a community as communities with high rates of uninsured also have high rates of chronic medical conditions and disability. Individuals without insurance are often not able to access medication and other care and treatment, which means that their health often worsens, making it particularly difficult for them to engage in daily activities like working, going to school, or taking care of loved ones. They also wait to get care until they can’t wait any longer, meaning that the care they receive is often more costly. Because they lack insurance, they are often not able to pay for that care, which increases unpaid debt held by hospitals, which in turn drives up the cost for those who are insured.
Additionally, states had to invest millions of dollars to create systems that would allow them to monitor and enforce the work requirements. There is a high entry cost when you get in the business of restricting access, and one that has (at best) a low return on investment. A Government Accountability Office (GAO) report found that states spent between $6 million and $271 million to make changes to existing systems or to implement new systems. According to the GAO, these costs were not considered by CMS when evaluating the waiver requests and, further, at least a portion of these expenses did not qualify for federal matching funds. Kentucky invested an estimated $271 million in systems needed to implement and operate the work requirements. Kentucky never implemented its program and has since terminated it.
WHAT HAPPENS NEXT?
There are likely a few different things to happen next. First, the Supreme Court will need to determine if it will hear the case. The Respondents (those who originally challenged the state work requirements in Arizona and New Hampshire) argue that there are no grounds for the Supreme Court to hear the case, as there is not a split in the Circuit Courts and the lower courts applied well-settled law in coming to its conclusion. This means that there isn’t an issue of law for the Supreme Court to settle. Not surprisingly, the Petitioners, which includes the US DHHS, the State of Arkansas, and the State of New Hampshire, argue the opposite. So, for now, we wait to see what the Court decides.
With a new Administration in January, it is possible that, in time, work requirements will be eliminated or significantly changed, but that is unlikely to happen immediately. Instead, as the new Administration implements its policies, they are more likely to encourage states to focus on ways of expanding coverage and eliminating barriers, opening up the opportunity for states to make these changes. It is important to note, however, that the CARES Act does include maintenance of effort protections that prevent states from making Medicaid eligibility more restrictive than is currently in place. At least for a period of time, this will limit states’ ability to move forward with work requirements.
It is also possible that Congress legislates on the issue. When enacting the ACA 10 years ago, Congress had the opportunity to impose work requirements as a condition of eligibility for the Medicaid expansion population. It chose not to do so. This is a key point articulated in the Circuit Court’s decision and it carries significant weight. Maintaining the balance of power between the arms of government is fundamental to our governing process.
In the meantime, many states that have approved work requirement programs have actually terminated the programs or suspended them. While we struggle with a global pandemic and the economic fallout that has resulted, it makes sense for states to at least suspend these requirements. We encourage states to terminate the programs entirely given that the results from Arkansas’ program demonstrate that 1. These programs do not lead to increased employment or community engagement and 2. They result in loss of coverage even though people continue to be eligible, and therefore, in need of coverage.
It’s time to go back to focusing limited state Medicaid resources and expertise on improving the existing program and achieving its true goals. There is a lot of work to do still and waivers have the chance to truly improve lives if leveraged to increase access and improve quality.
[i] Section 1901 of the Social Security Act authorizes appropriations to support State Medicaid programs “For the purpose of enabling each State, as far as practicable under the conditions in such State, to furnish (1) medical assistance on behalf of families…or…individuals, whose income and resources are insufficient to meet the cost of necessary medical services….”
[ii] Wilbur Cohen, a primary architect of Medicare and Medicaid: “Although I had been a strong advocate of a comprehensive and universal nationwide health insurance plan since 1940, I was conscious of the monumental administrative and management problems involved in such a large undertaking. My professors and mentors had stressed administrative competence in social legislation. The merits of the incremental approach to implementing the social security system, which began in 1938 under the leadership of Arthur J. Altmeyer, was always in the forefront of my mind. Underlying this approach was the acceptance of the desirability of learning by doing—a pragmatic approach of trial and error—and of resolving problems arising from the unintended consequences of legislative action that affected human and institutional behavior.”