366 F. Supp. 3d 125
D.C. Cir.2019Background
- Kentucky submitted a §1115 waiver ("Kentucky HEALTH") to condition much Medicaid eligibility (primarily the ACA expansion population) on work/community-engagement and add premiums, lockouts, elimination of most retroactive eligibility and non-emergency transport, and other market-like features.
- CMS originally approved the waiver in Jan 2018; plaintiffs (Kentucky Medicaid enrollees) sued and this Court vacated the approval in Stewart v. Azar, finding the Secretary failed to adequately consider the waiver's effect on Medicaid coverage and relied on improper alternative objectives.
- After notice-and-comment on remand, the Secretary reapproved Kentucky HEALTH in Nov 2018 with limited substantive changes and a revised rationale emphasizing beneficiary health, financial independence, and fiscal sustainability; he also argued potential coverage loss under the waiver was smaller relative to the alternative of Kentucky de-expanding the ACA expansion entirely.
- Plaintiffs again challenged the reapproval under the Administrative Procedure Act (APA), arguing the Secretary still failed to analyze whether the waiver would promote the Medicaid Act's core objective of furnishing medical assistance (coverage).
- The Court reviewed the administrative record and, applying Chevron and arbitrary-and-capricious standards, concluded the reapproval remained unlawful and vacated it, remanding to HHS for further review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Secretary lawfully determined the §1115 waiver "promotes the objectives of the Medicaid Act" | Stewart: Secretary failed to adequately analyze likely coverage loss and did not weigh it against asserted benefits | HHS/Kentucky: Secretary reasonably considered coverage, health, financial independence, and fiscal sustainability; any coverage loss is acceptable given state may de-expand expansion absent approval | Held for Stewart: Secretary again failed to adequately analyze coverage impacts; reapproval arbitrary and capricious |
| Whether "health" and "financial independence" are standalone statutory objectives supporting waiver approval | Stewart: These are not independent objectives that can override coverage concerns | HHS: Health and independence are legitimate objectives to consider under §1115 | Held for Stewart: Health and financial independence are not permissible substitutes for analysis of coverage loss; even if considered, Secretary failed to weigh benefits against coverage harms |
| Whether fiscal sustainability can justify approval (as independent objective) | Stewart: Fiscal considerations may be relevant but cannot justify approval without evidence of savings and without weighing coverage harms | HHS/Kentucky: Fiscal sustainability is a reasonable objective; waiver may preserve some coverage versus the State de-expanding entirely | Held for Stewart: Agency may consider fiscal sustainability, but here it provided no sufficient findings that waiver would improve sustainability and failed to balance savings against coverage loss |
| Whether a state's threat to de-expand Medicaid renders any waiver "coverage-promoting" (i.e., establishes baseline) | Stewart: Comparing waiver to hypothetical state abandonment of Medicaid is impermissible and would give states unconstrained leverage; baseline must be compliance with the Act | HHS/Kentucky: Threat to terminate expansion means waiver preserves coverage relative to de-expansion; Secretary may consider that context | Held for Stewart: Rejected—agency cannot treat a state's threatened de-expansion as the relevant baseline; that interpretation is unreasonable and arbitrary |
Key Cases Cited
- Nat'l Fed. of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012) (limits on coercing states into Medicaid expansion)
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (1983) (APA arbitrary-and-capricious standard)
- Chevron U.S.A., Inc. v. Nat'l Res. Def. Council, Inc., 467 U.S. 837 (1984) (agency deference framework)
- Am. Wild Horse Pres. Campaign v. Perdue, 873 F.3d 914 (D.C. Cir. 2017) (agency must adequately analyze statutory objectives)
- Cablevision Sys. Corp. v. FCC, 597 F.3d 1306 (D.C. Cir. 2010) (recognizing imprecision in agency predictive judgments but requiring reasoned analysis)
- Allina Health Servs. v. Sebelius, 746 F.3d 1102 (D.C. Cir. 2014) (remedies under the APA and when vacatur may be withheld)