Medicaid work requirement lawsuit targets CMS exemption rules

A coalition of more than 20 states filed suit to vacate key parts of recent regulations implementing the Medicaid work requirement, arguing that CMS overstepped its bounds.

Litigation filed in the U.S. District Court for Massachusetts states that key parts of a recently issued interim final rule with comment period (IFR) deviate from congressional intent as expressed in the One Big Beautiful Bill (OBBBA), which established the work requirement. The requirement is set to apply to most adults in the Medicaid expansion population starting Jan. 1, 2027.

The plaintiffs specifically take issue with CMS’s interpretation of medical frailty as an exemption from the work requirement. They also foresee problems with the restricted availability of attestation processes for beneficiaries to obtain exemptions. They seek a preliminary injunction and then vacatur of the IFR’s core provisions.

Why medical frailty is central to the litigation

The plaintiffs noted that the OBBBA provides for exemptions from the work requirement for several conditions, including medical frailty.

In the final rule, CMS added the stipulation that a medical condition qualifies for an exemption only if it “significantly impairs the individual’s ability to comply with the community engagement requirement,” (i.e., to work, receive job training, volunteer or attend school).

Such a provision contravenes the statute, according to the plaintiffs, because Congress meant for exemptions to apply “based on the existence of a demographic characteristic or medical condition, without reference to the individual’s ability to work.”

The OBBBA’s “broad statutory exclusions exist for good reason,” the plaintiffs wrote. “People with disabilities, patients in the middle of cancer treatment, or those struggling with another serious or complex health condition shouldn’t be at risk of losing the care that helps maintain their health.”

CMS’s interpretation creates a greater burden for Medicaid beneficiaries, providers and state agencies and increases the risk that people will lose coverage because of administrative snags, according to the litigation.

If CMS expects community providers to determine functional impairment, the agency “has not explained why it believes it is feasible to place this requirement on already overburdened community healthcare providers, many of whom are likewise not expert in occupational medicine or job readiness evaluations.”

The agency’s possible counterargument to the litigation may be seen in a statement in the IFR that “reading the statute to require automatic classification as medically frail or otherwise having special medical needs based solely on diagnosis or condition would risk sweeping in individuals whose conditions do not significantly impair their functional capacity.”

Self-attestation limits could add administrative burden

Based on language in the OBBBA and earlier guidance from CMS, states had been counting on being able to verify exemptions through several mechanisms, including self-attestation when claims data or provider documentation is unavailable. However, the IFR limits attestation as a path to qualify for an exemption starting in 2028.

States can still accept self-attestation in instances when documentation is not “reasonably available,” but that standard is murky, according to the plaintiffs.

“The IFR thus irrationally permits self-attestation in some instances but bars it in others, and otherwise significantly limits states’ abilities to conduct verifications using auditable self-declarations, limiting flexibility that H.R. 1 [the OBBBA] explicitly preserved for the states,” the plaintiffs wrote.

A related concern pertains to the guidance received from CMS over a six-month period before publication of the IFR. The plaintiffs say the guidance ultimately was contradicted by IFR provisions.

States spent ample time and resources preparing to implement the work requirement based on that earlier guidance, according to the litigation. Reworking Medicaid systems before Jan. 1 will be burdensome, and the timeline is even more constricted when considering that beneficiary notices about the work requirement are due out by Aug. 31.

“Such a mandate was difficult to comply with when plaintiff states had over a year of notice and consistent guidance from CMS,” the court filing states. “With just over two months to go until their first major deadline, compliance with an entirely new set of expectations is now markedly more costly and difficult.”

Financial implications for hospitals and state safety nets

The plaintiff states foresee adverse consequences from the final rule, among them “increasing burdens on state-funded safety nets, uncompensated care funds and state hospital emergency departments as the newly uninsured become the newly critically ill.”

Negative impacts if the IFR stands “will not only extend to Medicaid programs and Medicaid beneficiaries but will force healthcare providers to absorb the costs of uncompensated care to the detriment of taxpayers and ultimately the general public, with reduced access to healthcare for everyone,” Jennifer Evans, a shareholder with the law firm of Polsinelli, said in emailed comments.