## Facts

- Arkansas operated “Arkansas Works,” a Medicaid expansion program approved as a demonstration project under 42 U.S.C. § 1315(a).
- Arkansas sought federal approval to amend the project to add “community engagement” (work) requirements for most expansion adults ages 19–49.
- Covered individuals generally had to complete 80 hours per month of work or specified alternatives (e.g., education, job training, job search), with exemptions for certain groups (e.g., medically frail, pregnant, caregivers of young children, full-time students).
- Non-exempt beneficiaries who failed to satisfy the requirement for three months in a plan year would be disenrolled for the remainder of the year.
- Arkansas also proposed additional changes, including limiting retroactive coverage, reducing certain eligibility thresholds from 133% to 100% of the federal poverty level, and ending some premium assistance for employer-sponsored coverage.
- The Secretary of Health and Human Services approved the amendments, emphasizing improved health outcomes and beneficiary engagement rather than the effect on Medicaid coverage.
- Medicaid beneficiaries sued, alleging the approval violated the Administrative Procedure Act (APA) because the Secretary failed to consider Medicaid’s statutory objective and the likely loss of coverage.

## Issues

1. Whether HHS acted arbitrarily and capriciously under the APA by approving Arkansas’s § 1115 demonstration amendments without adequately evaluating whether they would promote Medicaid’s objective of furnishing medical assistance, including the effect on coverage levels.

## Decision

- The D.C. Circuit affirmed the district court’s judgment vacating the approval.
- The court held the Secretary acted arbitrarily and capriciously by failing to consider whether the demonstration would help Arkansas furnish medical assistance, a central objective of Medicaid.
- The court concluded that emphasizing alternative aims (e.g., improved health outcomes, financial independence, and “safety net” framing) could not replace analysis of Medicaid’s coverage objective.
- The court found the agency failed to address an important aspect of the problem: anticipated coverage losses highlighted in the administrative record.
- Vacatur of the approval was upheld as the remedy.

## Legal Principles

- Section 1115 approvals must be “likely to assist in promoting the objectives” of Medicaid; agency discretion is bounded by statutory purposes.
- Under APA arbitrary-and-capricious review, an agency acts unlawfully if it fails to consider an important aspect of the problem or offers reasoning inconsistent with the record.
- For Medicaid demonstrations, the agency must reasonably evaluate whether the project advances Medicaid’s core purpose of furnishing medical assistance (health coverage) to eligible individuals.
- A demonstration approval that does not meaningfully confront expected coverage loss, and instead relies on objectives not anchored in Medicaid’s statutory purpose, is arbitrary and capricious.

## Conclusion

The D.C. Circuit set aside HHS’s approval of Arkansas’s Medicaid work-requirement demonstration amendments because the agency did not adequately analyze whether the project would advance Medicaid’s central objective of providing medical assistance, particularly in light of predictable coverage losses.


Gresham v. Azar, 950 F.3d 93 (D.C. Cir. 2020)