## Facts

- Kentucky expanded Medicaid under the ACA, enrolling hundreds of thousands of additional low-income adults.
- Kentucky applied for a Social Security Act § 1115 demonstration waiver (“Kentucky HEALTH”) to change its Medicaid program, including for expansion adults.
- The waiver included “community-engagement” requirements: many beneficiaries would have to complete at least 80 hours per month of work or other qualifying activities to retain coverage.
- Kentucky projected the demonstration would result in about 95,000 fewer people receiving Medicaid over five years.
- CMS approved the waiver in January 2018, emphasizing aims such as public health, fiscal sustainability, and beneficiary self-sufficiency.
- Fifteen Kentucky Medicaid beneficiaries sued under the APA seeking declaratory and injunctive relief, alleging the approval exceeded statutory limits and was arbitrary and capricious.
- The court addressed standing and merits on cross-motions for summary judgment.

## Issues

1. Whether the Medicaid beneficiaries had Article III standing to challenge CMS’s approval of the § 1115 waiver.
2. Whether CMS’s approval was arbitrary and capricious under the APA because the agency failed to adequately consider Medicaid’s central objective of furnishing medical assistance, particularly given projected coverage losses.

## Decision

- Plaintiffs had Article III standing because they faced a concrete risk of losing coverage due to the waiver’s requirements.
- CMS’s approval was arbitrary and capricious under the APA because it did not adequately consider whether the demonstration would promote Medicaid’s core objective of furnishing medical assistance.
- The agency failed to grapple with Kentucky’s projection that the waiver would reduce Medicaid enrollment by about 95,000 people.
- The court vacated CMS’s approval of Kentucky HEALTH and remanded to the agency for further consideration.

## Legal Principles

- A § 1115 demonstration may be approved only if it is “likely to assist in promoting the objectives” of the Medicaid Act.
- Medicaid’s primary statutory objective is furnishing medical assistance to eligible low-income individuals; agency approvals must reasonably account for that objective.
- Under the APA, agency action is arbitrary and capricious if the agency fails to consider an important aspect of the problem or fails to provide a reasoned explanation connecting its decision to statutory objectives.
- Agencies may consider secondary policy aims (e.g., health outcomes, fiscal concerns, self-sufficiency), but those aims cannot substitute for analysis of Medicaid’s coverage-related objective when approving waivers expected to reduce enrollment.

## Conclusion

The court set aside CMS’s approval of Kentucky’s Medicaid work-requirement waiver because the agency did not adequately consider how the demonstration—projected to reduce coverage—could further Medicaid’s central objective of furnishing medical assistance, and remanded for a reasoned decision consistent with the statute and the APA.


Stewart v. Azar, 313 F. Supp. 3d 237 (D.D.C. 2018)