Demonstrating Tension Between State And Federal Power In Medicaid: The Price Of Georgia’s Waiver Fight

Just days before the end of President Donald Trump’s term, the Secretary of the Department of Health and Human Services (hhs) approved the “Georgia Pathways” waiver proposal, which would extend Medicaid coverage to people earning up to 100 percent of the federal poverty level provided they pay premiums and fulfill work requirements. Georgia contends that the waiver for this demonstration project would provide Medicaid coverage to those not currently eligible. But, the waiver does not fulfill the terms of the Affordable Care Act (ACA) Medicaid expansion, and by imposing eligibility restrictions not permitted by federal law, the waiver would reach only a small subset of people who would be eligible if Georgia implemented Medicaid expansion according to the ACA. Also, other beneficiaries could be disenrolled due to the waiver’s new requirements. The Biden administration revoked approval for the work and premium requirements before Georgia’s implementation began but after providing the state of Georgia with an opportunity to show that the plan would promote the purposes of Medicaid. Georgia responded by suing HHS. In challenging the Secretary’s authority to grant and oversee waivers of federal law, Georgia has made novel arguments that seek to narrow federal authority and significantly expand state power within federal spending programs.

The HHS Secretary has authority to waive certain parts of federal Medicaid law under Social Security Act section 1115. Section 1115 allows states to apply for “demonstration project” waivers to use Medicaid funds in ways that federal rules do not otherwise allow, provided that the Secretary determines that the demonstrations are likely to promote the purposes of the Medicaid program. Waiver applications such as Georgia’s require state and federal notice and comment processes as well as state consideration of submitted comments. The Secretary’s approval of a waiver does not remove federal oversight. Rather, waiver approvals require states to report data back to HHS and to comply with other requests. For every waiver, HHS retains authority to require supplemental information and to withdraw approval if the Secretary determines the waiver does not serve the purposes of the Medicaid program.

Georgia’s lawsuit contends that the state is injured by HHS’s withdrawal of work requirement and premium waiver authority because it has relied on the waiver approval and steps taken to implement it. Whether Georgia has any reliance interest is questionable and does not displace HHS’s obligation to oversee Medicaid and ensure that waivers promote program objectives when they are approved and as they are implemented. Federal courts have held that the program’s primary objective is to provide coverage to low-income people; this central objective is not waivable.

Medicaid Waivers And The ACA

The current scenario, in which Georgia has sued the Biden administration over exercise of secretarial discretion, grew from prior administrations’ expansion of federal power to interpret statutory provisions as well as a novel state assertion of power—all at the expense of low-income, uninsured people. Georgia’s brief asserts that states can implement any version of the ACA’s Medicaid expansion they desire under the National Federation of Independent Business v. Sebelius (NFIB) decision and that HHS does not retain oversight authority once the waiver is approved. This is not consistent with the US Supreme Court’s decision.

To be clear, the US Supreme Court in NFIB held that Medicaid expansion was an unconstitutionally coercive exercise of congressional spending power because states could theoretically lose all of their Medicaid funding if they did not expand eligibility to a new mandatory category: nonelderly adults earning up to 138 percent of the federal poverty level, including childless adults who had no prior pathway to coverage. Congress could proceed with the ACA’s expansion of coverage if states desired to implement the new category of Medicaid eligibility; the only change to the ACA’s scheme was the conclusion that states could not lose all of their Medicaid funding if they refused to expand. The US Supreme Court did not amend any language within the ACA, and it did not empower states to alter the statutory terms of the ACA or other federal laws. Neither did the US Supreme Court alter the terms of section 1115 waivers. As such, states that do choose to expand Medicaid do not have any right to do so on their own terms. The US Supreme Court’s remedy was to allow states to opt in to Medicaid expansion, not to strike it down.

Many states have expanded Medicaid eligibility through 1115 waivers, including some prior to implementation of the ACA that relied on imposing premiums to meet budget neutrality requirements; all exist within statutory guidelines at the discretion of the HHS Secretary. Broadly speaking, the rule of law emphasizes procedures such as those required of section 1115 waivers because such processes help to ensure substantive accuracy. The reliance on formal processes has become more significant to section 1115 waivers over time, and especially after the US Supreme Court’s ruling in NFIB empowered states to choose whether to adopt Medicaid expansion. The Obama administration used section 1115 waivers as a tool to negotiate with states that otherwise were unlikely to expand Medicaid coverage.

The Trump administration took this practice in a different direction after Congress failed in 2017 to repeal the ACA, wielding section 1115 waiver authority in ways not previously used by Democratic or Republican administrations. One example was the Trump administration’s novel, unlawful policy of encouraging states to impose work requirements as an additional condition of Medicaid eligibility through waivers. Although many states tried to frame the policy as a trade—Medicaid expansion for permission to impose new administrative conditions that Congress has repeatedly rejected—no state has expanded Medicaid in exchange for HHS’s approval of work requirements. HHS under the Trump administration also approved waivers allowing states to impose other barriers to enrollment on traditional Medicaid populations, such as requiring premium payments of low-income parents. Extensive research shows that premiums prevent low-income people from accessing necessary health care, and administrative barriers result in people losing coverage for which they are eligible in social programs. States applying for 1115 waivers with such features since 2017 have ignored the evidence, as did HHS in approving their applications.

Federal courts have struck down waivers with work requirements and other eligibility restrictions because HHS failed to consider evidence of disenrollment—including states’ own predictions—during the waiver approval process. These predictions proved to be true when more than 18,000 people (about 25 percent of those subject to the work requirement) in Arkansas lost coverage in the first five months of implementation. In February 2021, based largely on this data, as well as evidence of the impacts of the novel coronavirus pandemic on jobs and income, the Biden administration began the process of withdrawing section 1115 waiver approvals for work requirements and has issued final withdrawals in all states that had such approvals. HHS also notified Arkansas and Montana that phaseout of their waivers’ premium requirements must occur by the end of 2022.

Georgia’s law suit

In response to HHS’s waiver revocation, Georgia’s lawsuit asserted that states have the power to negotiate whatever waivers they desire under NFIB, an argument that does not reflect the US Supreme Court’s reasoning and reaches far beyond the decision. Yet, if federal courts were to agree, such an argument would have important implications for altering the balance between federal and state power. NFIB did not speak to the tension between federal authority and discretion to grant waiver applications and how states perceive their ability to negotiate waivers within federal spending programs. Such negotiations under the ACA have shown that states effectively advocate for their desired policies; however, states do not have power to ignore federal law, and NFIB did not grant them such power. To be sure, states rely on the substantial federal money offered through Medicaid for coverage of low-income populations, but fundamentally the rules are written by the federal government in federal spending programs.

Admittedly, section 1115 waiver requests inherently seek to alter the terms on which states receive federal Medicaid funds. Georgia pushes the envelope where it frames the waiver as an alternative to the ACA Medicaid expansion while undermining the ACA’s near-universal coverage goals. Georgia Pathways cannot qualify for the ACA’s enhanced federal match for the Medicaid expansion population because it does not implement expansion up to 138 percent of the federal poverty level. Georgia contends that its waiver will “test” the effects of covering this limited group, but research has shown that work and premium requirements create barriers to coverage. The demonstration was flawed when it was approved, yet Georgia claims that HHS somehow lost the power of oversight by approving the waiver.

A separate but related waiver completes the picture of Georgia’s approach to the ACA. Based on the same 2019 state law that authorized Georgia Pathways, Georgia sought a section 1332 waiver that would eliminate the federal health insurance exchange with no state replacement to facilitate enrollment in qualified health plans with federal tax subsidies. ACA section 1332 gives the HHS Secretary power to waive commercial health insurance rules if the state’s proposal meets “guardrails” that ensure continued coverage and access to care substantially similar to the ACA’s near-universal coverage goals. HHS has not withdrawn the Trump administration’s approval of Georgia’s 1332 waiver but did open a new comment period in November 2021 that could lead to suspension or revocation of HHS’s waiver approval. Georgia’s elimination of the federal exchange would predictably result in thousands of people losing commercial insurance coverage, contrary to the ACA’s universal coverage goals and the 1332 waiver guardrails. Again, Georgia appears to be testing the ACA itself rather than attempting to achieve its goals through alternative means, and waiver authority does not extend to such actions.

Vulnerable Populations At Risk

While the HHS Secretary has authority to grant and to withdraw waivers, neither the Secretary of nor states can rewrite federal law through waivers. Federal courts’ role in these cases is to review the administrative record to determine whether federal officials’ decisions are grounded in evidence. The subjects of Medicaid demonstration projects are low-income, uninsured people who Congress already determined should be eligible for public coverage without the imposition of additional criteria that could impede, rather than improve, access to affordable coverage. Additionally, Congress found centralized marketplaces for purchasing subsidized health plans to be a critical aspect of covering low- and middle-income people. If Georgia’s arguments were to prevail, the long-standing balance of power, in which states may seek waivers to use federal funds in new ways, but must further the purposes of federal laws, would be disrupted. Georgia’s arguments would limit HHS’s ability to determine what promotes the objectives of the Medicaid program; but, even after waiver approval, low-income people remain protected by federal law, a fact the US Supreme Court did not change.

Author’s Note

Special thanks to MaryBeth Musumeci and Madeline Guth for their insights on this topic.

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