This past August a federal court issued a preliminary injunction prohibiting the Biden administration from withdrawing the Trump administration’s eleventh hour renewal of Texas’s Medicaid §1115 demonstration, known as the Healthcare Transformation and Quality Improvement Program. The circumstances that led to the injunction in State of Texas v Chiquita Brooks-LaSure offer the latest example of why health equity demands a fundamental rethinking of §1115.
To date, the administration has withdrawn previously granted approvals on both procedural and substantive grounds. For example, officials have withdrawn previous approvals for Medicaid compelled-work experiments on the ground that they now contravene the Medicaid continuous enrollment protection under the 2020 pandemic legislation and, in any event, cannot be safely administered given their coverage, health care, and health risks. The administration’s Texas §1115 decision offers an example of a reversal on procedural grounds (as discussed below, a material error on the part of CMS in failing to adhere to its own federal regulatory transparency requirements).
But as Medicaid approaches its 60th anniversary in 2025, the time has come to go beyond these case-by-case reviews, as welcome as they might be, and get to the heart of the matter, namely, how far §1115 Medicaid experiments have wandered far from the program’s fundamental purpose of insuring the poor. . Section 1115, enacted during the Kennedy administration, was intended to give federal officials the authority to test program improvements and report on their results to Congress, which at that point was looking for strategies to improve social welfare programs. But the Trump administration showed lawmakers how simple it is to effectively turn §1115 into a tool for undermining the nation’s largest public insurer through raw political power plays; these “experiments” impose unprecedented eligibility restrictions, undermine the structural foundations of the program through block grants, or—in the case of the Texas uncompensated care pool demonstration—directly contravene Congressional intent that Medicaid’s vast financing power be used to insure people, not give states tens of billions of dollars to reward their favored hospitals and health systems.
By giving Texas tens of billions of dollars in uncompensated care pool funding, the Trump effectively administration guaranteed that, without insuring anyone, Texas would receive all the Medicaid funding (and likely more) that would have flowed into its health system had the state embraced expansion, as 39 other states now have done and extended coverage to the 1.4 million people who would qualify for coverage under expansion. The use of enormous uncompensated care pools to keep certain hospitals awash in uninsured patients afloat is exactly what Congress sought to end in 2010 by extending coverage to nearly all low-income adults. Of course, it is this Congressional goal that the Trump administration publicly opposed as early as 2017, when then-HHS Secretary Tom Price and CMS administrator Seema Verma announced their opposition to expansion and their intention to use §1115 to limit the reach of the program.
A Reform Agenda
To guard against future harm, several steps are needed. First, the administration should adopt a formal policy announcing that it will not use a procedural transparency loophole, described below, that was first created by the Obama administration in 2012 and then used to such effect in Texas. The rule should be repealed as unwarranted by the §1115 statute itself. Second, the administration should make clear that it will not allow “experiments” that use uncompensated care pools in lieu of the ACA expansion. Uncompensated care pooling is, in fact, an important and appropriate use of §1115 to help offset uninsurable costs under the program, and §1115 has been used for years to important effect in this manner. But allowing states to substitute vast funding pools for coverage of poor adults directly contravenes the express structure of Medicaid in a post-ACA world and thus represents an unjustifiable use of Secretarial power. Other nonexpansion states, such as Florida and Tennessee, that have been allowed to maintain such pools should be informed that this portion of their pooling systems will end.
Third, as we have written elsewhere, the administration should bring its health equity agenda directly to bear on §1115, clarifying that states will be expected to document, as part of the application or renewal process, how their proposals advance health equity, which in the context of Medicaid demonstrations, means expanding and strengthening health insurance, not for the outright subversion of coverage. .
Finally, as part of reconciliation, Congress should bar future use of §1115 to create uncompensated care pools, to the extent that such pools take into account costs associated with care and services for people entitled to medical assistance under the ACA expansion provisions.
The ACA §1115 Transparency Amendments And The Regulatory Loophole Created By The Obama Administration
How we arrived at the current state of affairs is a somewhat ironic story. In the same legislation that created the ACA expansion population, thus removing the program’s last vestiges of a welfare bias against poor adults traceable to the English Poor Law of 1601, lawmakers also sought to bring greater rigor and accountability to future use of §1115. Thus, the ACA also amended §1115 to add important procedural requirements—without any exceptions—to “an application or renewal of any” Medicaid §1115 demonstration project that “would result in an impact on eligibility, enrollment, benefits, cost-sharing, or financing.” The reforms obligate the Secretary to ensure that any such application or renewal rests on a transparent public record consisting of comments at both the state and federal level.
As such, the amendment recognizes the precedential nature of §1115 experiments and is designed to ensure an opportunity to carefully consider the demonstration not only by those directly affected but also by beneficiaries and stakeholders nationwide. This two-stage statutory transparency requirement makes absolutely no exceptions, and with good reason. As we have repeatedly seen, in the name of experimentation, states may seek to pursue program reforms that carry major consequences for a population that effectively must participate in a health care experiment on a compulsory basis or else risk total loss of medical assistance. Administrations since the Reagan presidency have interpreted the Common rule to exempt social welfare experimentation—unlike other forms of human subject experimentation—no matter how potentially harmful.
Notwithstanding the express transparency guarantee created by the 2010 amendments, regulations issued by the Obama administration in 2012 created the exception that would later be used to such advantage by the Trump administration on Texas’ behalf. The 2012 rule gave CMS the power to waive the transparency requirement, even in demonstrations that affect eligibility, enrollment, benefits, cost-sharing or financing, in situations in which agency officials seek “to expedite a decision on a proposed demonstration or demonstration extension request that addresses a natural disaster, public health emergency, or other sudden emergency threats to human lives” (42 C.F.R. §431.416(g)) The intent obviously was to ensure that expanded coverage and services could be quickly adopted without delay, but of course the rule does not limit use of this waiver authority only to such instances. Instead, it applies to any claim of emergency and to any demonstration, even if the demonstration, as here, has been deliberately structured as a means of sidestepping coverage.
Arguably no one could have foreseen the scenario that ensued in the wake of the Supreme Court’s 2012 decision that in effect made expansion optional. Nor could they have foreseen that a decade after this decision, so many states would remain determined to deprive people of coverage, in Texas’s case, a group of nearly one and a half million people. But this is the problem with blanket rules like the one put into place in 2012: There is always the situation no one predicts.
Under the 2012 rule, in order to qualify for a transparency waiver, a state must “demonstrate[] to CMS the existence of unforeseen circumstances resulting from a natural disaster, public health emergency, or other sudden emergency” that directly threatens life and “that warrant[s] an exception”. The rules do not specify the level of proof that would justify a waiver; neither do they specify findings that the Secretary must make in order to justify a waiver. Nor is there an expedited process for public comment on waiver of the transparency process. And, as noted, the waiver rule does not confine itself to certain situations—a claimed emergency suffices.
The Trump Administration’s Exploitation Of The 2012 Transparency Waiver Rule In Its Last-Minute Approval Of The Texas Demonstration
In 2011, in advance of full implementation of the ACA Medicaid expansion, the Obama administration initially approved the Texas demonstration, which included a large uncompensated care pool. Following the Supreme Court’s 2012 decision, the administration renewed its approval in 2016 through the end of September 2022.
Despite the fact that the demonstration had nearly two full years to go, on January 15, 2021, the Trump administration invoked the rule’s transparency exception to confer on Texas a 10-year renewal—double the normal renewal period for demonstrations. The state had submitted its renewal request on November 30, 2020; although the state did conduct public hearings in early December, the state failed to disclose this 10-year extension request as well as the amount of funding sought. In other words, while nominally holding state-level public hearings as required under law, the state stripped the hearings of any meaning by withholding information central to the public’s ability to meaningfully comment. CMS waived the nationwide comment period entirely. The January 15 approval green-lighted an uncompensated care pool of $3.8 billion per demonstration year, beginning in 2022.
Even as it was engaged in finalizing landmark hospital price transparency rules, HHS effectively offered no basis for waiving the §1115 transparency requirement. According to CMS administrator Verma, the public health emergency declaration justified a complete shield against public comments, even though the true emergency was Texas’ failure to insure medically indigent residents during a global pandemic, leaving them without coverage in the midst of the worst public health threat in a century. In other words, to the extent there was a public health emergency that threatened the lives of Texas residents, it was the state’s failure to do what any reasonable state would do and qualify its poorest residents for medical assistance. The Administrator of course glossed over this basic fact in her approval letter, noting only that the “circumstances” necessitating the waiver “could not have been reasonably foreseen,” even there was absolutely no time-based emergency, since the waiver already extended through September 2022.
The Biden Administration’s Attempt To Walk Back The January 2021 Approval
In April 2021, the Biden administration notified the state that it was withdrawing the 10-year renewal on the ground that CMS “materially erred” in waiving the transparency rule, given the fact that the renewal “included significant programmatic changes to the existing demonstration’s structure.” The letter also stated that Texas officials had failed to “articulate a sufficient basis for us to conclude” that a public health emergency existed within the meaning of the rule; furthermore, a 10-year extension without the opportunity for public comment was “contrary to the interest of beneficiaries and other interested stakeholders . . . because it deprived” them of the right to comment and potentially shape the federal decision. With this, CMS announced that it was reinstating the original renewal term with its September 2022 expiration date and returning to regular order (that is, public notice and comment) in considering the state’s renewal request.
The state’s website continues to show the January approval, with no mention of the subsequent CMS letter.
The Ensuing Litigation And Decision
Not surprisingly, even as it appealed the decision through the administrative channels created for disputes between states and HHS, Texas also sued the administration in federal court. Also not surprisingly, the case was filed in May in federal court for the eastern district of Texas. And, finally not surprisingly, at the end of August the court issued an opinion barring the administrator from reinstating the original renewal end-date and ordering CMS to honor the terms of the January renewal, with its 10-year duration and its massive uncompensated care pool.
The court rejected the administration’s argument that it was improper to hear the case as the state’s appeal of the April decision made its way through the administrative review process. In its decision, the court gave Medicaid a characterization that basically reduced it to a program that exists simply to provide unregulated transfers of resources to states: “The Social Security Act sets forth a slew of mandatory requirements for participating States… . . . . Once each plan is approved, the States ‘administer Medicaid with little or no oversight. . . .’”. Reviewing the state’s §1115 demonstration (a mandatory managed care system coupled with a large uncompensated care pool), the court then concluded that the terms of the federal transparency exemption had been satisfied in the January 15th approval letter. At this point, the court noted, the waiver was granted and the state began the job of bringing its demonstration into compliance with new terms and conditions regarding how the demonstration would operate and the uncompensated care pool, as modified, would be administered. The rescission, according to the court, came only after the state had started down the road of modifying its earlier demonstration, thereby unlawfully undermining the reliance interest the state had placed on the approval
Based on this reliance interest, the court found that the state would experience major harm were federal officials allowed to refuse to move forward; it furthermore found that the direct court action by the state was permissible since, despite the availability of an administrative appeals process, the initial CMS letter constituted the type of final agency action that makes judicial review appropriate under the Administrative Procedure Act. Thus, the court concluded, the lawsuit was proper and the state likely would succeed on the merits of its claim that the Biden administration acted unlawfully and arbitrarily in reversing the earlier approval. Characterizing the January renewal as the product of a “complex negotiation process” between the state and federal governments, the court sided with state officials that they, along with Texas providers positioned to benefit from the demonstration, had the right to rely on this negotiation and that time was of the essence in bringing such a massive demonstration in line with new terms and conditions.
Furthermore, the court stated, the law’s notice and comment protections did not mean much: “Notice and comment on the extension of Texas’s program could, of course, lead to further comments that reshape the nature of the extension. But it is unclear if such procedural error, if there was one, is significant enough to substantially outweigh the heavy reliance interests. . .. And that possibility is further diminished by the fact that, by the time of the reconsideration, state-level notice and comment on the extension had been completed”. The court made no mention of the fact that Texas had withheld key information during its own notice and comment period. In the ultimate irony, the court further concluded that Texas had been further injured by the fact that the administration had given the state no notice of its intent to reconsider its earlier renewal.
Summing Up
As the injunction remains in place, the state’s administrative appeal continues to wind its way through the federal administrative review process. The state continues to proceed as if the 10-year extension and the other terms and conditions are secured. In the meantime, the budget reconciliation process in Congress proceeds. As of late October, the federal fallback provisions aimed at guaranteeing coverage in nonexpansion states are now in doubt as lawmakers and the Biden administration pursue the task of cutting their plan nearly in half in order to ensure its success. How this all resolves itself is completely uncertain.
What is certain, however, is that despite the court’s dismissal of notice and comment guarantees (even as it castigated the federal government for not giving the state notice that the earlier approval was being questioned), the transparency protections of the 2010 §1115 amendments are crucial. Indeed, the Texas case shows precisely why these protections are so vital for those directly affected by the outcome of a policy decision as consequential as one that would substitute a massive pool under the state’s sole control for insurance coverage for 1.4 million people. This is, to paraphrase what President Biden once famously said in the wake of the ACA’s passage, a big deal.
To better protect the wellbeing of the poorest Americans, ending abuse of §1115 is essential. This means an end to use of §1115’s enormous powers to reengineer Medicaid away from what it is supposed to be; a deliberative process; and an emphasis on demonstrations that advance health equity, not destroy it.
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Texas Medicaid Uncompensated Care Pool Demo Shows Urgency Of Congressional, Regulatory Reform - Health Affairs
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