The initiative,which requires some Medicaid recipients to work, attend school orvolunteer in order to maintain coverage, is part of a broader pushto chip away at the ACA. (Photo: Shutterstock)

(Bloomberg) –The Trump administration's attempt to restore awork requirement for Medicaid benefits inArkansas was rejected on appeal, a blow to the government's largereffort to reshape U.S. health-care policy.

Friday's ruling, by a federal appeals court in Washington,upholds a lower-court's March decision that voided the work rulesand jeopardizes similar programs approved by the U.S. Health andHuman Services Administration in seven other states, likelyprompting the government to seek a Supreme Court review.

Related: Friction grows over Medicaid workrequirements

The Centers for Medicare and Medicaid Services said the agencyis reviewing the ruling and determining the next steps. The agencysaid it remains steadfast in its commitment to consideringproposals that would let states leverage innovative ideas.

The initiative, which requires some Medicaid recipients to work,attend school or volunteer in order to maintain coverage, is partof a broader push to chip away at the Affordable Care Act, betterknown as Obamacare. The administration defeated a legal challengeto rules permitting expansion of short-term and limited-durationinsurance policies in July. It lost an earlier ruling on a programallowing small businesses and individuals to create group plansthat are cheaper than those offered under Obamacare but provideless coverage.

The appeals court said the U.S. Health and Human ServicesDepartment's stated objectives in approving Arkansas's plan —making people healthier and more independent — were not consistentwith the statutory goal of Medicaid.

"The text of the statute includes one primary purpose, which isproviding health-care coverage without any restriction geared tohealthy outcomes, financial independence or transition tocommercial coverage," Circuit Judge David Sentelle, a Ronald Reaganappointee, wrote for a unanimous panel that also included CircuitJudges Nina Pillard and Harry Edwards, both Democratic appointees.They heard arguments on Oct. 11.

"Hopefully, the Supreme Court will review today's ruling but asit stands the Arkansas Works program will be less effective inhelping recipients gain independence," Arkansas Governor AsaHutchinson said in a statement.

Jane Perkins, legal director of the National Health Law Program,said Thursday's decision means thousands of low-income people inArkansas will maintain health "coverage that enables them to live,work, and participate as fully as they can in their communities."The group, alongside Legal Aid of Arkansas, the Southern PovertyLaw Center, and the law firm Jenner & Block, represented thestate residents who challenged the requirements.

U.S. District Judge James Boasberg in Washington had voidedprograms in Kentucky and Arkansas programs in simultaneous rulingson March 27, finding that HHS's impact analysis, required infederal rulemaking, was inadequate. It failed, for example, toconsider those who might lose coverage simply because they lackedinternet access and couldn't report their work activity online,Boasberg found.

"The secretary's failure to consider the effects of the projecton coverage alone renders his decision arbitrary and capricious,"Boasberg wrote of the Arkansas program's approval by HHS SecretaryAlex Azar, because it didn't address "whether and how the projectwould implicate the 'core' objective of Medicaid: the provision ofmedical coverage to the needy."

Kentucky, under a new, Democratic governor, dropped its workrequirement on Dec. 16 and asked the court to dismiss its appealwithout affecting any others. Maine abandoned the work requirementfor its low-income health insurance program in January.

The programs at issue require certain low-income adults toengage in their communities for 80 hours a month by working,looking for work, participating in job-skills training, getting aneducation or performing community service. They mostly cover peoplewho got coverage after the Affordable Care Act expanded Medicaid, ajoint federal-state program with more than 65 million people on itsrolls as of July.

The federal government says the ACA authorized grants for statesthat give Medicaid recipients incentives for various "healthybehaviors" such as community engagement and financialindependence.

State residents fighting the work-for-Medicaid requirement —joined in some cases by groups including the American HeartAssociation, the American Medical Association and The SouthernPoverty Law Center — argue that conditioning eligibility onemployment will lead to mass disenrollment and dramatically worsenhealth outcomes.

Kentucky estimated that 95,000 adults would lose coverage underthe new rules. More than 18,000 people lost coverage in Arkansasduring its partial implementation.

The appeals court ruling centered on Azar's approval of the twoprograms, not on the lawfulness of the work requirements itself.Health policy scholars say that's an important distinction tounderstand when looking at the impact of the court's ruling.

"Regardless of your impressions of the Medicaid Act, the broadwaiver authority that was granted to the secretary gives more thanenough authority for this particular waiver," said Wes Butler,outside counsel for the Kentucky Hospital Association, whichadvocated for the state programs to be upheld. "If the court ofappeals has a different take on that, that's only a question theSupreme Court can resolve."

It isn't clear whether the justices would take the case. Theupholding of the lower court's ruling doesn't mean other states areblocked from issuing the requirements, said Leonardo Cuello, theNational Health Law Program's director of health policy.

Friday's ruling may serve as a warning for future approvals.

"I think it sends a very clear signal to the Trumpadministration that this policy is unlawful and that they shouldstop approving these waivers," said Joan Alker, a researchprofessor at Georgetown University's Health Policy Institute. "Butthey probably won't."

Read more:

• GAO hits Trump administration on costs of Medicaidwork requirements
• Work requirements in other states advance despiteKentucky Medicaid ruling
• Indiana gets federal approval for Medicaid workrequirement, lockout

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