Biden rule unlawfully threatens penalties on States during Medicaid “unwinding”

Photo: Medicaid by Nick Youngson CC BY-SA 3.0 Alpha Stock Images

On Friday, American Experiment submitted comments to the U.S. Department of Human Services (HHS) in opposition to federal rules dictating how states must unwind continuous Medicaid coverage related to the COVID-19 pandemic. The rules implement new reporting requirements and enforcement authorities from the Consolidated Appropriations Act, 2023 (CAA, 2023). This law and its implementing regulations unlawfully add to the requirements States previously agreed to follow under the Families First Coronavirus Response Act (FFCRA).

Spending Clause allows Congress to bargain with States to advance federal policies

In response to the COVID-19 outbreak in early 2020, Congress passed and President Trump signed FFCRA into law to help ensure that people retained access to health care coverage. One of FFCRA’s major provisions offered to temporarily increase federal funding to State Medicaid programs so long as States agreed to keep people continuously enrolled in Medicaid through the end of the public health emergency.

Medicaid operates as a partnership between the federal and State governments to provide health coverage to America’s most vulnerable populations. Under this partnership, the U.S. Constitution’s Spending Clause allows Congress to offer federal funding to incentivize States to implement new Medicaid policies.

Congress’s original bargain with States

In line with the Spending Clause, FFCRA offered States a clear quid pro quo—higher federal funding in exchange for States covering more people who would otherwise not be eligible for Medicaid. FFCRA provided the additional federal funds by temporarily increasing the Federal Medicaid Assistance Percentage (FMAP) rate by 6.2 percentage points.

This is the third time Congress offered States a temporary FMAP increase in a crisis. The other two instances involved responses to major recessions in 2003 and 2009. All of these offers imposed conditions on States in exchange for the higher FMAP increase and largely relied on the existing Medicaid policies and procedures. The only exception being how the American Recovery and Reinvestment Act of 2009 (ARRA) added a couple new reporting requirements on States. Importantly, these reporting requirements were part of the bargain upfront.

While FFCRA copied many of the conditions from the prior two FMAP increases, the law added a continuous enrollment condition. This required States to keep people continuously enrolled in Medicaid through the end of the month in which the PHE ends. Keeping people covered meant that States would need to redetermine eligibility for everyone they enrolled at the end of the PHE. This promised to be an enormous undertaking, but the Medicaid redetermination process was still very well established. States very clearly agreed to following that familiar redetermination process at the end of the PHE.

CAA, 2023 made unlawful, retroactive changes to the FFCRA bargain

On December 29, 2022—nearly three years into the FFCRA continuous coverage agreement—Congress passed and President Biden signed the CCA, 2023 into law which unilaterally amended this FFCRA bargain. This new law made the following changes to the original deal:

  • Delinked the end of the FMAP increase from the end of the PHE;
  • Repealed the expected approach to closing out the FMAP increase;
  • Gave States the option to take a new approach to phase out the FMAP increase;
  • Added new reporting requirements related to redeterminations; and
  • Imposed new enforcement authorities related to reporting and redeterminations.

The amendments represent a clear bait-and-switch. States were lured in to provide continuous Medicaid coverage under the old reporting and enforcement rules and must now meet new standards. The U.S. Constitution does not allow Congress to change the rules of the game after States agree to play ball. As American Experiment’s comments explain:

While Congress can use the spending power to encourage states to participate in federal programs, the U.S. Supreme Court instructs that the spending power “does not include surprising participating States with post-acceptance or `retroactive’ conditions.”  Yet, that is exactly what the CAA, 2023 does.

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Congress was always free to include these conditions and enforcement authorities when it originally passed FFCRA. As noted previously, Congress did include reporting requirements in ARRA. In addition, Congress could amend the agreement to give states a better deal as it did when it extended the ARRA FMAP increase. But the Constitution does not permit Congress to add a burdensome reporting requirement to FFCRA retroactively. Nor does it allow Congress to target punitive enforcement authorities to FFCRA retroactively.

Biden proving to be a bad faith partner

American Experiment’s comments noted how the CAA, 2023 and the rulemaking “reflects a remarkable level of bad faith and bullying from the federal government.”  Unfortunately, this federal overreach and bad faith does not appear to be an exceptional circumstance related to the pandemic.

Also last week, the states of Georgia and Florida filed separate lawsuits against the Biden administration on two completely unrelated Medicaid matters. Georgia sued to keep their full five-year waiver deal to expand Medicaid with a work requirement that got delayed when HHS illegally tried to revoke the agreement. A federal court ruled the HHS revocation was arbitrary and capricious, but now Georgia only has two of the five years to run the waiver program.

Florida is suing to stop HHS from forcing the state to keep children enrolled in federal Medicaid and Children’s Health Insurance Program (CHIP) coverage even if their families fail to pay premiums. In the CAA, 2023, Congress included a provision that requires states to provide 12 months of continuous eligibility for children. Floridia’s lawsuit argues that HHS “mistakenly equates eligibility for CHIP benefits with coverage under—and thus enrollment in—a state CHIP.” From Floridia’s perspective, HHS is trying to use the CAA, 2023 “to expand entitlements through the backdoor.”

Summing up

The end of the continuous enrollment condition left States with a huge backlog of Medicaid redeterminations. As States work to unwind this policy, there are legitimate concerns that some eligible people might be disenrolled from the Medicaid program. That was a known issue from the start. When the time came to unwind, States always expected to partner with HHS in good faith to ensure eligible people retain Medicaid.

Yet, Congress undermined this good faith partnership by retroactively imposing new reporting requirements and financial penalties. These new requirements clearly telegraphed that Congress did not trust States to take the redetermination process seriously. This was a major insult to States. The federal government should work to make amends. Medicaid is jointly funded and, as such, the federal government should work with states as equal partners.  

It’s maybe too late in the unwinding process to fix Congress’s and President Biden’s constitutional violations. But it’s not too late for Congress to at least acknowledge the error and take steps to ensure that future Congresses and Presidents show States more respect.