A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit upheld a district court ruling against an Arkansas plan for work requirements for Medicaid recipients.

Residents of Kentucky and Arkansas had filed suit in district court, alleging that Alex Azar, the secretary of the Department of Health and Human Services (HHS), had acted in an “arbitrary and capricious manner” when he approved the states’ requests to impose work requirements for Medicaid. Medicaid establishes coverage requirements for the states, but there is a provision in federal law that allows states to deviate from those requirements with the approval of HHS. The requirements can be waived for “any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives” of the Medicaid program generally.

With the Secretary’s approval, in June 2018, Arkansas enacted a plan which required Medicaid recipients between the ages of 19-49 to spend 80 hours a month engaged either in work or work-related activities such as education, job training and job searches. Failure to meet the 80 hour requirement would lead to disenrollment from Medicaid until the next year.

The plaintiffs in the case contend that Secretary Azar failed to take into account how the plan would reduce coverage. Azar’s rationale for approving the plan rested on three points: how it would “assist in improving health outcomes,” “address behavioral and social factors that influence health outcomes,” and “incentivize beneficiaries to engage in their own health care and achieve better health outcomes.” The circuit court affirmed the lower court’s determination that the decision failed to address “how the project would implicate the “core” objective of Medicaid: the provision of medical coverage to the needy.”

Because the Secretary’s decision prioritized non-statutory concerns over the primary statutory purpose of Medicaid, the court held that his decision was both arbitrary and capricious and affirmed the lower court’s judgment vacating the work requirements. Although Kentucky was part of the original suit, Andy Beshear, Kentucky’s new Democratic governor, rescinded the work requirements in his state in December of last year, rendering their part of the issue moot. HHS has not said whether it will appeal to the Supreme Court, but the agency released a statement that it “is reviewing and evaluating the opinion and determining next steps.”