Could Arkansas legally cap enrollment in the Arkansas Works (Medicaid expansion) program at 250,000 or limit it to existing Private Option enrollees?

Plain-English summary

DHS Executive Director Cindy Gillespie asked the AG whether the General Assembly could enact a law that would either (a) cap Arkansas Works enrollment at a fixed number (such as 250,000) or (b) limit enrollment to people who were already in the predecessor Health Care Independence Program (the "Private Option"). The Health Care Independence Program was being wound down on December 31, 2016, and Arkansas Works would carry forward the Medicaid expansion population. The legislature was looking at whether it could put numerical limits on the new program.

AG Leslie Rutledge concluded that either form of cap would invalidate the program for purposes of receiving federal Medicaid funding. The chain of reasoning:

1. Medicaid is voluntary, but coverage of the expansion population is "all in or all out." When a state opts to cover the Medicaid expansion population, 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII) requires the state plan to provide medical assistance to all individuals under age 65 (with the exclusions for entitled-to-Medicare and others described in earlier clauses) whose income is at or below 133 percent of the federal poverty line.
2. An enrollment cap shuts out individuals who otherwise qualify. Either cap (a fixed number or "only current Private Option enrollees") would mathematically exclude federally eligible people from the expansion population.
3. The Section 1115 waiver door was effectively closed. The HHS Secretary may waive Medicaid requirements under 42 U.S.C. § 1315(a) when doing so would "assist in promoting the objectives" of Medicaid. The Secretary had granted waivers for some aspects of the Private Option, but the Secretary had explicitly stated in an HHS guidance document that "enrollment caps . . . do not further the objectives of the Medicaid program" and that she did "not anticipate that [she] would authorize enrollment caps" applying to the Medicaid expansion population. So a Section 1115 waiver to support a cap was very unlikely.
4. Without compliance or a waiver, the plan fails. Section 1396-1 conditions federal Medicaid funding on the Secretary's approval of a state plan that meets § 1396a's requirements. A non-compliant plan that does not get waived gets no federal funds for the expansion population. Even if a state wanted to fund coverage on its own, the architecture of the expansion (which depends on federal match dollars) collapses.

The AG also flagged a related point about the practical reviewability of a Section 1115 denial: the Secretary's discretionary refusal to authorize a cap would be "nearly impossible if not completely impossible to challenge." That makes the cap option even less realistic as a policy lever.

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

CMS's approach to Section 1115 waivers, including work requirements and enrollment limits, has shifted multiple times across administrations since 2016. The legal availability of Medicaid expansion caps in 2026 depends on the current state of federal regulation and case law, which should be checked before drawing current policy conclusions.

Background and statutory framework

How Medicaid expansion fits into the larger Medicaid statute

42 U.S.C. § 1396-1 funds state Medicaid programs only if those states submit plans that the HHS Secretary has approved. Section 1396a sets out the statutory requirements for state plans. Each "(a)(10)(A)(i)" clause identifies a population the plan must cover. Subclause VIII, added by the Affordable Care Act, addresses the Medicaid expansion population: individuals under 65, not pregnant, not entitled to or enrolled in Medicare Part A, not enrolled in Medicare Part B, not already covered by earlier subclauses, and with household income at or below 133 percent of the poverty line (with a 5-point disregard under § 1396a(e)(14), effectively reaching 138 percent). For Arkansas, the AG estimated that population at about 250,000 people.

The statutory hook here is the phrase "all individuals." The Supreme Court's NFIB v. Sebelius decision had made expansion voluntary at the state level, but if a state chooses to participate, the "all individuals" language constrains who must be covered. A cap that omits some federally eligible people is not "all individuals."

How the Private Option fit in

Arkansas's Health Care Independence Program (the "Private Option") was a Section 1115 demonstration that gave HHS approval to use Medicaid expansion funds to purchase private qualified-health-plan coverage on the federal exchange for the expansion population. The demonstration was a CMS-approved variation, not an exception to the "all individuals" rule. The Private Option still covered the full federally eligible population.

When Act 46 of 2015 wound down the Private Option as of December 31, 2016, Arkansas Works was authorized to continue the expansion coverage with additional features (work-seeking incentives, employer-based insurance encouragement, personal-responsibility elements). Arkansas Works was a continuation of the same federal expansion population, just under a renamed and reconfigured demonstration.

Why Section 1115 was the only theoretical escape

Section 1315(a) permits the Secretary to waive compliance with § 1396a requirements when a waiver "will assist in promoting the objectives" of Medicaid. Arkansas had used Section 1115 to do the Private Option in the first place. So the theoretical question was whether HHS would have granted a Section 1115 waiver to permit an enrollment cap.

HHS had answered that question publicly through "Affordable Care Act: State Resources FAQ 9" (CMS, April 25, 2013), which the AG quoted: enrollment caps "do not further the objectives of the Medicaid program," and the Secretary did not anticipate authorizing them for the expansion population. Combined with the Secretary's broad discretion under § 1315(a), that signaled almost certain denial of any waiver application built around a cap.

Why a denial would be effectively unreviewable

The AG made a practical observation: a Section 1115 waiver denial is a discretionary administrative decision. Even if a state believes the denial is wrong, judicial review of such discretionary decisions under the Administrative Procedure Act is highly deferential, and the agency's stated reasoning (that caps do not further Medicaid's objectives) is exactly the kind of policy judgment courts will not second-guess. So building a state law on the assumption that the cap would survive HHS scrutiny was not realistic.

The two-step invalidation logic

The AG's logic was:

• Step 1: A cap violates § 1396a(a)(10)(A)(i)(VIII).
• Step 2: Without a waiver, that violation makes the plan ineligible for the Secretary's approval, and federal funds cannot flow under § 1396-1.

Each step was independent of the merits-style debate about whether caps were "good policy." The statutory and regulatory machinery does not allow a non-compliant plan to receive federal expansion funds, regardless of the state's reasons for wanting a cap.

Common questions

Q: Can Arkansas just stop participating in Medicaid expansion?
A: A state may withdraw from expansion entirely, since participation is voluntary. The opinion addresses a different scenario: participating while capping enrollment below the federally eligible population.

Q: Could Arkansas pay for the cap with its own money?
A: A state could theoretically use only state funds for partial coverage. But Arkansas Works was funded primarily by federal match dollars, and the federal contribution depends on a plan that meets § 1396a. Without federal funds, the financial model of the program collapses.

Q: What about freezing enrollment for "current" Private Option enrollees only?
A: Same answer. People who would have been federally eligible after the freeze date are still in the "all individuals" expansion population. Locking them out violates the statute just as much as a numerical cap does.

Q: Did the Secretary ever change her position on enrollment caps?
A: The opinion captures the HHS position in 2016. CMS guidance under later administrations has shifted on related Section 1115 questions (work requirements, premiums, lockouts). The current state of agency policy on enrollment caps should be checked separately.

Q: Could a state sue HHS for denying a waiver?
A: The AG identified this as nearly or completely impossible. Section 1115 vests the Secretary with substantial discretion, and courts generally do not overturn the Secretary's policy judgments about what does or does not promote Medicaid's objectives.

Citations and references

Statutes (federal):

• 42 U.S.C. § 1315(a), HHS Secretary's Section 1115 waiver authority
• 42 U.S.C. § 1396-1, federal Medicaid funding contingent on Secretary's approval of state plan
• 42 U.S.C. § 1396a, state plan requirements
• 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII), Medicaid expansion population coverage requirement
• 42 U.S.C. § 1397jj(c)(5), definition of "poverty line"

State context:

• Act 46 of 2015 (sunsetting the Health Care Independence Program on December 31, 2016)
• Arkansas Works Program authorization (extraordinary session, 2016)

Agency materials:

• Letter from Marilyn Tavenner, Administrator, CMS, to Andy Allison, Director, Arkansas DHS (Sept. 27, 2013), granting Section 1115 waivers for the Private Option
• "Affordable Care Act: State Resources FAQ 9" (CMS, April 25, 2013), Secretary's position on enrollment caps

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2016-087
August 8, 2016

Cindy Gillespie, Executive Director
Arkansas Department of Human Services
P.O. Box 1437, Slot S201
Little Rock, AR 72203-1437

Dear Ms. Gillespie:

This is in response to your request for my opinion as to the validity of a proposed Arkansas law limiting the number of people who may enroll in the Arkansas Works Program. You provide this background:

Currently, the Medicaid expansion population receives health insurance coverage through the Health Care Independence Program, also known as the Private Option. There are approximately 250,000 Arkansans under 138% of the federal poverty level who are currently receiving health insurance through this program. However, Act No. 46 of 2015 was signed into law ending the Health Care Independence Program as of December 31, 2016.

In a recent extraordinary session, the General Assembly authorized the Arkansas Works Program to provide health insurance for the Medicaid expansion population while further acting to encourage employer-based insurance, to incentivize beneficiaries to work or seek work opportunities, and to promote personal responsibility and program integrity. To date, the State of Arkansas has been recognized as a leader in healthcare innovation.

Given the evolutionary nature of this Arkansas policy, discussions about the future of healthcare in Arkansas are ongoing. Several proposals have been offered to cap or otherwise limit the number of qualifying individuals who may receive health insurance or medical assistance through the Arkansas Works Program. As a specific example, some legislators have proposed capping enrollment of qualified individuals into the Arkansas Works Program at 250,000 or the number reflecting the current enrollment and then not allowing new enrollees into the program.

Your questions are:

1. Would an Arkansas law that would cap the number of qualifying individuals who may receive health insurance or medical assistance through the Arkansas Works Program be valid under federal law?

2. Would an Arkansas law that would limit enrollment into the Arkansas Works Program to only those individuals currently enrolled in the Private Option be valid under federal law?

RESPONSE

In my opinion, the answer to each of your questions is "no." A law limiting the number of people who may enroll in the Arkansas Works Program, thereby excluding people from the program who otherwise qualify to be part of the Medicaid expansion population under federal law, would not meet applicable federal requirements for participation in Medicaid and would in all likelihood not be approved by the Secretary of Health and Human Services. The plan would thus be invalid for purposes of obtaining and spending federal funds to cover any part of the Medicaid expansion population.

Specifically, to be compliant with federal law and be approved for federal funding, the Arkansas Works Program would need to cover all members of what you describe as the Medicaid expansion population. See 42 U.S.C. § 1369a(a)(10)(A)(i)(VIII) (requiring that a state plan "provide for making medical assistance available . . . to all individuals . . . beginning January 1, 2014, who are under 65 years of age, not pregnant, not entitled to, or enrolled for, benefits under part A of subchapter XVIII, or enrolled for benefits under part B of subchapter XVIII, and are not described in a previous subclause of this clause, and whose income (as determined under subsection (e)(14)) does not exceed 133 percent of the poverty line (as defined in section 1397jj(c)(5) of this title) applicable to a family of the size involved.") But the two manners of capping enrollment discussed in your question each appear to run afoul of this federal requirement of making assistance available to all individuals in the Medicaid expansion population if a state wants to receive federal funds covering any part of the Medicaid expansion population.

DISCUSSION

A state that elects to participate in Medicaid (and thereby receive federal money to help provide medical assistance to people of limited income and resources) must submit to the Secretary of Health and Human Services, for her approval, a state plan for medical assistance. See 42 U.S.C. § 1396-1 ("The sums made available under this section shall be used for making payments to States which have submitted, and had approved by the Secretary, State plans for medical assistance.") Except in limited circumstances (discussed below), the Secretary may only approve a state plan if it complies with a long list of statutory requirements set forth in 42 U.S.C. § 1396a. See 42 U.S.C. § 1396a (listing the prerequisite that "[a] state plan for medical assistance must provide").

With respect to what you refer to as the "Medicaid expansion population," 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII) requires that the plan must provide for making medical assistance available to "all individuals" in that population. See 42 U.S.C. § 1369a(a)(10)(A)(i)(VIII) (requiring that a state plan "provide for making medical assistance available . . . to all individuals . . . beginning January 1, 2014, who are under 65 years of age, not pregnant, not entitled to, or enrolled for, benefits under part A of subchapter XVIII, or enrolled for benefits under part B of subchapter XVIII, and are not described in a previous subclause of this clause, and whose income (as determined under subsection (e)(14)) does not exceed 133 percent of the poverty line (as defined in section 1397jj(c)(5) of this title) applicable to a family of the size involved") (emphasis added).

It appears that each of the capping plans described in your questions would exclude from the Arkansas Works program persons who would otherwise be eligible members of the Medicaid expansion population as described under the federal law set forth above. Such a plan, assuming that it would not cover all persons in the Medicaid expansion population, will not satisfy the above-referenced federal requirements for a valid plan. There is no reason to believe the Secretary could or would approve such a plan.

Under federal law, the Secretary may waive compliance with federal requirements for state Medicaid participation if the waiver will "assist in promoting the objectives" of the Medicaid program. 42 U.S.C. § 1315(a). The Secretary has, in fact, granted certain waivers to the State in connection with the Private Option. The Secretary has made clear, however, her position that: (1) "[e]nrollment caps . . . do not further the objectives of the Medicaid program;" and (2) accordingly, she does "not anticipate that [she] would authorize enrollment caps" applying to the Medicaid expansion population. In my view, either placing a numerical cap on enrollment in the Arkansas Works Program or limiting enrollment to the people currently enrolled in the Private Option would amount to an "enrollment cap" of the sort the Secretary does not anticipate authorizing. As I understand it, either capping mechanism would likely exclude from Arkansas Works persons who are otherwise eligible under federal law to be included in the Medicaid expansion population.

The Secretary's statements concerning the almost certain denial of a waiver for capping programs are important for two reasons. First, the mere fact that a plan with an enrollment cap would require a waiver illustrates that in the absence of a waiver such a plan does not comply with the applicable federal law. Second, the Secretary's decision not to provide a discretionary waiver for capping programs would be nearly impossible if not completely impossible to challenge. Without a waiver, Arkansas Works would not be a valid plan to obtain and spend federal funds on the Medicaid expansion population, because it fails to meet the requirement of 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII) to provide coverage for the entire Medicaid expansion population.

For the foregoing reasons, it is my opinion that a law limiting the number of people who may enroll in the Arkansas Works Program, thereby excluding people from the program who otherwise qualify to be part of the Medicaid expansion population under federal law, would not meet applicable federal requirements for participation in Medicaid and would in all likelihood not be approved by the Secretary of Health and Human Services. The plan would thus be invalid for purposes of obtaining and spending federal funds to cover any part of the Medicaid expansion population.

Sincerely,

LESLIE RUTLEDGE
Attorney General