4 states sue over Medicaid work-requirement cutoff

The attorneys general of Oregon, Minnesota, New Mexico and Washington asked a federal judge in Eugene on Nov. 5, 2026, to stop the U.S. Department of Health and Human Services from pulling their Medicaid money if the states do not put H.R. 1's work and community-engagement rules in place. The 19-page complaint, Oregon v. Oz, No. 6:26-cv-2435, was filed in the U.S. District Court for the District of Oregon. It names CMS Administrator Mehmet Oz, HHS Secretary Robert F. Kennedy Jr., the Centers for Medicare & Medicaid Services and HHS as defendants. Oregon Attorney General Dan Rayfield announced the filing the same day. Washington Attorney General Nick Brown issued a matching release, and Minnesota Attorney General Keith Ellison published a statement on Nov. 6.

The states asked the court to declare it unconstitutional for the federal government to withdraw or suspend any existing federal Medicaid funds under 42 U.S.C. § 1396c because a plaintiff state failed to comply with the new work-requirement statute, 42 U.S.C. § 1396a(xx). They also asked for preliminary and permanent injunctions to the same effect. The same-day docket shows they filed a motion for a preliminary injunction and a motion for summary judgment, both requesting an expedited hearing, before Judge Ann L. Aiken.

H.R. 1, enacted in 2025 as Public Law 119-21, requires states to impose a monthly work or community-engagement test on "applicable individuals" in the Affordable Care Act Medicaid expansion group: people ages 19 to 64 who are not pregnant, not on Medicare, and not eligible for a mandatory Medicaid coverage category. The complaint says an applicable person can meet the test each month by working at least 80 hours, completing 80 hours of community service, participating in a work program for at least 80 hours, enrolling in an educational program at least half-time, combining those activities for at least 80 hours, or earning monthly income above the federal minimum wage times 80 hours, with a similar path for seasonal workers.

The law excludes people who are "medically frail," a phrase the statute illustrates with people who are blind or disabled, who have a substance use disorder, or who have a serious or complex medical condition. It also excludes veterans with disabilities "rated as total" and a parent, guardian, caretaker, relative, or family caregiver of a dependent child age 13 or under or of a disabled individual. Expansion adults would be redetermined every six months instead of annually. States may choose short-term hardship exceptions, but the work requirement itself may not be waived through a Section 1115 demonstration. A limited good-faith compliance exemption expires by Dec. 31, 2028, and cannot be renewed past that date, the complaint says.

Oregon's release says the rules apply to 564,177 people enrolled in the Oregon Health Plan through the ACA expansion. The Oregon Health Authority estimates that up to one-third of those members may lose coverage. More than 1.4 million Oregonians receive care through the Oregon Health Plan, covering 33% of adult Oregonians and 55% of children ages 0 to 17, according to the attorney general. The complaint separately cites a study estimating that Oregon would be forced to disenroll about 20% of its Medicaid enrollees overall. Large-scale disenrollment, it says, would begin early in 2027. People dropped for failing to document compliance would also lose the ability to buy subsidized coverage through an ACA exchange.

Washington's release says the paperwork rules would reach more than 600,000 Apple Health expansion members. The Washington Health Care Authority estimates that at least 20% of those members — about 120,000 people — may lose coverage. More than 1.9 million residents receive care through Apple Health, covering 15% of adults and 36% of children, Brown's office said. Minnesota's release says about 1.2 million people, or about one in five Minnesotans, rely on Medical Assistance, and that hundreds of thousands could lose coverage because of the new documentation rules.

"It would be the height of bureaucratic cruelty to rip away someone’s life-saving health care just because of unreasonable paperwork," Rayfield said in the Oregon Department of Justice release.

The states argue that tying all existing Medicaid funding to the new eligibility system is unconstitutional coercion under the Supreme Court's 2012 decision in National Federation of Independent Business v. Sebelius. In that case, the Court held that Congress could not force states to take up the ACA expansion by threatening their pre-expansion Medicaid money. The new complaint says H.R. 1 makes a similar "shift in kind, not merely degree": it turns a need-based health-coverage program into a system that uses health care to promote work, and a state that declines to build the new eligibility machinery "stands to lose not merely a relatively small percentage of its existing Medicaid funding, but all of it" under 42 U.S.C. § 1396c. Dropping the ACA expansion to avoid the work rules is not a realistic way out, the complaint says; in Oregon, expansion already accounts for more than half of the state's federal Medicaid funding.

The filing is separate from a June 2026 multistate challenge to CMS's interim final rule on how the work requirements would be implemented. In that earlier case, a federal judge in Massachusetts vacated the agency's narrowed reading of "medically frail" on Oct. 29, 2026. Rayfield's and Brown's offices both noted that they had previously blocked paperwork burdens aimed at seriously ill enrollees.

What this means for providers and DSPs

The work rules do not, on their face, apply to people whose Medicaid eligibility already comes from a mandatory disability category. Many people with I/DD who receive home and community-based services or care in an ICF/IID are in that traditional eligibility group. The statute also carves out people who are medically frail, including people who are disabled, and family caregivers of a disabled individual.

The practical risk is documentation. Eligible people can still lose coverage if they cannot prove an exemption or 80 hours of qualifying activity when the state checks, now as often as every six months. DSPs who get their own health coverage through Medicaid expansion would be among those who must show work, school, volunteering or an exemption. Family caregivers who support a relative with I/DD may qualify for the caregiver exclusion if they can document that role.

The lawsuit's funding question is what reaches the rest of the I/DD system. If federal officials can cut off all Medicaid payments because a state does not run the work-requirement system, that threat covers Medicaid waiver services, institutional ICF/IID payments, and the rates that sustain provider agencies and the people they employ. Agencies in the four plaintiff states should watch the Eugene docket: the states asked the court to make clear that existing Medicaid funding cannot be withdrawn as punishment for declining to implement the new rules. No ruling has been issued.