The initiative, which requires some Medicaid recipients to work, attend school or volunteer in order to maintain coverage, is part of a broader push to chip away at the Affordable Care Act, better known as Obamacare. The administration defeated a legal challenge to rules permitting expansion of short-term and limited-duration insurance policies in July. It lost an earlier ruling on a program allowing small businesses and individuals to create group plans that are cheaper than those offered under Obamacare but provide less coverage.

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

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

"Hopefully, the Supreme Court will review today's ruling but as it stands the Arkansas Works program will be less effective in helping recipients gain independence," Arkansas Governor Asa Hutchinson said in a statement.

Jane Perkins, legal director of the National Health Law Program, said Thursday's decision means thousands of low-income people in Arkansas 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 Poverty Law Center, and the law firm Jenner & Block, represented the state residents who challenged the requirements.

U.S. District Judge James Boasberg in Washington had voided programs in Kentucky and Arkansas programs in simultaneous rulings on March 27, finding that HHS's impact analysis, required in federal rulemaking, was inadequate. It failed, for example, to consider those who might lose coverage simply because they lacked internet access and couldn't report their work activity online, Boasberg found.

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

Kentucky, under a new, Democratic governor, dropped its work requirement on Dec. 16 and asked the court to dismiss its appeal without affecting any others. Maine abandoned the work requirement for its low-income health insurance program in January.

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

The federal government says the ACA authorized grants for states that give Medicaid recipients incentives for various "healthy behaviors" such as community engagement and financial independence.

State residents fighting the work-for-Medicaid requirement — joined in some cases by groups including the American Heart Association, the American Medical Association and The Southern Poverty Law Center — argue that conditioning eligibility on employment will lead to mass disenrollment and dramatically worsen health outcomes.

Kentucky estimated that 95,000 adults would lose coverage under the new rules. More than 18,000 people lost coverage in Arkansas during its partial implementation.

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

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

It isn't clear whether the justices would take the case. The upholding of the lower court's ruling doesn't mean other states are blocked from issuing the requirements, said Leonardo Cuello, the National 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 Trump administration that this policy is unlawful and that they should stop approving these waivers," said Joan Alker, a research professor at Georgetown University's Health Policy Institute. "But they probably won't."

Read more:

• GAO hits Trump administration on costs of Medicaid work requirements
• Work requirements in other states advance despite Kentucky Medicaid ruling
• Indiana gets federal approval for Medicaid work requirement, lockout

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