NYS among group of states suing Trump administration over change to Obamacare rule

New York is suing the federal government to stop it from carrying out a rule change for Obamacare that Attorney General Letitia James said could lead to millions of recipients losing health insurance.

James and a group of other states sued the U.S. Department of Health and Human Services on Friday to halt a change they contend would force Affordable Care Act recipients to navigate a burdensome income confirmation.

The Trump administration has said the change is consumer-focused and designed to offer more affordable health care options.

Low cost but limited

But in the federal lawsuit, James and the other plaintiffs say that while the change would allow more people to meet the requirements for catastrophic coverage, the “barebones health insurance plans” have low premiums because they have high patient-paid costs and limited coverage.

“This administration is trying to sabotage the Affordable Care Act through bureaucratic tricks instead of admitting it wants to take health insurance away from millions of Americans,” James said in a news release. “New York will not stand by while families lose the coverage they depend on to see a doctor, fill a prescription, or afford a hospital visit.”

At the end of open enrollment this year, nearly 210,700 people in the state were enrolled in a Qualified Health Plan, which is ACA-compliant, state records show.

The lawsuit, filed in a federal court in the Northern District of California, also lists 21 other states, including Connecticut and New Jersey, as plaintiffs. It names HHS Secretary Robert Kennedy Jr. and the Centers for Medicare & Medicaid Services and its administrator, Dr. Mehmet Oz, as defendants.

The Centers for Medicare & Medicaid Services, which is under HHS, rolled out the rule change in May for the 2027 plan year, officials said. HHS didn't respond to a request for comment Monday. In a May news release, CMS said the change would add integrity and consumer choice.

Crackdown on abuse

“American taxpayers deserve to know their dollars are going only to people who truly qualify,” Oz said in the release. “This rule strengthens eligibility checks, cracks down on abuse, and gives insurers more flexibility to offer affordable, consumer-focused coverage options.”

The lawsuit maintains that the rule will bring about lower health insurance sign-ups and increased costs. Moreover, the states say that several changes sought by the Trump administration are comparable to those already struck down by federal courts.

For instance, one 2026 stipulation mentioned in the lawsuit says that at least 75% of people who seek to sign up for the insurance during the special enrollment period, a time when an individual can get coverage outside of open enrollment because they experienced a qualifying event like childbirth, must first prove they are eligible for the insurance. However, a federal court previously struck down a similar provision, saying the government lacked evidence of misuse and a rational basis, court documents show.

Some of the other times when the courts have struck down similar provisions in prior rules deal with data-matching issues. Under the 2026 rule, before an individual can sign up for health insurance, exchanges must settle data-matching issues when information from the IRS or other credible source is missing, court documents show.

Court challenges

The 2026 rule also requires exchanges to resolve discrepancies when an applicant says their household income meets or exceeds 100% of the federal poverty level, but the IRS shows that their income is lower than that mark, according to the lawsuit. (People with incomes under 100% of the federal poverty level are not typically allowed to join the ACA marketplace because they are probably Medicaid-eligible.) In the past, federal courts said in both situations that similar stipulations were not needed to combat fraud, court records show.

The lawsuit noted that complying with these data matching issues would create more issues: “As healthier and younger enrollees — who seek healthcare less frequently and so are less motivated to complete the verification process in order to maintain coverage — drop out of the risk pool, the remaining population will skew older and sicker, worsening the risk pool and raising costs for consumers”

New provisions set in the rule allow for more people to sign up for catastrophic plans, officials said. The ACA, the lawsuit said, only allows people to choose those plans if they are in their twenties. People may also choose catastrophic plans should they lack the means to pay for coverage or are facing hardship like domestic violence or bankruptcy, court records show.

The 2026 rule allows everyone to claim the hardship exemption for catastrophic plans, provided their incomes are beneath 100% of the federal poverty level or greater than 250% of that threshold, the lawsuit noted. Under the recent rule, roughly 80% of the under-65 population could be eligible for a catastrophic plan. 

By Tiffany Cusaac-Smith

tiffany.cusaac-smith@newsday.com@T_Cusaac

Tiffany Cusaac-Smith is a general assignment reporter for Newsday. She previously worked at USA TODAY and is an alum of Howard University.