Oregon AG Rayfield Sues to Block Medicaid Funding Penalties Tied to Work Requirements

Oregon — Oregon Attorney General Dan Rayfield and attorneys general from three other states sued the federal government Thursday, asking a judge to bar it from withholding existing Medicaid funding if the states decline to enforce new work and activity requirements. Congress enacted the requirements in its 2025 budget law, with implementation generally scheduled to begin Jan. 1, 2027.

Minnesota, New Mexico and Washington joined Oregon in the lawsuit, filed in U.S. District Court in Eugene. The states argue that threatening to cut existing Medicaid funding exceeds Congress’s constitutional spending power. They cite a 2012 Supreme Court ruling that Congress could not threaten states’ existing Medicaid funds to compel them to adopt the Affordable Care Act’s Medicaid expansion.

Who would have to meet the new rules

Under the federal rule implementing the law, certain adults ages 19 to 64, primarily those covered through Medicaid expansion, can qualify through 80 hours a month of work, community service or participation in a work program. At least half-time enrollment in an education program or earnings at or above a specified threshold can also qualify. Exemptions include pregnancy, certain serious health conditions and caregiving for a child younger than 14.

States must verify compliance at application and renewal and can choose to check more frequently. If a state cannot verify compliance, it must give the person 30 days to show that they met the requirement or qualify for an exemption. The Oregon Health Authority says members can report an exemption in 2027 without submitting proof.

How many Oregonians could lose coverage

Oregon’s complaint puts enrollment in the state’s Medicaid expansion group at about 564,000, a figure that includes people who may qualify for exemptions. The Oregon Department of Justice cited a state health authority estimate that up to one-third of the group could lose coverage, or roughly 188,000 people at the upper end. The department also warned that coverage losses could strain rural health facilities and contribute to closures.

When federal Medicaid officials announced the rule in June, they said it was designed to promote economic stability and independence. A study of an earlier Medicaid work requirement in Arkansas found that the policy led to coverage losses and found no increase in employment over 18 months of follow-up.

The new lawsuit follows a separate Oct. 29 federal court ruling in Massachusetts that struck down part of the federal rule narrowing who qualifies as medically frail. That ruling changed how the exemption is applied and left the Jan. 1 implementation deadline in place.