by Dave Soulia, for FYIVT.com

Vermont has joined a coalition of 22 jurisdictions challenging a new federal rule that would end Medicaid and Children’s Health Insurance Program reimbursement for certain gender-transition treatments provided to minors, setting up another dispute between states and the Trump administration over federal health-care policy.

The lawsuit, Illinois et al. v. U.S. Department of Health and Human Services et al., was filed Wednesday, September 2, in the U.S. District Court for the District of Massachusetts.

At issue is a final rule issued by the Centers for Medicare and Medicaid Services that prohibits federal Medicaid reimbursement for puberty-blocking drugs, cross-sex hormone therapy and surgical procedures when those treatments are provided for gender dysphoria to patients under 18. Similar restrictions apply under the Children’s Health Insurance Program, or CHIP, to patients under 19.

The rule is scheduled to take effect October 13.

CMS says the policy is intended to prevent federal taxpayer dollars from paying for treatments the administration describes as inadequately supported by evidence and carrying potentially irreversible risks for minors.

“Today, we are ending federal taxpayer funding for sex-rejecting procedures on children,” Health and Human Services Secretary Robert F. Kennedy Jr. said when CMS announced the rule in August.

CMS cited concerns over long-term health effects and pointed to reviews and policy changes in several European countries. The agency emphasized that the rule applies only to federal Medicaid and CHIP funding and does not prohibit states from paying for the services with their own money. Mental-health services also remain eligible for federal coverage.

For patients already receiving hormone therapy, CMS is allowing federal reimbursement to continue for a transition period of up to six months after the rule takes effect.

States challenge CMS authority

Vermont and the other plaintiffs argue that CMS does not have authority under federal Medicaid law to categorically exclude the treatments from federal reimbursement.

The complaint contends that Congress gave states substantial discretion to determine which optional medical services their Medicaid and CHIP programs will cover, subject to federal statutory requirements.

According to the states, CMS is effectively creating a new exclusion from Medicaid coverage without authorization from Congress.

The coalition is asking the court to declare the rule unlawful, vacate it and block its enforcement.

The lawsuit also raises claims under the federal Administrative Procedure Act and the Constitution’s Spending Clause, arguing that CMS changed the terms under which states participate in Medicaid without sufficient congressional authorization.

No injunction had been issued as of Thursday, meaning the October 13 effective date remains in place.

Vermont law collides with new federal funding policy

The case has a direct connection to Vermont’s existing health-insurance laws.

Under 8 V.S.A. § 4071, health insurance plans in Vermont are required to cover qualifying gender-affirming health-care services when they are medically necessary, clinically appropriate and included in the state’s essential health-benefits benchmark plan.

The law specifically applies those coverage provisions to Medicaid and other public health-care programs administered by Vermont.

But the statute includes an important limitation: Medicaid coverage must comply with requirements imposed by CMS.

Vermont broadly defines gender-affirming health care to include medical, behavioral-health, psychiatric, surgical, therapeutic, diagnostic and medication services relating to gender dysphoria or gender incongruence.

The federal rule does not repeal those Vermont protections or prohibit the state from continuing to provide the affected treatments.

Instead, it changes who pays.

If the CMS rule survives the legal challenge, Vermont could continue financing some or all of the affected services using state funds, but it would lose the federal Medicaid matching dollars normally associated with those expenditures.

Alternatively, the state could modify Medicaid coverage to conform with the federal reimbursement restrictions.

That potentially leaves lawmakers and the Agency of Human Services with a policy and budget decision if the lawsuit is unsuccessful.

Financial impact in Vermont remains unclear

Neither the complaint nor the available state and federal materials provide a Vermont-specific estimate of how many Medicaid beneficiaries under 18 currently receive puberty blockers, hormone therapy or surgical treatment for gender dysphoria.

There is also no publicly identified estimate of how much federal Medicaid money Vermont could lose if it chose to continue those services using state-only funding.

That makes the immediate fiscal impact difficult to calculate.

The larger legal question is broader than Vermont: whether the executive branch can use its authority over Medicaid reimbursement to exclude a category of treatment that Congress itself has not expressly prohibited.

CMS argues that it can establish federal reimbursement standards and that the new rule protects children and federal taxpayers from treatments the administration considers insufficiently supported by evidence.

Vermont and the other states argue that the agency has crossed the line from administering Medicaid into rewriting the program’s statutory terms.

Unless the federal court intervenes, that dispute stops being theoretical on October 13.