
    Soila CAMACHO, Sonia Denise Grover, Texas Welfare Reform Organization, El Paso County Hospital District d/b/a R.E. Thomason General Hospital, Plaintiffs, v. TEXAS WORKFORCE COMMISSION, Texas Health and Human Services Commission, and Texas Department of Human Services, Defendants.
    No. A-04-CA-017-SS.
    United States District Court, W.D. Texas, Austin Division.
    June 10, 2004.
    
      P. M. Schenkkan, Mary A. Keeney, Graves, Dougherty, Hearon Etal, Austin, TX, Bruce P. Bower, Texas Legal Services Center, Austin, TX, for Soila Comacho, Sonia Denise Grover, Texas Welfare Reform Organization.
    Jose R. Rodriguez, Kitty Schild, El Paso County Atty., El Paso, TX, for El Paso County Hosp. Dist.
    Robert L. Seibert, Assistant Attorney General, Raymond Charles Winter, Assistant Attorney General, Administrative Law Division, Austin, TX, Nancy K. Juren, Office of Attorney General, General Litigation Division, Austin, TX, Vijay Shanker, Priti Seksaria Agrawal, William D. Iver-son, Covington & Burling, Washington, DC, for Texas workforce Com’n, Texas Health and Human Services, Com’n, Texas Dept, of Human Services.
   ORDER

SPARKS, District Judge.

BE IT REMEMBERED on the 31st day of March 2004, the Court called the above-styled cause for hearing on Plaintiffs’ Application for Preliminary Injunction [# 9], and the parties appeared through counsel of record. Before the Court at that hearing were Plaintiffs’ Application for Preliminary Injunction [# 9], Defendants’ Response to Plaintiffs’ Application [# 14]; and Plaintiffs’ Reply [# 23]. Having considered the above documents, the evidence and arguments presented at the hearing, the case file as a whole, and the applicable law, the Court entered an order granting Plaintiffs’ Application for Preliminary Injunction [# 9] on April 12, 2004. The parties having agreed at the March 31, 2004 hearing and the Court having concluded this controversy presents a controlling question of law, and presents no material dispute of fact, the Court now also considers Plaintiffs’ original petition and application for declaratory relief, temporary injunction, and temporary restraining order, admits into evidence for purposes of this decision on the merits all the affidavits and discovery responses offered by Plaintiffs and by Defendants in support of or in opposition to the application for preliminary injunction, and the stipulations of counsel at the March 31, 2004 hearing on the application for preliminary injunction and enters the following opinion and order.

I. Background

Effective November 18, 2003, the Texas Workforce Commission (“TWC”) adopted several new rules limiting eligibility for Medicaid health coverage. These rules apply to poor adults with children who are receiving both cash assistance under the federal Temporary Assistance to Needy Families (“TANF”) program and medical assistance under the federal Medicaid program. Separate federal law governs the TANF and Medicaid programs. Plaintiffs contend federal Medicaid law limits termination of Medicaid to only those TANF recipients who are “refusing to work” or refusing to cooperate with enforcement of child support. According to Plaintiffs, the challenged portions of the TWC rules would cut-off TANF recipients’ Medicaid for other, non-permitted reasons.

Plaintiffs Soila E. Camacho (“Camacho”), Sonia Denise Grover (“Grover”), Texas Welfare Reform Organization (“TWRO”), and El Paso County Hospital District d/b/a R.E. Thomason General Hospital (“Thomason”) filed in state district court an original petition and application for declaratory relief, temporary injunction, and temporary restraining order, complaining of Defendants the TWC, the Texas Health and Human Services Commission (“THHSC”), and the Texas Department of Human Services (“TDHS”).

Plaintiff Camacho has been a recipient of TANF and Medicaid and has recently reapplied for these benefits after being terminated from her job. During the pen-dency of this litigation, Plaintiff Grover has been a recipient of TANF and Medicaid subject to the challenged TWC rules. Plaintiff TWRO is an organization that advocates on behalf of its members, including recipients of TANF and Medicaid who are at risk of losing their Medicaid benefits under the challenged rules. Defendants concede and the Court finds Plaintiff TWRO has standing to bring this suit.

Plaintiff Thomason is a county hospital district required by state law to provide indigent care. According to Thomason, it will suffer financial losses in providing health care to those TANF recipients who would lose their Medicaid benefits under the new rules, including at least 74 TANF recipients identified by Defendants as in danger of losing Medicaid under the challenged rules. Thomason argues it will immediately lose capitation payments to its health maintenance organization if the challenged rules are implemented, and will also have to provide indigent care that would otherwise have been reimbursed, at a loss of thousands of dollars for each patient who loses Medicaid. Such Medicaid payments to Thomason are by contract, • statute, and rule, depending on whether it is managed care or traditional Medicaid, and based on the number of Medicaid eligible enrollees who receive medical services, and what medical services they receive at Thomason and its clinics. Thomason’s wholly owned subsidiary, El Paso First, has a legal right to capitation payments from the Texas Medicaid program. Such payments are by contract based on the number of Medicaid eligible enrollees. Defendants dispute Thomason’s standing. Defendants do not offer any controverting evidence regarding Thomason; however, they contend Thoma-son’s evidence of harm shows only Thoma-son “might” have unreimbursed costs as a result of the challenged rules and this harm is derivative and too remote to confer standing. The Court finds Thomason does have standing.

Defendant TWC is the state agency that adopted the challenged rules. Defendant TDHS is the state agency authorized to cut-off Medicaid assistance under the new TWC rules. Defendant THHSC is the state agency with responsibility for implementing the Texas Medicaid program.

The state district court issued a temporary restraining order that the parties agreed to extend until a state court ruling on the temporary injunction hearing set for January 20, 2004, or March 31, 2004, whichever first occurred. On January 12, 2004, Defendants removed this case to this Court. Plaintiffs filed an application for preliminary injunction with new affidavits, seeking a continuance of the preliminary injunction pending this Court’s determination of the merits.

II. Relevant Federal Law

This ease concerns two separate federal statutory schemes — Temporary Assistance to Needy Families and Medicaid.

A. Temporary Assistance to Needy Families

The purpose of the TANF program is “to increase the flexibility of States in operating a program designed to” meet certain goals including “end[ing] the dependence of needy parents on government benefits by promoting job preparation, work, and marriage.” 42 U.S.C. § 601(a). As a condition of receiving TANF grants, states must ensure certain percentages of families participate in work activities. 42 U.S.C. § 607(a). “Work activities” include:

(1) unsubsidized employment;
(2) subsidized private sector employment;
(3) subsidized public sector employment;
(4) work experience ...;
(5) on-the-job training;
(6) job search and job readiness assistance;
(7) community service programs;
(8) vocational educational training ...;
(9) job skills training directly related to employment;
(10) education directly related to employment, in the case of a recipient who has not received a high school diploma or a certificate of high school equivalency;
(11) satisfactory attendance at a secondary school or in a course or study leading to a certificate of general equivalence; and
(12) the provision of child care services to an individual who is participating in a community service program.

42 U.S.C. § 607(d). Each of these TANF activities consists of either actual work or education, training, or preparation for work. Federal law also authorizes states to establish other, non-work requirements related to promoting “individual responsibility” as part of thpir TANF programs. Federal law grants states the option to impose a penalty on TANF recipients who violate these non-work requirements. 42 U.S.C. §§ 601-608.

B. Medicaid

Under the federal Medicaid program, 42 U.S.C. § 1396, the federal government pays up to 60 percent of the costs of medical care for eligible participants. States and in some cases localities, pay the balance of the costs of services. 42 U.S.C. § 1396a(a)(2). A state’s participation in the Medicaid program is voluntary; however, if a state chooses to participate, its Medicaid plan must comply with the federal Medicaid statute. Abbeville Gen. Hosp. v. Ramsey, 3 F.3d 797, 800 (5th Cir.1993). Individuals who qualify for Medicaid include low-income families and children, and low-income aged, blind, or disabled individuals. 42 U.S.C. § 1396; Blanchard v. Forrest, 71 F.3d 1163, 1166 (5th Cir.1996).

42 U.S.C. § 1396u-l(b)(3) authorizes states to terminate Medicaid benefits of adult individuals whose TANF benefits are terminated for non-compliance with work requirements:

In the case of an individual who -

(i) is receiving cash assistance under a State program funded under part A of subchapter IV of this chapter,
(ii) is eligible for medical assistance under this subchapter on a basis not related to section 1396a(l) of this title, and
(iii) has the cash assistance under such program terminated pursuant to section 607(e)(1)(B) of this title (as in effect on or after the welfare reform effective date) because of refusing to work
the State may terminate such individual’s eligibility for medical assistance under this subchapter until stick time as there no longer is a basis for the termination of such cash assistance because of such refusal.

42 U.S.C. § 1396u-l(b)(3)(A) (emphasis added). All TANF recipients subject to the work requirement under the TANF program are potentially at risk of losing their Medicaid for “refusing to work” when a state exercises this option.

III. Texas Changes in Temporary Assistance to Needy Families and Medicaid under House Bill 2292

As permitted by federal law, Texas includes both the work and the non-work requirements for the TANF program in a Personal Responsibility Agreement (“PRA”) that each adult TANF recipient must agree to and sign. Tex. Hum. Res. Code § 31.0031. The PRA requires:

(1) the parent of a dependent child cooperate with the department and the Title IV-D agency if necessary to establish the paternity of the dependent child and to establish or enforce child support;
(2) if adequate and accessible providers of the services are available in the geographic area and subject to the availability of funds, each dependent child, as appropriate, complete early and periodic screening, diagnosis, and treatment checkups on schedule and receive the immunization series prescribed by Section 161.004, Health and Safety Code, unless the child is exempt under that section;
(3) each adult recipient, or teen parent recipient who has completed the requirements regarding school attendance in Subdivision (6), not voluntarily terminate paid employment of at least 30 hours each week without good cause in accordance with rules adopted by the department;
(4) each adult recipient for whom a needs assessment is conducted participate in an activity to enable that person to become self-sufficient;
(5) each caretaker relative or parent receiving assistance not use, sell, or possess marihuana or a controlled substance in violation of Chapter 481, Health and Safety Code, or abuse alcohol;
(6) each dependent child younger than 18 years of age or teen parent younger than 19 years of age attend school regularly, unless the child has a high school diploma or high school equivalency certificate or is'specifically exempted from school attendance under Section 25.086, Education Code;
(7) each recipient comply with department rules regarding proof of school attendance; and
(8) each recipient attend appropriate parenting skills training classes, as determined by the needs assessment.

Tex. Hum. Res. Code § 31.0031(d). In short, the PRA requires adult TANF recipients not only to work and cooperate with child support, but also to keep their children in school and up-to-date on their immunizations and health and dental check-ups and, with respect to their own personal conduct, to refrain from drug and alcohol abuse.

Until 2003, Texas, like other states, penalized TANF recipients’ failure to comply with non-work requirements by ordering reductions in cash assistance. In the 2003 Regular Session, the Texas Legislature passed House Bill 2292 (“HB 2292”). HB 2292 requires the state to immediately terminate all TANF cash assistance for a recipient’s failure to cooperate with PRA requirements. Tex. Hum. Res. Code §§ 31.0031 & 31.0032. Plaintiffs do not contest this election is authorized under federal law.

In addition, HB 2292 authorizes the state to exercise the option under federal law to terminate Medicaid to adult TANF recipients for “refusing to work.” Tex. Hum. Res. Code § 31.0032(c). This statute provides:

To the extent allowed by federal law, the Health and Human Services Commission or any health and human services agency, as defined by Section 531.001, Government Code, may deny medical assistance for a person who is eligible for financial assistance but to whom that assistance is not paid because of the person’s failure to cooperate. Medical assistance to the person’s family may not be denied for the person’s failure to cooperate. Medical assistance may not be denied to a person receiving assistance under this chapter who is under the age of 19, a pregnant adult, or any other person who may not be denied medical assistance under federal law.

Tex. Hum. Res. Code § 31.0032(c) (emphasis added). Plaintiffs contend federal law does not permit TWC to cut-off Medicaid benefits to recipients who are not “refusing to work”, but who are merely failing to comply with a TANF PRA non-work requirement.

IV. The Challenged Texas Workforce Commission Rules

A. Rule 811.2(11)

Rule 811.2(11) states:
Work Requirement — For the purpose of 45 U.S.C. § 607 and 45 CFR § 261.10, a Choices individual is deemed to be engaged in work by cooperating with:
(A) all requirements set forth in the family employment plan, as set forth in this chapter; and
(B) all TANF Core and Non-Core activities, as set forth in this chapter.

40 Tex. Admin. Code § 811.2(11).

B. Rule 811.23

Rule 811.23(e) provides:

A Board shall ensure that mandatory individuals are notified of their responsibility to participate in job readiness activities as set forth in § 811.41(d) of this chapter.

40 Tex. Admin. Code § 811.23(e).

C. Rule 811.41

Rule 811.41 provides:

(d) Job readiness activities are designed to assist Choices individuals with addressing issues that will aid them in obtaining and retaining employment, including:
(3) activities essential to the health, safety, and welfare of their families, as follows:
(A) activities associated with maintenance of their children’s health and dental checkups, as required by § 3.301 of this title;
(B) activities associated with maintenance of their children’s immunizations, as required by § 3.301 of this title;
(C) activities necessary to ensure their children’s school attendance, as required by § 3.301 of this title; and
(D) activities necessary to abstain from the use, possession, or sale of controlled substances, and to abstain from alcohol abuse, including participation in counseling.

40 Tex. Admin. Code § 811.41(d)(3).

D. Rule 811.25(a)(1)(A)

Rule 811.25 states:

(a) Participation hours are subject to the restrictions regarding TANF core and TANF non-core activities as set forth in 45 U.S.C. § 607, 45 C.F.R. §§ 261.10, 261.12, 261.31, 261.32, and 261.33, and as set forth in this section and § 811.26 of this subehapter.
(1) TANF core activities are:
(A) job search and job readiness assistance, as described in § 811.41 of this chapter;

40 Tex. Admin. Code § 811.25(a)(1)(A).

Y. Defendants’ New TWC Rules, as Written, are Inconsistent with and Therefore Preempted by Federal Medicaid Laws

Texas’ participation in Medicaid is voluntary, however, once Texas chose to participate, its Medicaid plan must comply with the federal Medicaid statute and regulations. Blanchard v. Forrest, 71 F.3d 1163, 1166 (5th Cir.1996); Alabama Nursing Home Ass’n v. Harris, 617 F.2d 388, 396 (5th Cir.1980); Planned Parenthood v. Sanchez, 280 F.Supp.2d 590, 606 (W.D.Tex.2003) (“States are not required to receive federal funding, but when they do, they must follow federal requirements.”).

Plaintiffs argue Defendants’ attempt to more strictly limit Medicaid benefits fails because Congress deliberately limited the sanction of withdrawal of benefits to adults terminated from TANF only for “refusing to work” under § 607. This Court agrees. 42 U.S.C. § 1396u-l(b)(3) authorizes states to terminate Medicaid only when the non-pregnant adult’s TANF cash assistance is terminated “pursuant to section 607(e)(1)(B) of this title ... because of refusing to work.” 42 U.S.C. § 607(e)(1)(B) authorizes a state to terminate a TANF recipient who “refuses to engage in work required in accordance with this section.” Congress’ reference to § 607 in the Medicaid statute is a deliberate restriction on a state’s authority to terminate Medicaid. The federal TANF statute includes other provisions specifically authorizing a state to impose alternative sanctions if an adult fails to ensure a minor child attends school (42 U.S.C. § 604(i)) and if an individual fails to comply with an individual responsibility plan. 42 U.S.C. § 608(b)(3). Had Congress intended to permit a state to terminate Medicaid based on an adult’s failure to ensure a child’s school attendance or non-compliance with other non-work requirements of the individual responsibility plan, it would have provided for these penalties. Because Congress carefully limited a state’s Medicaid sanction authority to § 607 for “refusing to work,” TWC’s rules violate 42 U.S.C. § 1396u-l(b)(3).

Importantly, TWC imposes the PRA requirements, not as an alternative to working, but as additional requirements. Accordingly, a parent who is working, but fails to ensure his or her child is timely immunized, would lose Medicaid assistance. Other courts have enjoined state laws and regulations that add eligibility requirements to federal funding statutes. In Carleson v. Remillard, 406 U.S. 598, 92 S.Ct. 1932, 32 L.Ed.2d 352 (1972), the Supreme Court invalidated a state law preventing children whose fathers were serving in the military from receiving AFDC benefits, finding Congress did not intend to exclude a class of benefit recipients. Carleson, 406 U.S. at 604, 92 S.Ct. 1932. In Jones v. T.H., 425 U.S. 986, 96 S.Ct. 2195, 48 L.Ed.2d 811 (1976), the Supreme Court affirmed a three-judge district court’s holding that a Utah regulation was inconsistent with Title XIX. The Utah regulation prohibited health care providers from giving minors federally-funded family planning assistance absent parental consent. T.H. v. Jones, 425 F.Supp. 873, 875-76 (D.Utah 1975). The court held the Utah regulation conflicted with federal law because “[t]he state’s regulations imper-missibly engraft upon the federal scheme a condition for eligibility where Congress has undertaken fully to define the class of persons who may receive family planning assistance.” T.H., 425 F.Supp. at 878. This conflict, the court found, “constitutes an important disagreement affecting the scope and effect of federal family planning assistance. Under such circumstances, federal law must control.” T.H., 425 F.Supp. at 880.

Following the T.H. decision, the Tenth Circuit invalidated a Utah statute prohibiting medical providers from receiving Medicaid reimbursement for providing contraceptive services to minors without parental consent. Planned Parenthood Ass’n of Utah v. Dandoy, 810 F.2d 984 (10th Cir.1987). The court found the state requirement conflicted with Title XIX because:

The defendant provides the services to some persons eligible under Title XIX but not to others. The defendant thus has excluded some persons from the general group who are eligible for the particular health care here concerned. The result is that care to designated individuals in this large group to whom health care is to be available is refused by the state imposed condition.

Dandoy, 810 F.2d at 988. The court clarified the choice states must make when choosing to receive federal funding: “Utah may participate in the program and thereby accept the conditions attached by the federal acts which may be contrary to state law or unwanted or instead choose not to participate and to use its own funds as it wishes.” Dandoy, 810 F.2d at 988.

These cases establish a state cannot withhold assistance from individuals who met the federal eligibility requirements, simply because the individuals do not meet the state’s additional requirements. Here, Texas is withholding Medicaid benefits from otherwise eligible individuals, based on their failure to meet state imposed conditions.

The invalidity of Defendants’ position is further supported by Cheryl Camillo, a Health Insurance Specialist with the United States Department of Health and Human Services. She advised:

[A] state cannot terminate the Medicaid eligibility of an individual receiving TANF cash assistance whose TANF assistance is reduced due to the individual’s failure to comply with an Individual Responsibility Plan.
So regarding your state’s questions, the state cannot terminate a TANF recipient’s Medicaid eligibility if the individual refuses to comply with an Individual Responsibility Plan. However, the state can terminate the individual’s Medicaid eligibility if the individual’s TANF eligibility were terminated due to a failure to engage in one of the work activities listed above [in 42 U.S.C. § 607],

Pls.’ Application for Prelim. Inj. [# 9], Ex. F. Moreover, the United States Department of Health and Human Services, which is charged with interpreting and implementing § 607, has stated “we have no authority to add to the list of 12 work activities” found in § 607. 64 Fed.Reg. 17720, 17777, 1999 WL 197996 (April 12, 1999). Indeed, Albert Hawkins, Executive Commissioner of Defendant THHSC, has represented to state legislators “any attempt by the State to broaden the definition of ‘work activities’ for purposes of measuring the State’s accountability under section 607 would be contrary to federal law.” Pis.’ Application for Prelim. Inj. [# 9], Ex. M (October 1, 2003 Letter to Texas Legislators) at 3. No state other than Texas terminates Medicaid for non-work program violations. Plaintiffs’ Application for Prelim. Inj. [# 9], Ex. F at 6.

Based on the record before the Court, the Court finds Plaintiffs are correct in their contention federal Medicaid law limits termination of Medicaid benefits to only those TANF recipients who are “refusing to work” or refusing to cooperate with enforcement of child support, and the challenged portions of the TWC rules would cut-off TANF recipients’ Medicaid for other, non-permitted reasons. Congressional intent in Medicaid is clear — to protect the working welfare recipient’s health. Congress did not authorize states in pursuit of broader social goals, no matter how desirable, to cut-off Medicaid benefits to a welfare recipient who is, in fact, working.

VI. State Law Claims

Having determined the new TWC rules are invalid on federal preemption grounds, the Court does not address Plaintiffs’ claims that these rules also violate state law, except to the extent the state statute limits state agency authority to that permitted by federal law.

VII. Conclusion

In accordance with the foregoing:

IT IS ORDERED that Plaintiffs’ request for a declaratory judgment declaring invalid Texas Workforce Commission Rules 811.2(11)(A) and (B), 811.25(a)(1)(A), and 811.41(d)(3)(A)-(D), to the extent those rules apply the job readiness activities in Texas Workforce Commission Rule 811.41(d)(3) and the parenting skills training in Texas Workforce Commission Rule 811.52(4), (5), (6), and (7) as grounds for terminating Medicaid by defining, or to the extent Defendants otherwise redefine by rule or through the Personal Responsibility Agreement that mandatory Choices recipients of TANF must sign, “work” or “work requirements” or “work activities” or “job readiness” to include obtaining children’s immunizations, checkups, school attendance, or refraining from drug or alcohol abuse or any other non-work requirements for purposes of Medicaid eligibility is GRANTED. This order does not affect grounds for terminating Temporary Assistance to Needy Families cash assistance. 
      
      . In United States health services, capitation refers to a fixed “per capita” amount that is paid to a hospital, clinic, or doctor for each person served.
     
      
      . "Choices” is the name of the TANF employment program.
     
      
      . It is immaterial whether the restrictions result in a theoretical "good” or the actual intent of the state is to improve upon the Medicaid program.
     