In Defense of Sticky Waivers: Executive Entrenchment and the “Other” Texas Case

In health policy, education, and other areas with a major federal presence, the viability of state reforms depends not just on federal law but on the choices of federal agencies, including federal agency decisions whether to grant or deny “waivers” that often last five or more years and change regulatory requirements or financial flows from the default set by statute. The desirability of waiver legislation has been debated (see, e.g., Professor Barron’s and Professor Rakoff’s important defense of waiver legislation), but I want to focus not on whether waivers should exist but on an important question about how they work, with an emphasis on implications for state policy development.

Specifically, this post focuses on the rules governing when a federal agency can rescind a state’s waiver, once granted. That question is front and center in health policy today, because the Trump Administration granted numerous “midnight waivers” in its final months, including waivers allowing states to require work (or “community engagement) as a condition of Medicaid eligibility. The Biden Administration is in the process of rolling back many of these waivers in the face of state objections, and on August 20 a district court temporarily enjoined the rescission of Texas’s Medicaid managed care waiver in the first such case to reach federal court in the program’s history.

In enjoining the Biden Administration’s rescission of Texas’s waiver the district court applied a very stringent standard of review, emphasizing state reliance interests and finding insufficient the Biden Administration’s justification that the decision granting the waiver itself had violated statutory notice and comment requirements. The Department of Justice, for its part, argued (and will presumably continue to argue as this and other rescission lawsuits move to the merits and then to appeal) that waiver rescissions are not subject to judicial review at all (because they are “committed to agency discretion by law”).

The more I think about it, the more I think that the district court’s approach to reviewing waiver rescissions—a stringent standard that curbs agency discretion unilaterally to rescind already-granted waivers, making waivers durable, or sticky—is a good thing from a policy perspective. (I am putting the specific doctrinal and statutory interpretation arguments to one side for this post, though there is a lot of leeway on this matter of first impression.) The benefit of making waivers durable that drives my thinking is that doing so facilitates the federalism value of state experimentation. A significant cost of federal agency discretion when it comes to cooperative federalism programs is that the possibility of the feds changing their minds undermines states’ ability to depend on stable federal rules when crafting their own policies. A state’s incentive to invest in program development or implementation—to experiment and to build—is naturally reduced if the state thinks a key federal permission or grant of funds may change with the next presidential election.

Take a state today considering a “public option” health reform that would take years to fully implement and depend on one or more federal health care waivers. Such an experiment may seem too risky if the key federal waivers depend on sympathetic federal regulators remaining in power. Indeed, the ACA was based on “Romney care,” a Massachusetts reform that depended on a Medicaid waiver granted by the Bush Administration in 2006. At that time waiver rescissions were unheard of, but if precedents set by the Biden Administration’s rescissions of Trump’s midnight waivers clear the way for future transition rescissions, will states still be willing to build major policy infrastructures on the shaky foundation of administrative discretion?

One way to stabilize federal policy, of course, would be to cement that policy in legislation—but that is probably not possible when it comes to something like state-specific waivers. But the stringent standard of review adopted by the district court, with heavy weighting of reliance interests, offer a means of executive entrenchment, that is they provide a way to stabilize even policy choices that Congress leaves to executive discretion. They make federal policy as to which agencies have discretion more sticky. (Indeed, reading Justice Roberts’ opinion in the DACA case—which the district court cited in enjoining the rescission of Texas’ waiver—I wonder if he sees executive entrenchment as an alternative to revitalizing the non-delegation doctrine as an answer to instability in the administrative state.)

Whatever its merits in other contexts, I think executive entrenchment is a good thing when it comes to health policy waivers. Taking the long view, the Biden Administration might by “winning” broad authority to rescind the Texas waiver or other midnight waivers today in court set up future “losses” by empowering the next Administration to undo its work while simultaneously undermining states’ incentives to innovate and invest based on current federal health policy. That would be a Pyrrhic victory for the Biden Administration, and an outright loss for federalism.

There are serious counterarguments to this federalism-based defense of sticky waivers, but I don’t think they are persuasive. The first comes from an executive power perspective. One might focus on the fact that in its last week the Trump Administration granted Texas’ waiver and worry that sticky waivers problematically increase the power of the executive, especially “bad faith” executives seeking to use their power for abusive purposes. I am deeply sympathetic to this concern: I have written with skepticism about executive conditions—executive power to impose extra-statutory conditions on the flow of federal funds to states—worrying that the executive can use such conditions to subordinate vulnerable communities and steer major policies with little accountability or transparency. I also agree with Professor Douglas Spencer that the potential for federal aggrandizement is even greater with executive conditions on federal spending than legislative conditions on federal spending.

On closer inspection, however, concern about executive aggrandizement is a reason for stricter rules governing waiver creation, not lax rules regarding waiver rescission. The possibility that a new administration will sweep in and “fix” abusive waivers is a thin shield indeed against the threat of abusive waivers. Moreover, limiting waiver rescission (whether by enforcing waiver terms or employing a strict standard of review that heavily weights reliance interests) may in two ways constrain waiver creation, making concern about executive power to create waivers an argument for sticky waivers, not an argument against. First, state health policy based on a sticky waiver is itself resistant to executive power—stickiness takes away the threat of rescission as a tool in the agency’s tool belt as to states that already have waivers, and each additional waiver shrinks the domain over which the agency has power at any given moment. I have heard, anecdotally, of states hesitant to challenge agency waiver powers for fear of reprisal—sticky waivers limit (but do not eliminate) that threat. Second, for an agreement to “stick” it must be written down as part of the public waiver, so enforcing waivers against the federal government gives agency officials a (in my view) much-needed incentive to make public and transparent the terms of the bargains they strike with states.