On November 5, 2026, Oregon, Minnesota, New Mexico, and Washington filed a lawsuit challenging the constitutionality of the Medicaid work requirements that Congress established under the One Big Beautiful Bill Act. In State of Oregon v. Oz, the states argue that Congress exceeded its authority by conditioning continued federal Medicaid funding on states’ implementation of the new requirements.

Unlike the recent challenge in Commonwealth of Massachusetts v. Oz, which addressed CMS’s interpretation of the medical frailty exception, this lawsuit challenges Congress’s authority to condition existing federal Medicaid funding on state implementation of the work requirements. The states are not asking the court to eliminate the work requirements themselves. Instead, they seek to prevent the federal government from withholding existing Medicaid funding from states that do not implement them.

The States Challenge the Medicaid Funding Conditions

Under the One Big Beautiful Bill Act, states must implement community engagement requirements for certain Medicaid expansion enrollees. Generally, affected individuals ages 19 through 64 must complete at least 80 hours per month of qualifying activities, such as employment, community service, or participation in a work program. Individuals may also satisfy the requirement through other means, including enrollment at least halftime in an educational program or meeting a specified monthly income threshold, unless an exception applies.

The states argue that the work requirements fundamentally change Medicaid from a program designed to provide health coverage to low-income populations into one that conditions coverage on participation in qualifying activities. They contend that Congress cannot compel states to accept this significant policy change by threatening to withhold existing federal Medicaid funding. Relying on the Supreme Court’s 2012 decision in NFIB v. Sebelius, the states argue that the funding condition is unconstitutionally coercive because states have no meaningful choice but to implement the requirements to avoid losing federal funding. The states contend that this is true whether noncompliance would result in the loss of all federal Medicaid funding or only funding associated with the ACA expansion.

The complaint also describes the significant administrative and financial burdens states expect to face, including developing systems to track and verify compliance and determine whether individuals qualify for exceptions. The states further argue that individuals who lose coverage because they cannot satisfy the new documentation requirements may seek care at state-funded institutions, increasing states’ uncompensated care costs.

The States’ Requested Relief

The states are asking the U.S. District Court for the District of Oregon to declare that the federal government cannot withdraw or suspend existing federal Medicaid funding from a state because it fails to implement the new requirements. They also seek preliminary and permanent injunctive relief to prevent the federal government from taking that action.

The states filed their complaint along with motions for preliminary injunctive relief and summary judgment, requesting expedited consideration ahead of the January 1, 2027 implementation date. The court has not yet ruled on those requests.

Implications for States and Stakeholders

The outcome of this case could have significant implications for state Medicaid programs. If the states prevail, Oregon, Minnesota, New Mexico, and Washington could decline to implement the new requirements without risking the loss of existing federal Medicaid funding. The requirements themselves, however, would remain in the law. Although a ruling could inform similar challenges by other states, the relief requested in this case is limited to the four plaintiff states.

Importantly, the lawsuit does not itself pause the January 1, 2027 implementation date or relieve states of their obligations under the law. States, Medicaid managed care organizations, providers, and other stakeholders should continue to monitor the litigation as implementation approaches.

Groom’s Health Services practice will continue to monitor developments affecting Medicaid community engagement requirements and their implementation.

Read the complaint here.