21 States Sue CMS Over Controversial ACA Restrictions

This month, CMS finalized changes to the Affordable Care Act (ACA) marketplace rules, tightening eligibility, reducing subsidies, and changing enrollment features.  

The move, intended to curb fraud and stabilize premium costs, has triggered legal and political blowback from 21 states, marking one of the most significant legal confrontations over ACA implementation. 

In this edition, we break down what’s changing, what’s at stake, and how it might affect state health systems, Medicaid spending, and access to coverage. 

But first, here is a small capsule of some crucial headlines in the HealthTech world. 

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5. The optimistic brain: scans reveal thought patterns shared by positive thinkers 

The New CMS Rule: What's Changing? 

On June 20, CMS finalized its 2025 Marketplace Integrity and Affordability Rule, which will take effect starting August 25. The changes are aimed at lowering individual insurance premiums by roughly 5% on average and saving the federal government an estimated $12 billion by 2026. 

The policy shifts include: 

• Ending the extended monthly special enrollment period (SEP) for individuals earning below 150% of the federal poverty level, a rule that CMS says has been misused by agents and brokers for improper enrollments. 

• Requiring stricter income and eligibility verification before consumers can receive premium subsidies or enroll during SEPs. 

• Moving up the ACA open enrollment period deadline to December 31 (starting in 2027), ending the current January 15 window. 

• Disallowing federal subsidies from being used to cover gender-affirming care. 

• Blocking Deferred Action for Childhood Arrivals (DACA) recipients from accessing ACA coverage, reversing a CMS proposal from 2024. 

CMS argues these steps will tighten oversight, improve the overall risk pool, and prevent individuals from waiting until illness to sign up - one of the key cost drivers in the current system. 

The Legal Pushback: 21 States File Suit 

In response, 21 states led by Democratic attorneys general, including California, New York, and Illinois, have filed a lawsuit against HHS and CMS in the U.S. District Court in Massachusetts. 

The states argue that the new rules are "arbitrary and capricious," and that the projected coverage losses estimated by CMS itself to reach up to 1.8 million people will impose financial strain on state Medicaid programs and increase demand for uncompensated care. 

They also claim the rollback of gender-affirming care coverage violates their own state mandates and civil rights protections. The exclusion of DACA recipients, too, is being challenged for undermining prior federal commitments and disrupting ongoing state-level public health planning. 

What It Means for Health Systems 

For payers and providers, the effects may be uneven. A stricter risk pool and stronger income verification could stabilize pricing and reduce improper subsidy payments. But the sudden removal of up to 1.8 million people from coverage could raise short-term pressures on emergency services, charity care, and Medicaid budgets, particularly in states with already high uninsured rates. 

The elimination of the monthly SEP and the shorter open enrollment window may reduce last-minute enrollment swings, but it could also deter people from signing up at all, especially if brokers and agents disengage due to reduced flexibility and financial incentives. 

And on gender-affirming care, health systems operating in progressive states now face the possibility of regulatory conflict between federal funding rules and state coverage mandates. 

Our Expert Take 

While this may be framed as a move to protect the ACA’s integrity and reduce fraud, it’s hard to ignore the underlying politics. Despite references to financial oversight, this is a clear partisan push to restrict coverage and cut federal spending - at the expense of state health systems and vulnerable populations.  

The financial benefits are real, but secondary to the broader political message: scaling back the ACA in ways that shift both the financial burden and public health risks onto states. For health systems and policymakers, the real cost may come in the form of higher uninsured rates, more uncompensated care, and growing gaps in access - especially for marginalized communities. 

Bigger picture, the direction of U.S. healthcare is in a downward spiral. Rather than course corrections, these are straight cuts, layered onto an already fragile system. With rising costs, workforce shortages, and widening disparities, this latest move further destabilizes a system that was already failing too many Americans.