Twenty-two mostly Democratic states have sued the Department of Health and Human Services over changes to the Affordable Care Act announced in May, arguing the new regulations repeat provisions from a prior rule that a federal court already struck down. The lawsuit was filed in federal court in California on July 31.
Reinstating Vacated Rules
The states claim the provisions of the new rule are a direct repeat of regulations released in 2025. According to the filing, the 2025 rule and the new one are designed to make health insurance more expensive and harder to obtain. The lawsuit states that the 2026 rule reimposes four provisions that repeat almost verbatim the same provisions that a federal court already vacated as unlawful and arbitrary.
These provisions include the failure-to-reconcile provision, two income-verification provisions, and the special enrollment period income verification provision. New York Attorney General Letitia James said the new rule expands the number of people who will obtain bare-bones “catastrophic” insurance plans. The lawsuit also alleges the rule imposes “unlawful provisions” that will damage the ACA’s single risk pool and shift costs onto enrollees.
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The new rule unlawfully increases the limits on maximum out-of‑pocket cost‑sharing to levels that exceed the statutory maximum by 30% for both catastrophic and bronze‑tier plans.
It also adds multiple and arbitrary provisions that create burdensome requirements for states and regulators, the filing notes.
Impact on Enrollment
The states argue that the 2026 Rule will decrease enrollment and increase costs for millions of Americans. They point to data from the previous rule, which went into effect in 2025. During open enrollment for plan year 2026, 23.1 million people enrolled in the ACA’s marketplaces, down from an all‑time high of 24.3 million in plan year 2025. This represents a decline of 1.2 million, or nearly 5%.
“This administration is trying to sabotage the Affordable Care Act through bureaucratic tricks instead of admitting it wants to take health insurance away from millions of Americans,” New York Attorney General James said. “New York will not stand by while families lose the coverage they depend on to see a doctor, fill a prescription or afford a hospital visit.”
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The case proceeds in California.
Joining New York in the lawsuit are the attorneys general of Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Virginia, Washington and Wisconsin, as well as Pennsylvania Governor Josh Shapiro.
While HHS appeals the court decision regarding the 2025 rule, the new regulations remain in place for now. The legal challenge focuses on whether the agency had the authority to reinstate specific restrictions after a judge deemed them unlawful, raising questions about the consistency of federal health policy between administrations.