A coalition of 20 states and the governor of Pennsylvania filed a lawsuit this week in the U.S. District Court for the District of Massachusetts, seeking to block recent federal regulations they say threaten to upend the Affordable Care Act (ACA) and strip insurance coverage from millions of Americans.

The suit targets the U.S. Department of Health and Human Services (HHS), the Centers for Medicare and Medicaid Services (CMS), HHS Secretary Robert F. Kennedy, and CMS Administrator Mehmet Oz. The lawsuit challenges a federal rule finalized on June 25, 2025, which the states claim will result in as many as 1.8 million people losing health insurance, increase costs for state governments, and undermine the ACA’s twin goals of expanding access and lowering healthcare costs.

The contested CMS rule implements dramatic changes to how Americans purchase and retain coverage through ACA exchanges, including:

• Shortening open enrollment periods on both federal and state-run exchanges, potentially reducing the time people can sign up for coverage by over 30% in some large states like California.
• Mandating new eligibility and income verification requirements, creating added paperwork hurdles that states argue will dissuade low-income and healthy individuals from enrolling.
• Allowing insurers to deny new coverage for people with outstanding unpaid premiums, a practice the lawsuit contends violates the ACA’s “guaranteed issue” provision.
• Imposing a $5 minimum premium charge on low-income individuals who would otherwise receive fully subsidized “zero-premium” coverage, with the risk of losing coverage entirely if the fee isn’t paid.
• Changing how premium adjustments and subsidy calculations are made, which the states say will result in higher premiums and greater out-of-pocket costs for many consumers.
• Prohibiting coverage of “sex-trait modification procedures” as essential health benefits (EHBs)—an unprecedented move the states argue may eliminate or segregate insurance coverage for gender-affirming care for transgender individuals, shifting costs to states and directly impacting access to care.

States’ Arguments

The plaintiff states claim that:

• The rule violates the Administrative Procedure Act by being arbitrary and capricious, lacking sufficient justification, and ignoring evidence and expert input.
• The new requirements will disproportionately harm vulnerable populations, including younger, healthier individuals, and those relying on subsidies or gender-affirming care.
• States will face substantial fiscal impacts, including higher Medicaid and uncompensated care costs, decreased premium tax revenues, and increased administrative expenses.
• HHS failed to follow legally-required procedures, such as providing adequate opportunity for public comment and conducting mandated studies before changing what is considered an EHB.

A major flashpoint is the rule’s exclusion of “sex-trait modification procedures” from essential health benefits—a term not previously used in medicine or law. The states argue this move will force them to pick up the costs for gender-affirming care required under their own antidiscrimination laws, strip these services of federal cost-sharing protections, and disrupt state-regulated insurance markets.

The lawsuit highlights that major medical associations, including the American Medical Association and the American Academy of Pediatrics, opposed the ban, emphasizing that gender-affirming care is medically necessary and life-saving for many individuals.

HHS and CMS have defended the rule as necessary to combat suspected fraud in insurance enrollments, particularly in states using the federal exchange, and to align insurance standards across states. However, the lawsuit alleges scant evidence of widespread fraud in state-run exchanges and claims the rule’s sweeping changes are unsupported by data.

The plaintiff states seek an immediate injunction to halt enforcement of the rule, arguing that its provisions begin taking effect in August and open enrollment for 2026 begins in less than four months. They ask the court to declare the rule unlawful, block its implementation, and ultimately vacate it entirely.