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On Aug. 13, the Centers for Medicare and Medicaid Services issued its final rule prohibiting the use of federal funds through Medicaid and the Children’s Health Insurance Program to pay for gender-affirming care for children and youth. The rule takes effect Oct. 13, but the CMS gender-affirming care final rule has already run into legal turbulence just one day after publication.
What the CMS Gender-Affirming Care Final Rule Actually Covers
Under the final rule, federal Medicaid and CHIP funding will be available for up to six months from the rule’s effective date for children currently on hormone therapy. The rule does not affect coverage of mental health services. Medicaid’s Early and Periodic Screening, Diagnostic, and Treatment provisions continue to ensure coverage of mental health services for eligible children, and CHIP continues to require coverage of necessary mental health services in accordance with federal law.
What States and Private Insurers Can Still Do
The final rule permits states or private insurers to cover the treatments CMS refers to as “sex-rejecting procedures” without using federal funds, according to attorneys at Crowell & Moring. This carve-out means the rule specifically targets federal funding rather than imposing an outright prohibition on states or insurers choosing to cover these treatments through non-federal dollars.
A Same-Week Court Setback for This CMS Gender-Affirming Care Final Rule
Lawyers at Crowell & Moring noted in a client brief that on Aug. 14, the day after the final rule was published, CMS suffered a setback in litigation over a separate provision that excluded gender-affirming care from essential health benefits under the Affordable Care Act for health plans sold through the ACA marketplace. In State of California v. Kennedy, the U.S. District Court for the District of Massachusetts found that HHS violated the ACA and vacated that provision.
Why This Ruling Matters for the Broader Regulatory Picture
While the Massachusetts ruling addressed a distinct ACA marketplace essential health benefits provision rather than the Medicaid and CHIP rule itself, the timing underscores that HHS’s broader regulatory approach to gender-affirming care coverage is facing active, parallel legal challenges across multiple programs simultaneously, not just the Medicaid and CHIP funding prohibition alone.
Legal Concerns Raised About This CMS Gender-Affirming Care Final Rule
“The final rule could have a disproportionate impact on low-income and disabled children seeking gender-affirming care,” Crowell & Moring attorneys Alice Hall-Partyka, Tai Williams, and Meaghan Katz wrote in their client brief. Because Medicaid and CHIP serve lower-income populations by design, a federal funding prohibition specifically targeting these programs would fall most heavily on families who rely on public coverage rather than private insurance for their children’s care.
Unresolved Questions About Intersex Children
The attorneys also wrote that the rule could raise questions about allowable procedures performed on intersex children and infants when chromosomes are not XX or XY, an ambiguity the final rule does not appear to directly resolve according to this legal analysis.
How This CMS Gender-Affirming Care Final Rule Fits the Broader Regulatory Timeline
This final rule follows a series of related federal actions, including CMS’s April 2025 request that state Medicaid agencies stop covering these treatments for youths and a May 2025 investigation into hospitals offering gender-affirming care to children, alongside the department’s broader Wolves in White Coats report alleging improper billing practices at more than 225 hospitals.
Why Multiple Regulatory Tracks Are Converging
With this Medicaid and CHIP funding rule now finalized, the vacated ACA essential health benefits provision facing potential appeal, and the separate billing allegations referred to the Department of Justice, hospitals and health systems navigating pediatric gender-affirming care policy are contending with several distinct but overlapping federal actions rather than a single, unified regulatory change.
What This CMS Gender-Affirming Care Final Rule Means Going Forward
With the Oct. 13 effective date approaching and a six-month tapering window available for children currently receiving hormone therapy, state Medicaid agencies and CHIP programs will need to finalize their compliance plans even as related litigation, including the vacated essential health benefits provision, continues to unfold in parallel. Given Crowell & Moring’s flagged concerns about disproportionate impact on low-income and disabled children and unresolved questions around intersex care, this rule may face its own legal challenges beyond the separate ACA marketplace case already decided against HHS.
What to Watch Going Forward
As Oct. 13 approaches, industry observers will likely watch whether HHS appeals the District of Massachusetts ruling in State of California v. Kennedy, and whether similar litigation emerges specifically targeting the Medicaid and CHIP funding prohibition itself. Given the attorneys’ specific concerns about intersex children and infants, this CMS gender-affirming care final rule may require additional guidance or face legal clarification on how it applies to that population as states and providers work to implement the rule’s requirements ahead of the effective date.
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