September 3, 2026.
LANSING — The Michigan Attorney General’s Office has joined a coalition of 22 states and Pennsylvania in challenging a federal rule that restricts the use of federal Medicaid and Children’s Health Insurance Program (CHIP) funds for certain healthcare provided to transgender youth.
The lawsuit was filed September 2 in federal court and challenges a final rule issued by the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS).
The states are asking the court to declare the rule unlawful and prevent federal officials from enforcing it.
The coalition includes the attorney general offices of Michigan, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, Vermont, Virginia, Washington and Wisconsin, along with the District of Columbia and Pennsylvania.
The lawsuit argues that Congress has historically given states authority to determine which services are covered by their Medicaid and CHIP programs, subject to federal statutory requirements.
The states contend that HHS and CMS exceeded that authority by imposing categorical restrictions on federal reimbursement for certain care.
Federal rule restricts Medicaid and CHIP funding.
The final rule, published Aug. 13, 2026, requires state Medicaid programs to prohibit federal financial participation for what the rule defines as “sex-rejecting procedures” provided to children under 18.
A similar restriction applies to separate CHIP programs for children under 19.
The rule is scheduled to take effect Oct. 13, 2026.
For Medicaid and CHIP beneficiaries who are already receiving cross-sex hormone therapy as of the effective date, federal financial participation may continue for those medications for up to six months.
The rule does not prohibit states from using state-only funds to cover services affected by the federal restriction. It also does not prohibit the use of private or other non-federal funding.
CMS states that federal Medicaid and CHIP funding remains available for mental health services, including psychotherapy and counseling.
States challenge federal authority.
The coalition argues that the federal government is improperly overriding decisions traditionally made by states, healthcare providers and families.
The lawsuit contends that HHS and CMS do not have sufficient statutory authority to replace individualized medical-necessity decisions with a categorical federal reimbursement restriction.
The states are challenging the rule under several federal laws, including the Administrative Procedure Act, and argue that it violates the Spending Clause of the U.S. Constitution.
The coalition is asking the court to invalidate the rule and prevent federal agencies from enforcing it against the states.
Federal rule specifically addresses Tribal rights and sovereignty.
The federal rule contains a section specifically titled “Tribal rights and sovereignty.”
That section is particularly relevant to Tribal governments and Tribal healthcare programs because the federal government received comments during the rule-making process raising concerns about Tribal sovereignty and the healthcare needs of American Indian and Alaska Native people.
According to the final rule, commenters pointed out that many Tribes recognize non-binary and transgender identities, including identities often described as Two-Spirit. Some commenters argued that the proposal could conflict with federal laws governing Indian healthcare, including the Snyder Act and the Indian Health Care Improvement Act.
CMS responded by stating that it is committed to fulfilling its legal responsibilities to Tribal nations and to American Indian and Alaska Native people who rely on Indian Health Service and Tribal health programs.
The agency further states that it will engage in government-to-government consultation with Tribal nations regarding implementation of the rule, consistent with its Tribal consultation policy.
CMS also states that implementation will be consistent with applicable federal Indian health law, including the Indian Health Care Improvement Act.
The final rule therefore does not simply overlook Tribal governments. It expressly recognizes Tribal rights and sovereignty and establishes a commitment to consultation as the policy moves toward implementation.
Rule acknowledges potential impact on Tribal communities.
The final rule also acknowledges that the financial and healthcare effects of the policy could fall disproportionately on certain populations.
CMS specifically lists Tribal communities, along with rural beneficiaries, people with disabilities, and foster or justice-involved youth, among populations that commenters said could experience disproportionate effects from the rule.
The agency responded that Medicaid and CHIP would continue to cover a broad range of services for eligible people in these populations, including mental health counseling and psychotherapy.
That acknowledgment does not mean the rule specifically prohibits IHS or Tribal health programs from providing the services covered by the rule.
Instead, the principal federal restriction concerns whether federal Medicaid and CHIP funds can be used for those services.
This distinction could be important for Tribal health programs that participate in Medicaid or CHIP.
What the rule could mean for Tribal healthcare.
The lawsuit was brought by states and Pennsylvania rather than Tribal governments. No Tribal nation is identified as a plaintiff in the case.
However, the outcome could have implications for Tribal citizens and Tribal healthcare programs that interact with Medicaid and CHIP.
Tribal health programs operate within a healthcare system that can involve Indian Health Service funding, Tribal resources, Medicaid reimbursement, Medicare and other sources of funding.
For a Tribal healthcare program that bills Medicaid for covered services, changes to federal Medicaid reimbursement could have financial and administrative consequences if services fall within the scope of the new rule.
The precise impact would vary from one Tribal health program to another depending on its funding arrangements, Medicaid participation and the services it provides.
The final rule itself says states can continue to provide the affected services using state-only funds outside the federally matched Medicaid program.
Federal government says rule concerns funding, not a blanket medical prohibition.
CMS makes a distinction between restricting federal reimbursement and directly regulating the practice of medicine.
The final rule establishes conditions on federal Medicaid and CHIP funding. It does not state that every healthcare provider is prohibited from providing the affected services in every circumstance.
The agency says states may use their own funds to provide services that are excluded from federal financial participation.
The federal government also maintains that mental health services, including psychotherapy and counseling for gender dysphoria, remain eligible for federal Medicaid and CHIP funding.
The states challenging the rule dispute the federal agencies' interpretation of their authority and argue that the federal government cannot impose the restrictions without congressional authorization.
No Tribal statement identified regarding the lawsuit.
As of September 3, 2026, no formal public statement from a Tribal nation specifically supporting or opposing the September 2 lawsuit was identified in the publicly available material reviewed for this report.
That does not establish that Tribal governments or Tribal healthcare organizations support or oppose either the lawsuit or the federal rule.
What is documented is that Tribal concerns were raised during the federal rule-making process and that CMS responded with a specific section addressing Tribal rights and sovereignty.
CMS's commitment to government-to-government consultation could provide an avenue for Tribal governments to raise concerns about implementation directly with federal officials.
IHS recognizes Two-Spirit and LGBTQI+ healthcare needs.
The Tribal healthcare connection also extends beyond the Medicaid funding dispute.
The Indian Health Service maintains resources addressing the healthcare needs of American Indian and Alaska Native Two-Spirit and LGBTQI+ people and their families.
IHS has stated that it seeks to help ensure equal access to healthcare services for American Indian and Alaska Native Two-Spirit and LGBTQI+ people.
The interaction between IHS, Tribal health programs and Medicaid could therefore become increasingly important as the federal rule moves toward its Oct. 13 effective date.
More than 30,000 comments submitted.
The final rule followed a proposed rule issued in December 2025.
According to the state coalition, HHS received more than 30,000 public comments on the proposal, with more than 90% opposing the rule.
The coalition says comments submitted by state attorneys general also opposed the proposal.
HHS ultimately finalized the rule in August.
CMS said it considered concerns raised during the rule-making process, including arguments involving state authority, medical treatment, privacy, mental health parity and Tribal rights and sovereignty.
What happens next.
The lawsuit now moves into federal court, where judges will consider whether HHS and CMS acted within the authority granted to them by Congress.
For Tribal governments and Tribal healthcare programs, implementation of the rule could also raise questions about Medicaid reimbursement, healthcare access and the federal government's obligation to consult with Tribes.
The final rule expressly commits HHS and CMS to government-to-government consultation with Tribal nations and states that implementation will be consistent with federal Indian health law.
Whether those provisions become a significant part of the legal proceedings or future administrative actions remain to be seen.
For now, the case places both state authority over Medicaid programs and the federal government's authority to establish funding restrictions before the federal courts, while the rule's Tribal implications remain an issue that federal officials have acknowledged but that Tribal governments may address through the consultation process.
Documents and related records.
Federal Final Rule — Aug. 13, 2026:
Read the complete Federal Register rule
Federal court complaint:
Read the full lawsuit complaint (PDF)
Colorado Attorney General’s Office — lawsuit announcement:
Read the announcement
Michigan Attorney General’s Office — March 2026 federal court order:
Read the Michigan Attorney General’s Office announcement
Michigan Attorney General’s Office — December 2025 lawsuit:
Read the Michigan Attorney General’s Office announcement
Michigan Attorney General’s Office — Federal Actions Tracker:
View the Federal Actions Tracker
Federal rule — direct text and regulatory history:
View the published rule and supporting material
