(CNN) A federal judge ruled Friday that Kentucky cannot require certain Medicaid recipients to get jobs or lose their benefits.

In a closely watched case, US District Court Judge James Boasberg voided the federal government's approval of Kentucky's request to implement work requirements and kicked the matter back to the Department of Health & Human Services for further review.

"...The [Health] Secretary never adequately considered whether Kentucky HEALTH would in fact help the state furnish medical assistance to its citizens, a central objective of Medicaid," Boasberg wrote, referring to Kentucky's Medicaid overhaul. "This signal omission renders his determination arbitrary and capricious."

The decision blocks the state -- at least temporarily -- from moving forward with its plan to launch its Medicaid overhaul on July 1.

The ruling could also have national implications as the Trump administration seeks to implement work requirements in morefederal programs for low-income Americans, particularly Medicaid. In addition to Kentucky, nearly a dozen other states have either already been granted waivers for Medicaid work requirements or are seeking them. Arkansas implemented its work requirement in June.

Governor Matt Bevin, a Republican, has threatened to end Medicaid expansion if the state cannot proceed with the waiver. His administration said Friday that the judge's ruling was very narrow.

"The Court concluded that the HHS Secretary simply failed to consider the impact of Kentucky HEALTH on Medicaid coverage," said Adam Meier, secretary for the state's Cabinet for Health and Family Services. He added that Kentucky officials will work with the federal government to "quickly resolve the single issue raised by the Court so that we can move forward with Kentucky HEALTH."

Calling the waiver's implementation "delayed," Meier also warned there would be consequences if the overhaul isn't put in place soon.

"Without prompt implementation of Kentucky HEALTH, we will have no choice but to make significant benefit reductions," he said.

The Department of Health & Human Services called the decision "disappointing."

"We are conferring with the Department of Justice to chart a path forward," said Seema Verma, administrator of the department's Centers for Medicare & Medicaid Services. She was heavily involved in writing Kentucky's initial waiver requesting permission to implement work requirements before joining the Trump administration last year. The agency will continue to support state programs "designed to advance the objectives of the Medicaid program by improving health outcomes ... of low-income Americans," she said.

Kentucky was the first state to receive permission to mandate work -- a historic change in the 53-year-old program. Its waiver was approved in January.

The National Health Law Program, along with the Kentucky Equal Justice Center and the Southern Poverty Law Center, filed a lawsuit in federal court in Washington, D.C. about two weeks later. The suit charges that the approval of Kentucky's waiver -- which also requires many Medicaid recipients to pay premiums and locks them out of the program for up to six months if they violate certain rules -- runs counter to Medicaid's objective of providing the poor with access to health care.

"The Trump administration's attempt to transform the Medicaid program through executive action has been restrained," National Health Law Program Legal Director Jane Perkins said after the ruling was announced. "The purpose of the Medicaid Act is to furnish medical assistance, and this approval could not stand because it was doing just the opposite --restricting coverage."

The requirement, which can also be fulfilled through volunteering, going to job training and participating in other activities, applies to working age, non-disabled adults without dependents. Many of these recipients became eligible for Medicaid in 2014 after Kentucky's former Democratic Governor Steve Beshear expanded the program under the Affordable Care Act.

Medicaid beneficiaries in northern Kentucky's Campbell County would have been the first to have to fulfill the new rules of "community engagement," as state officials call the mandate. By the end of the year, up to 200,000 Kentuckians would have had to comply as the state rolls out the requirements to nearly every county.

Boasberg, an Obama appointee who heard the case in mid-June, repeatedly cited the state's estimate that the overhaul would reduce the Medicaid rolls by 95,000 people by its fifth year. He said Health Secretary Alex Azar neglected to analyze whether Kentucky's waiver would cause recipients to lose coverage.

"The Secretary never once mentions the estimated 95,000 people who would lose coverage, which gives the Court little reason to think that he seriously grappled with the bottom-line impact on healthcare," Boasberg wrote, underlining the word. "He glossed over 'the impact of the state's project' on the individuals whom Medicaid 'was enacted to protect.'"

Consumer advocates cheered the ruling.

"Medicaid is about giving access to life-saving care and allowing families to live to their full potential," said Frederick Isasi, executive director of Families USA, a left-leaning group. "Governor Bevin's illegal proposal that was approved by the Trump administration was misguided and ill-informed. Most Medicaid enrollees that are not elderly or disabled are in families that are working. Let's stop perpetuating stereotypes and stop trying to take health care away from families."