CQ TODAY ONLINE NEWS
March 27, 2012 – 11:50 p.m.
Medicaid Case Tests Federal Power Over States
By John Reichard, CQ HealthBeat Editor
It’s a potential outcome few saw coming out of the constitutional challenge to the 2010 health care law: that the U.S. Supreme Court justices would use this case to limit Congress’ spending powers to force state action.
But the hour the justices spend Wednesday in oral arguments over whether the law unconstitutionally coerces states to expand Medicaid may yield that very result. If so, the court’s ruling this summer would not only affect health care, but also would draw a boundary around federal power in other spheres of social policy.
At issue is the time-honored congressional tactic of offering federal funds to the states if they meet certain conditions, including spending some of the states’ own money to fulfill policy goals.
Congress has used the practice to expand the federal-state Medicaid program many times in recent decades. Lawmakers also have used it to extend the reach of federal policy on everything from setting speed limits to the drinking age to civil rights enforcement.
The courts have ruled, however, that Congress may not coerce the states. It’s permissible to pressure states. But state officials must still have a real choice over whether to take the money.
In the case of the health care law’s expansion of Medicaid to cover about 17 million uninsured people, the Congressional Budget Office (CBO) estimates that in its first decade the law will provide states with more than $400 billion in federal funding while state spending on the program will rise around $20 billion.
Extensive questioning Wednesday by the justices to determine under what circumstances congressional spending policy becomes unconstitutionally coercive could be a sign the court wants to establish new boundaries.
Or it could simply mean that the high court wants to fully air all of the issues in a law that has deeply divided the nation.
Lower courts have upheld the Medicaid expansion. Even a District Court judge in Virginia who struck down the provision known as the individual mandate, which requires most Americans to have health insurance, did not find the Medicaid expansion unconstitutional. Neither did the 11th U.S. Circuit Court of Appeals, which upheld the lower court’s ruling against the individual mandate.
The 26 states whose constitutional challenge the Supreme Court is reviewing aim to convince the justices to see matters differently. They say the health care overhaul law (PL 111-148, PL 111-152) is coercive because it threatens to withhold all federal Medicaid money if states do not implement the expansion. It is not just the federal money needed to expand Medicaid beyond current levels that the government would deny states who do not comply, but all of a state’s federal Medicaid funding.
The suing states point to a 1987 Supreme Court case in which South Dakota challenged federal power to withhold a small portion of transportation funds from states that did not raise their drinking age to 21.
South Dakota lost, but then-Chief Justice William H. Rehnquist wrote in his majority opinion that “in some circumstances, the financial inducement offered by Congress might be so coercive as to pass the point at which ‘pressure turns into compulsion.’”
Medicaid Case Tests Federal Power Over States
That point is reached in the health care law, plaintiffs say. “When Congress decides to involve the states, it is not free to treat them as federal instrumentalities that can be ordered around at will,” their brief contends.
Justice Department lawyers counter that from 2014 to 2016, the federal government picks up 100 percent of the costs of covering those newly eligible for Medicaid. The federal share drops after that but only modestly, to 90 percent by 2020, where it stays.
While states will have to spend billions of new dollars, they also will realize savings from lower uncompensated care costs at the public clinics and hospitals they now fund, the government lawyers say.
And, the Justice Department says, that from the start of the Medicaid program, Congress has reserved the right to change or repeal portions of the Medicaid law.
Defenders of the overhaul also argue that policy priorities of the right would be harmed by changing current federal-state arrangements. For example, the so-called Hyde Amendment restrictions imposed by Congress that sharply limit federal funding of abortions in the Medicaid program could be struck down as unconstitutionally coercive, they say.
Plaintiffs in the health care law challenge make another argument that the Medicaid expansion is not voluntary. They ask if everyone must have health insurance, how can it truly be voluntary on the part of the states whether to take part in the Medicaid expansion?
The Justice Department “does not — and cannot — deny that Congress provided low-income individuals with no means other than Medicaid for complying with the individual mandate,” the plaintiffs’ brief says. “And it never explains how the states’ participation in Medicaid can be accurately described as voluntary when it is necessary to satisfy a mandate.”
A court ruling this summer striking down the Medicaid expansion would mean that millions of uninsured Americans below the poverty line have no prospects for government help to pay for health coverage.
Meanwhile, if the court affirms the rest of the law, uninsured Americans with incomes between 133 percent and 400 percent of the poverty line would qualify for subsidies to buy coverage in new insurance exchanges. But those with incomes below 133 percent of poverty would not be eligible for subsidies because that group was expected to qualify under the law for Medicaid help instead.
“Ironically, if the Supreme Court throws out the Medicaid expansion, but not the rest of the [health care law], people under the poverty level are not eligible for subsidies through the exchanges,” notes Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured.