Is the Medicaid Expansion an Offer the States Can’t Refuse?

On Wednesday, March 28th, the Supreme Court will hear arguments on the constitutionality of the “Medicaid expansion”  required under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), the requirement that Medicaid programs provide benchmark assistance to adults who are not disabled, not caretakers of children and not pregnant, with incomes up to 133 percent of the federal poverty level.  The legislation comes close to eliminating the traditional categories of Medicaid eligibility.

When Medicaid was enacted in 1965, eligibility was limited to narrowly defined categories that mirrored the cash assistance programs: Aid to Families with Dependent Children (AFDC) and Aid to the Aged, Blind and Disabled (AABD).

Congress has repeatedly added categories of beneficiaries that were similar to the original categories. It placed lower limits on income requirements; for example, states must provide assistance to children between the ages of six and 18 years in households with incomes at or below the federal poverty level (FPL).

Adults under 65 who aren’t disabled, aren’t pregnant or raising children were not eligible for any federal assistance.  Period.  Up until PPACA, every new eligibility group was, in some way, like the original cash assistance groups — pregnant women, people with TB or breast cancer, people who used to be on SSI and still can’t afford health insurance (these folks are allowed to buy into Medicaid).

PPACA fills in the gap, in that adults under age 65 wand don’t have an illness in a special eligibility category, can get assistance. What states must provide, as of 2014, is insurance coverage, not free health care.

The states that challenged this expansion make one constitutional argument. They say that the law is “coercive” because if they don’t expand  their programs to cover the new group, they won’t be in compliance with federal law, so they won’t be eligible for Medicaid funding.  The HHS Secretary could—after notice and a hearing—refuse to reimburse any more Medicaid expenditures.

The states contend that Medicaid is such a huge part of their budgets, and the federal funding is so crucial to its continuation, that they have no choice but to comply. Medicaid already is busting the budgets, and the expansion will make it worse. What’s more, they argue, the fact that Congress did not provide a way for them to opt out of the expansion and keep their Medicaid match coming, shows that PPACA leaves them no choice. In contrast, states may choose not to operate a health insurance exchange and let the federal government take full responsibility. If states withdraw from Medicaid, their residents will have to pay taxes to a support a program from which they get no benefit. If states have to provide benchmark benefits to this new group in order to keep federal funding for their existing program, the infringement of their dignity as sovereign states threatens the structure of our system of government.

Most of the states’ brief makes that argument. There are cases cited, as one would expect.  When has the Supreme Court struck down a federal law that a state claimed was coercive?

  • Not in South Dakota v. Dole (1987).  The alleged coercion was a requirement that states laws bar anyone under age 21 from buying or having public possession of alcoholic beverages. If not, the state would lose a percentage of its federal highway funding.  The Supreme Court ruled that South Dakota’s sovereignty was not infringed on by the threat of losing federal funds if they insisted on allowing 19-year-olds to buy 3.2 percent alcohol beer.
  • Not in Steward Machine v. Davis (1937). The challenged federal law was a tax used to fund unemployment insurance under the Social Security Act. The taxpayer would receive a 90 percent credit against the tax for any amount it paid the state for a similar tax. The state was to forward the payment to the federal government, which made expenditures for assistance to the unemployed. The Court rejected Alabama’s claim that the federal law was coercive. Rather, the court found that the law addressed a national problem and put all the states on an equal footing. When the action required of the state was related to the purpose of the tax, at least, there could be no unconstitutional coercion—if such a claim could be recognized at all.
  • In New York v. United States (1992), the Court upheld two provisions and struck down the third. The federal law concerned states’ actions to to address the problem of low-level radioactive waste. The Court upheld monetary incentives, in the form of payments made to states when they joined an interstate compact or made a plan for the disposal of radioactive waste by a deadline. Congress could impose any conditions it chose on the receipt of federal grant funds. It also upheld provisions denying states access to disposal sites if they failed to comply by a deadline. The Court struck down a provision that required states that had not arranged for disposal of their waste by a deadline to take title to the waste at the request of the generator or owner or be liable to that party for any damages resulting from the failure to take possession.

The states challenging the Medicaid expansion did not explain why these rulings would require the Court to find it unconstitutionally coercive.

On the other hand, the federal government argued:

  • In legislation under the Spending Clause of the constitution, Congress can impose any requirements it sees fit to receipt of grant funds.
  • The political risks the state officials face if they choose to decline Medicaid funding do not do not constitute coercion by the federal government.
  • From the beginning, the Social Security Act has provided that Congress may amend or withdraw the program at any time.
  • Congress has expanded the mandatory eligibility groups and mandatory benefits many times.
  • Most states already cover some optional eligibility groups or services.
  • The Medicaid eligibility expansion required by PPACA will add less than 1 percent to state Medicaid spending over the next ten years.
  • The federal government will pay 100 percent of the cost of the newly eligibles, and this contribution will be phased down to 90 percent.
  • There is no requirement that taxes paid by residents of a state be returned to that state in grants.
  • The lack of an alternative to the Medicaid expansion simply reflects Congress’ experience that no state has ever withdrawn from the Medicaid program.

What do the states reply?  That the Medicaid expansion is coercive because it requires states to implement federal policy.

Who do you think has the better argument?