The States’ Medicaid ‘Coercion’ Claim: More Rhetoric Than Fact
December 14th, 2011
 by
Sara Rosenbaum
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Among the issues on which the United States Supreme Court has agreed to hear oral arguments in the Affordable Care Act cases is the question of whether its minimum Medicaid coverage requirements are constitutional. The states have based their appeal on a legal theory known as the “coercion doctrine.” Citing a long history of precedents, the Court of Appeals for the Eleventh Circuit dismissed their arguments. Now the United States Supreme Court will decide.
The Court’s decision to hear the Medicaid coercion argument was a shock. But what makes the Supreme Court’s decision to hear the claim all the more remarkable is that it is clear that the states’ arguments are predicated on erroneous factual assertions that fly directly in the face of Medicaid’s entire history and structure.
Congress’s Spending Clause Powers and the Uncertain Parameters of the Coercion Doctrine
The coercion doctrine is an outgrowth of Congress’s powers under the Spending Clause, which provides that “Congress shall have Power . . . to pay the Debts and provide for the . . . general Welfare of the United States. U.S. Const. Art. 1, §8, cl. 1. Under longstanding Supreme Court precedent, Congress’s powers under the Spending Clause allow it to “fix the terms on which it shall disburse federal money to the States.”
Over the years, the Supreme Court has imposed four “primary restrictions” on the use of such Congressional powers. First, such powers must be exercised in pursuit of the general welfare. Second, the conditions must be reasonably related to the stated goal of the legislation. Third, “Congress’s intent to condition funds on a particular action must be unambiguous and must enable the states to knowingly exercise their choice whether to participate.” Finally, the federal legislation cannot “induce the States to engage in activities that would themselves be unconstitutional.”
Calling the doctrine “amorphous” and “complicated in application,” the Eleventh Circuit noted that under Supreme Court precedent, Congress can use its Spending Clause powers to require states to regulate in ways that Congress would not be able to under its own direct powers. At the same time, as the court also noted, the Supreme Court has twice struck down federal laws as coercive. In the first such case, the Court determined that the Low-Level Radioactive Waste Policy Amendments Act required states to engage in the direct regulation of radioactive waste without the accompanying inducements commonly used in Spending Clause statutes. In the second, the Supreme Court concluded that the Brady Handgun Violence Prevention Act required states to use their criminal justice systems to directly enforce a federal law. From these precedents, the Eleventh Circuit stated that “Congress cannot directly compel a state to act, nor can Congress hinge the state’s right to regulate in an area that the state has a constitutional right to regulate on the state’s participation in a federal program. Either act is clearly unconstitutionally coercive. “
The Coercion Doctrine in a Medicaid Context
Against this background, the Eleventh Circuit turned to the application of the doctrine in a Medicaid context. In doing so, it offered a series of reasons why the coverage requirements established under the ACA do not rise to the level of coercion. First, federal Medicaid law expressly reserves to Congress the “right to alter, amend or repeal the terms of” the program any time, thereby putting states on plenty of advance notice that the ground rules for participating may change. Second, the Appeals Court viewed the Medicaid expansion as anything but coercive: “[T]he federal government will bear nearly all of the costs associated with the expansion. . . If the states bear little of the cost of expansion, the idea that states are being coerced into spending money in an ever-growing program seems to us to be ‘more rhetoric than fact.’”
Third the Appeals Court found that states had ample notice – “nearly four years from the date the bill was signed into law” — to decide whether they want to continue participating in Medicaid. This advance notice affords states ample time to determine whether they want to remain in the program or, as the majority noted, leave Medicaid and use their own taxing and spending powers to address the issue of health care for the poor. Finally, the court concluded that contrary to the states’ central argument that all of their Medicaid funds were on the line if they failed to comply, federal Medicaid law expressly allows the Secretary of HHS to take far less than an all-or-nothing approach to enforcement by withholding only a portion of the funding otherwise due.
In rejecting the states’ arguments, the Eleventh Circuit cited other decisions handed down by other Courts of Appeals, all of which have cast aside a coercion argument in a Medicaid context. In so doing, it agreed with its sister courts that Medicaid simply does not offer the type of context in which Constitutional coercion is present. Thus, while a Medicaid requirement may in some instances force states to face a “hard choice,” tough choices do not make for unconstitutional ones.
Coercion Redux: The Flaws in the States’ Arguments Detailed
Despite the rejection of the coercion claim in a Medicaid context by every appellate court, the states have appealed this issue, and the Supreme Court has agreed to hear it. Why? One theory might be that the Court understands – just as the Eleventh Circuit did – Medicaid’s important role in the ACA. The Court thus may wish to have the entire foundation of the ACA before it when it considers its constitutionality. In this sense, when cast as part of a broader collection of legislative interventions, Medicaid takes on a different hue, as does the doctrines that have applied to its constitutional analysis.
This theory about why the Court took the claim is given an added boost by the political circumstances that surround this particular appeal (half of all states) and the involvement of one of the country’s most eminent Supreme Court litigators (Paul Clement). But all broad policy context and aura of power in the world cannot overcome the basic fact that the states’ arguments are, as the Eleventh Circuit recognized, completely flawed.
The states made a series of claims in their petition for certiorari. First, they asserted, “[u]nlike when it has amended Medicaid in the past, Congress did not tie its new conditions only to those additional federal funds made newly available under the ACA. It instead made the new terms a condition of continued participation in Medicaid, thereby threatening each state with the loss of all federal Medicaid funds. . .”
Second, the states argued that never before has Congress turned previous coverage options into requirements, as it elected to do under the ACA’s maintenance of effort requirements. Third they asserted, “[i]n the past, when Congress sought to expand Medicaid coverage, it offered additional funding to states that agreed to additional obligations without threatening existing funding of states that did not.”
Finally, according to their argument, “when the states originally accepted Medicaid funds subject to certain conditions, they did not have notice that their participation in the program and development of the necessary infrastructure would be used by Congress to hold them hostage to later demands.” Being “held hostage” in this case signifies their fury at Medicaid’s role as the mechanism under the Act for covering the poorest Americans, as opposed to advance premium tax credits.
The last argument of course is simply political ire over the structure of the Act, rather than a legal point. The Act covers the poorest through Medicaid, while preserving premium tax credits and a separate private insurance system for near-poor and moderate income people. This decision to preserve Medicaid as a separate means of covering the poor was reached only after a long, hard look at the alternatives by both Houses of Congress and was selected because the needs of the poorest Americans are different, and the desire to preserve existing approaches to coverage was strong.
But this decision on Congress’ part does not transform Medicaid from voluntary to compulsory. A state still can walk away from Medicaid in its entirety. Were this to happen, both the state and Congress would face the very hard choice about what to do for millions of residents whose incomes are too low to qualify for a premium tax credit. But this hard choice does not amount to legal compulsion. Unlike cases in which coercion was found to exist, states are not being asked to administer a federal program, nor are they being given obligations without the proper inducements. Indeed, there has never been an inducement this generous – 100 percent federal contributions in the first years, dropping to 90 percent in the out-years – in Medicaid’s near 50-year existence.
While this state line of reasoning attempts to conflate law and politics, the states’ claims about the law’s unprecedented structural nature are just plain wrong. Medicaid historically has rested on the concept of a federal floor, accompanied by state options for program design and administration. Beginning in 1965, any state that wanted to participate in Medicaid had to agree to cover all individuals and families receiving cash welfare or risk the loss of all federal funding. Over the decades, as Congress increasingly understood the plight of the poor in the health care system, it has incrementally adjusted this mandatory floor upward, even as it has also created new state options.
This mandatory/optional cycle has been repeated many times: for poor children and pregnant women; for children and adults with disabilities; and for the poor elderly. Furthermore, children whose coverage was “optional” from Medicaid’s 1965 enactment (so-called “Ribicoff children” whose family incomes and resources fell below state welfare payment standards but who had two parents at home) became the mandatory children added by the Deficit Reduction Act of 1984, and it was on these children that the coverage requirement for all poverty-level children and pregnant women grew. So much for prior options not ever being turned into mandates.
Once a coverage classification is deemed mandatory, the results are the same whether the group is children, pregnant women, persons with disabilities, the elderly, or non-elderly adults more generally: a state’s failure to meet its minimum coverage mandates may result in the loss of all, or a portion, of federal funding. To be sure, states have plenty of coverage options, and indeed, the ACA creates new Medicaid coverage options, such as a new option to cover all nonelderly low income adults in advance of the 2014 effective date for the new coverage requirement.
Using Medicaid to slowly build a national health care floor for the poorest Americans is nothing new. And as the Eleventh Circuit noted, Congress not only has made its intentions to continually revisit Medicaid clear but has done so on dozens of occasions in response to perceived national needs. At any time, states can exit the program. (Indeed, one state, Arizona, waited until 1982 to enter the program at all). Over this time, Medicaid has been transformed, from 4 million covered in 1966 to nearly 70 million covered in 2010, a function of mandates with which states must comply if they want federal funding, and options that are up to them.
Concluding Thoughts
It certainly would be terrible were a state to elect to leave the Medicaid program rather than implement – with almost full federal funding – a reform the need for which has been understood virtually since the program’s enactment. Of all the challenges Medicaid historically has faced, perhaps its most fundamental has been the failure to cover all nonelderly poor adults regardless of life circumstances other than their overwhelming need for health care. On countless occasions over the decades, states themselves have sought to rectify this terrible omission through the use of demonstration authority and with the blessing of successive Presidential Administrations.
Now the federal funding essential to achieving this change is finally within reach, and the most basic of Medicaid’s design flaws is on the verge of being remedied. There is something very sad about the fact that at this historic moment, states — with “more rhetoric than fact” – have sought to make a Supreme Court case out of this long-sought evolution in federal health care policy.
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