Although the media and public have focused on the question of the constitutionality of the minimum coverage requirement, it is arguable that the most important question before the Court in the Affordable Care Act litigation is in fact the constitutionality of the statute’s Medicaid expansions.  The ACA provides that as of January 1, 2014, Medicaid will be expanded to cover all American adults under age 65 with incomes below 133 percent of the federal poverty level.  (Because household income equal to 5 percentage points of the FPL will be disregarded, the eligibility level will in fact be 138 percent of the FPL).

The federal government will cover 100 percent of the cost of this expansion in most states for 2014, 2015, and 2016, after which the states will pick up a share of the cost, gradually growing to 10 percent.  But states must participate in the expansion if they want to continue to participate in other parts of the Medicaid program.  The 26 states in the Florida litigation object to this.

The states claim that the requirement that they must expand their Medicaid program or lose Medicaid funding altogether is unconstitutional.  The federal government cannot force a state to participate in a federal program, but this, the states argue, is essentially what the ACA does by conditioning Medicaid funding on expanding the program.  The Eleventh Circuit rejected this argument,  and the federal government is defending the Eleventh Circuit decision.  It contends that the states are not being forced to do anything and can simply leave the program if they do not like the terms on which it is offered.

Although the Medicaid issue has received less attention than the minimum coverage requirement, it is ultimately more important, because if the Court struck down the Medicaid expansion, it would call into question dozens of other federal programs—not just in health programs, but also education, transportation, environmental protection, civil rights, and, indeed, national security—that provide funds to the states conditional on the states meeting certain requirements.

The oral argument on this issue was presented by the now familiar cast of Solicitor General Donald Verrilli for the federal government and Mr. Paul Clement representing the 26 states.  (The private parties are not involved in this issue).  The argument was supposed to last for one hour, but the Chief Justice gave each side an additional 15 minutes, stretching the entire argument to 90 minutes.  Mr. Clement led off as the appellant, followed by General Verrilli, with a brief rebuttal by Mr. Clement.

Paul Clement’s Argument For The States

Mr. Clement had barely finished a sentence before Justice Kagan broke in and, noting that the federal government was funding 90 to 100 percent of the expansion, asked, “Why is a big gift from the Federal government a matter of coercion?”  This is just “a boatload of Federal money for you to take and spend on poor people’s healthcare.”  Mr. Clement responded that even if this were a stand-alone program with 100 percent federal funding it would still be coercive.  But, said Mr. Clement, in this case there was a very big condition—continued receipt of funding under the existing Medicaid program.  Justice Kagan pressed the point:  If I offer you $10 million to take a job, am I coercing you?

Here Mr. Clement opened a new front, asserting that the federal government was offering money to the states that it was taking out of the states’ pockets.  Justice Kagan pushed back hard on this, stating that the federal government taxes its citizens as federal citizens, not as citizens of states.  But, Mr. Clement replied, federal tax increases limit the states’ taxing capacity, prompting Justice Sotomayor to ask whether federal tax increases coerced the states to lower their taxes.  Mr. Clement did not endorse this proposition, but stated that this is not free money.

Justice Sotomayor asked the limiting principle question:  What percentage of a state’s budget does a federal grant have to reach before it becomes coercive?  Must federal grants always be unconditional, or 100 percent of program costs?  Mr. Clement responded with his main argument:  The spending power allows Congress to require the states to do things that it could not directly require them to do, but program participation must be voluntary.  But Justice Sotomayor kept pushing; when does program participation cease to be voluntary, she asked.

Instead of answering this question, Mr. Clement turned to the statute at hand and asserted that it was unique for three reasons, of which he got out two before being interrupted:  The minimum coverage requirement forces poor individuals to enroll in Medicaid and continued state participation in the existing Medicaid program is made conditional on participating in the Medicaid expansion.  Justice Ginsburg interjected at this point—hasn’t this been true of all prior Medicaid expansions?  In response, Mr. Clement admitted that some prior expansions had been mandatory, but asserted that this expansion was different because it created a new program but tied funding the new program to the funding of the existing program.

Justice Breyer now raised a point that he returned to several times.  HHS has the authority to cut off funding, but the decision to do so is discretionary and reviewable under the Administrative Procedure Act; the Secretary must act reasonably and the decision would be reviewable by the courts.  This led to an extended colloquy, which was interrupted when Justice Scalia interjected that in any event HHS did have the authority to totally cut off funding, and Mr. Clement noted that in fact HHS had recently threatened to cut off funding to Arizona when it attempted to end its CHIP program.

Justice Sotomayor then asked whether the federal government was stuck forever with the existing program.  Could it end Medicaid and start a whole new program?  Do the states have a  vested right in the existing program?  Mr. Clement seemed to say that in fact the states do have a vested right, that Congress cannot take the money the states have been receiving if they don’t comply with new conditions.

Justice Ginsburg next noted that many of the states were in fact pleased with the expansion; should they lose access to the new funding because other states objected?  Mr. Clement responded that 26 states did  object and should not be forced to participate, prompting Justice Scalia to ask whether there might not be a correlation between the fact that those states had Republican governors and the states supporting the expansion were headed by Democrats, a correlation Mr. Clement acknowledged.

Justice Ginsburg next raised an important question.  What about Title IX, which requires universities to provide sports programs for women as a condition of getting grants for physics research?  Is that coercive?  Mr. Clement responded that perhaps such a program could be justified independently under the 14th Amendment, but Justice Ginsburg pressed on:  Has any federal program ever been struck down “because it was so good that it become coercive to be in it”?  Mr. Clement responded that this is the case where the federal government has crossed the line.

Justice Breyer then asked how this model is different from earlier Medicaid expansions?  Justice Kagan joined in; is the existing program unconstitutional?  Mr. Clement said the sheer size of the expansion is unique, but Justice Breyer responded that earlier expansions were comparable in size.  Mr. Clement argued two other factors were in play: the minimum coverage requirement and the fact that participation in the entire rest of the program was at risk.

Justice Sotomayor asked Clement if he was really saying that the bigger the program, the less power Congress has over it?  The federal government has to have control over its own money.  What is the logic of saying to the states, the more money you take, the more power you have over it.  Mr. Clement essentially said yes, Congress does have to be more careful with this big a program if the coercion doctrine means anything.

Justice Scalia and the Chief Justice at that point attempted to clarify Mr. Clement’s argument.  Is the problem that the states are coerced because they are being offered such a good deal or because they will lose what they already have if they don’t accept the offer?  Mr. Clement responded that it was both, because the money that was being offered was tax money (impliedly that the states were losing).  The Chief Justice observed that the states have compromised their sovereignty by accepting conditional federal grants ever since the New Deal, but Mr. Clement said that the Court still needs to police the coercion line if Congress crosses it.

Mr. Clement at this point returned to his argument that higher federal taxes to fund the program limit the states’ ability to raise revenue, but Justice Sotomayor noted that Florida receives currently more from the federal government than it pays in federal taxes, at which point Mr. Clement acknowledged that this argument was not key to his position.

Justice Kennedy asked what the consequences for federalism would be if the federal government simply took over the entire program and cut the states out.  Here Mr. Clement introduced a theme that would be pressed further in the questioning of General Verrilli:  The key issue is accountability.  The problem with the Medicaid program is that the state is accountable to its citizens for a program it cannot control.

Justice Sotomayor countered that the states still retain a lot of flexibility in administering Medicaid.  But Mr. Clement ended his argument by stating that the problem with the Medicaid expansion was that the states do not have discretion to control the program but are still accountable to their citizens for it.

Solicitor General Verrilli’s Argument For The Federal Government

The questioning then turned to General Verrilli.  He began by stating that the Medicaid expansion complies with constraints earlier imposed on spending clause grants.  Justice Scalia interrupted immediately, asking for a hypothetical situation that would be coercive.  Significantly (perhaps), Justice Scalia referred to statements in prior cases acknowledging a coercion doctrine as “dicta,” legalese for a recognition that they are not binding precedent, a point that General Verrilli picked up on.  General Verrilli did offer examples, however, of federal requirements forcing a state to fundamentally change the nature of its government.

The Chief Justice then asked whether could Congress require a state to comply with a requirement or lose every dollar of federal funding?  General Verrilli responded that this would raise an issue as to whether the requirement was germane, an independent spending clause requirement.  The Chief Justice then asked whether the coercion requirement had any independent meaning, and in response to further questioning from Justice Scalia, General Verrilli admitted he could not think of a requirement that would be germane to a program and yet coercive.  Significantly (perhaps), Justice Scalia said he could not think of such a program either.

Justice Alito, who had been silent to this point, offered this hypothetical:  What if the federal government decided to set up a cooperative federal education program that would completely replace state education funding and be totally funded by federal dollars, but the states would have to administer the program under federal rules or lose all federal funding.  Would that be coercive?

General Verrilli said no, the states would still have a choice.  Justice Alito responded that there is then nothing left of federalism.  General Verrillli replied that political constraints would still limit the ability of Congress to impose obligations on the states (to which Justice Scalia responded that this didn’t work for the minimum coverage requirement).  General Verrilli also noted that there was a long history of Medicaid expansions, as well as section 1304 of the Social Security Act, which expressly reserves to the federal government the right to revise the program going forward.

The Chief Justice then asked if there were any circumstances in which HHS could impose additional obligations and cut off funding to states that failed to comply with the law.  General Verrilli could not commit HHS to never cut off funds, but did agree that the power to do so had never been used, to which the Chief Justice responded, no state is ever going to say “go ahead. . .make my day, take it away.”

General Verrilli then noted that 64 percent of Medicaid expenditures are for optional expenditures in any event, prompting Justice Kennedy to ask about the ACA’s maintenance of effort provisions, which General Verrilli explained are limited to eligibility, not benefits or payments, and are subject to waivers.

Given a moment of peace, General Verrilli pressed on to address Mr. Clement’s arguments, first observing that under the states’ argument, any expansion of Medicaid, no matter how small, that put existing funding at risk would be unconstitutional.  He seemed to be making some progress with this with Justice Scalia, but Justice Breyer pulled him back to the question of whether funding had ever been cut off.

The Chief Justice responded, however, that funding had never been cut off because the states always folded.  General Verrilli stated that these issues are in fact worked out through negotiations, but in fact the states go along because the expansions are good for the states.  The Medicaid program has in fact continued to expand because the states have pushed for expansions.  Justice Alito expressed skepticism that faced with massive resistance, HHS would not cut off funding, but General Verrilli stated again that he could not commit HHS to a particular course of action and attempted to move on.

Justice Kagan tried to draw him back, asserting that HHS doesn’t cut off funding because it really wants the program to work and will work with the states to make it work, and General Verrilli agreed.  The Chief Justice pushed back, asserting that in any event this was a significant intrusion into the sovereignty of the states, but General Verrilli disagreed, saying decisions regarding state program participation might be difficult, but that is different from saying they are coercive or unconstitutional.  At this point Justice Breyer pitched in, contending again that a decision of HHS to defund would be subject to the Administrative Procedure Act, and would thus have to be reasonable.

General Verrilli returned to the question of how the states’ version of the coercion doctrine could possibly work, and Justice Kennedy returned to the notion of accountability:  Should something turn on whether citizens could understand whether the federal or state government was accountable?  He immediately admitted that the test was unworkable, but then asked whether federalism did not require accountability, and whether this was part of the coercion test. He pressed this line of questioning further, at which point Justice Scalia raised the question of what would happen if a state opted out; did the ACA make any other accommodation for health care for the poor?

This is perhaps the greatest weakness in the government’s case.  General Verrilli admitted that Congress predicted and assumed the states would participate in the program, but that that is not coercion.  He then explained how the ACA works.  If a state declines the Medicaid expansion, its citizens with incomes above 100 percent of poverty could get premium tax credits, and virtually all of its Medicaid-eligible residents would fall within an exception to the minimum coverage requirement.  But Justice Alito would have none of it. Congress simply thought it inconceivable that the states would decline Medicaid and made no provision for the poorest of the poor if they did.

General Verrilli then made one of the federal government’s strongest arguments. These are federal dollars, and Congress can decide under the General Welfare and Appropriations Clauses how they will be spent.  Congress made a generous offer to the states, and assumed they would accept it.  But, asked the Chief Justice, if it is such a good offer, why threaten to take away all Medicaid funding if the offer is declined?  This was Congress’ judgment to make, responded General Verrilli,

At this point the Chief Justice informed General Verrilli that he would have another 15 minutes to argue, as Mr. Clement had been given extra time.  General Verrilli, no doubt exhausted after 3 days of arguments, responded “Lucky me.”

A colloquy with Justice Kennedy followed in which the justice acknowledged the difficulty of applying the coercion test, but also expressed concern about the maintenance of effort requirement and the costs which the states faced in administering the program.  General Verrilli noted that the federal government covers 90 percent of set-up costs, but the Chief Justice replied that the federal government isn’t locked in to this and could reduce its contribution in the future.  General Verrilli acknowledged this, but noted the state would still have a choice, and determining when a choice was coerced was simply not practical.

Justice Sotomayor returned to Justice Kennedy’s point about accountability.  She noted that this was a problem whenever federal money was offered the states; it would always be attractive politically to accept it.  But, continued General Verrilli, just because a state faces political pressure from its citizens to accept federal money doesn’t mean it is coerced.

General Verrilli concluded by reminding the Court that what was at stake here was access to health care for millions of poor Americans, many of whom have serious medical conditions and who without Medicaid cannot “enjoy the blessings of liberty.”  Congress made a judgment as a matter of policy how best to address their problems, and it is not the task of the Court to second guess the decisions of the democratically elected, politically accountable Congress

Clement’s Rebuttal

The argument ended with Mr.Clement’s rebuttal, discounting the relevance of the discretion of HHS to pull the trigger as it held the gun on the states; and repeating again that the federal government was taking tax money out of states and threatening not to give it back.  Mr. Clement argued further that not only eligibility but also benefit requirements were being imposed on the states.  For example, he asserted, some states do not now cover prescription drug coverage but they would be required to do so.  (In fact, outpatient prescription drug coverage is now an optional service, but in fact all states currently offer it, and, in fact, although states must cover benchmark services for the expansion populations, states will be able to choose the benchmark.)

At this point, Justice Ginsburg interrupted Mr. Clement one more time to ask about remedy.  If we find the Medicaid expansion coercive, do we need to strike down the entire statute, or can we just make the expansion voluntary?  Surprisingly, Mr. Clement conceded that this remedy might be acceptable.

Mr. Clement ended with one last dig at the minimum coverage requirements, asserting that compelling people to buy health insurance was a very funny conception of liberty and coercing participation in the Medicaid program a direct threat to federalism.

What Will The Court Do?

It is hard to tell where this argument leaves us.  It is very unlikely any of the four Democratic appointees will find coercion.  Justice Alito seemed convinced by the states, as is presumably Justice Thomas.  Justice Kennedy seemed troubled by the question of accountability, but also seemed to recognize the difficulty of applying a coercion test.  Justices Scalia and the Chief Justice were hard to read—they seemed to enjoy the argument but not to commit themselves. Mr. Clement was brilliant as usual, particularly at dodging hard questions, but offered no real limiting principle to his argument.

I can only hope that once the Justices return to their chambers and reflect soberly on the immense ramifications of an application of the coercion doctrine and the immense amount of litigation that application of the doctrine would provoke, they will decide either to abandon the coercion doctrine as unworkable (a possibility suggested in both Supreme Court cases  that have mentioned it), or simply say that if it exists, it does not apply here.  But it has been a very strange week, and who knows what will happen (except possibly Justice Kennedy).

Editor’s note: For more on the Medicaid coercion oral arguments, see additional Health Affairs Blog posts by Sara Rosenbaum and William Sage.