The political fight over health care reform did not end when President Obama signed the Patient Protection and Affordable Care Act (the "Care Act") into law on March 23. It evolved into a legal fight that is now being waged in federal courts in Florida and Virgina. Many Republicans see this legal battle as their second chance to scuttle health care reform, but this is going to be an even harder battle to win.
Attorneys general (AGs) from fourteen states - Florida, South Carolina, Nebraska, Texas, Utah, Louisiana, Alabama, Michigan, Colorado, Pennsylvania, Washington, Idaho, South Dakota, and Virgia - have filed lawsuits challenging the constitutionality of the Care Act. Thirteen out of the fourteen AGs are Republican. In a handful of these states, there is strong opposition to the lawsuits by Democratic governors, lawmakers, and consumer groups, who have tried or are trying to force the AGs to drop the suit.
The AGs are asserting that the federal government has exceeded the scope of its power, and that Medicaid expansion and the individual mandate to purchase insurance are unconstitutional infringements on states' and individuals' rights. In this post, I will focus on the challenge to the Medicaid reforms, particularly the expansion of eligibility criteria to include all adults with income up to 133% of the federal poverty level.
The federal government has broad power to spend money for the welfare of its citizens, and it is beyond dispute that federal spending in the form of public insurance programs like Medicaid and Medicare is within this power. The AGs are not challenging this general power. Rather, they allege that by increasing the states' legal and financial obligations to cover additional Medicaid beneficiaries as part of the overall health care reform law, the federal government has exceeded the scope of its power. Specifically, they claim that the federal government undermining state sovereignty by compelling the states to enact and enforce health care reform in violation of the Tenth Amendment of the Constitution.
It is true that Congress may not commandeer the legislative process of the States by directly compelling them to enact and enforce a federal regulatory program. However, the Supreme Court has made clear that Congress can do things to encourage a state to adopt a legislative program or act in ways consistent with federal interests, as long as its methods are not coercive. One of the most common ways that the federal government does this is by creating conditions on the receipt of federal funds.
Congress can condition spending on state compliance with federal law, as long as the conditions bear a reasonable relationship to the purpose of the spending. If a state chooses to accept federal funding, then it must comply with those conditions. The "choice" element is critical - as long as participation in the federally funded program is voluntary, the government is not "commandeering" or "compelling" the state to act in violation of the Tenth Amendment.
Medicaid is a perfect example of this. It is structured as a federal-state partnership, jointly funded by the federal and state governments. States administer the program, but the federal government establishes certain minimal standards for the program, including eligibility criteria, types of services covered, and methods for setting reimbursement. States do have a lot of discretion to make their own eligibility, coverage, and reimbursment decisions, but they must comply with these federal requirements or seek a special waiver from the federal government allowing them to deviate from them.
Nothing in the Care Act changes this structure or the allocation of power between the federal and state governments in Medicaid administration. The Act simply expands eligibility criteria - something already regulated by federal law. This expansion is also directly related to the federal government's purpose in creating the program -- to ensure health care financing and access for those most likely to be excluded from the private insurance system and who demonstrate serious economic need.
Moreover, the voluntariness of the program is important because it shows that the federal government is not undermining state sovereignty. Even the AGs admit that states have the option to drop out of the Medicaid program; their complaint is that this is not desirable because it would leave millions uninsured. The choice between dropping out of Medicaid and covering more people may be an undesirable and difficult one to make - but it is not unconsititutional. The potential loss of federal funding alone is not enough to show coercion. It is up to the states to determine whether the potential benefit from the program justifies the additional cost they will incur. In fact, Arizona has recently done this with respect to its state Child Health Insurance Program (CHIP) (a supplemental program to Medicaid for children). Arizona chose to eliminate the program despite the signifiicant federal subsidies it will lose.
Finally, there is nothing in either the substance of the law or manner of implementation that looks coercive.
In fact, a closer look at the interaction between the federal government and states undermines claims of coercion. Section 1115 of the Medicaid Act allows the federal government to waive certain requirements to give states some flexibility in administering Medicaid. Originally, this waiver was designed to encourage demonstration projects that were very limited in scope and time, but the process has evolved in ways that give states much greater flexibility to deviate from federal conditions beyond what was originally intended. The federal government (through the Department of Health and Human Services) has broad authority to grant such waivers, and it's hard to believe that the federal government would not exercise its authority under the waiver program to mitigate financial hardship where necessary. In fact, the Care Act contains express hardship exceptions for certain new requirements, such as the requirement to maintain income eligibility levels for some adults.
The bottomline is that states do not have a viable legal claim to challenge the Medicaid reforms. While Medicaid expansion creates very real financial concerns for some states, it simply does not raise any constitutional problems. In fact, striking down the Medicaid reforms would have the perverse effect of creating a state entitlement to federal Medicaid funds, while depriving the federal government of its right to decide how these funds should be used.