The Supreme Court and the Remaking of Federalism

In its health-care ruling, the court limited Washington’s coercive powers over the states in ways that could have profound consequences — and perhaps unintended ones.
by | July 18, 2012

The Supreme Court's ruling upholding the Affordable Care Act will be remembered in the short term as reaffirming President Obama's ambitious health-care-reform program. Yet in ruling as it did, the court tied the federal government's hands for the future by placing new limits on its role in domestic policy.

Much attention has been paid to the court's reliance on the taxing power of Congress to uphold the law, but the ruling's constraints on the use of Congress' spending power to achieve expanded coverage through Medicaid are perhaps destined to have greater effects on congressional and presidential actions to project federal goals into new areas.

The court essentially held that states failing to expand Medicaid under the new law cannot be penalized by the loss of their existing Medicaid funds. Republican governors in at least six states already have proclaimed that they will not apply for the new Medicaid expansion program. The federal government has little recourse should they opt out.

The implications of the new ruling go well beyond Medicaid, however. New questions are raised, for example, about whether Congress can legislate new conditions on existing grant programs. There are more than 950 federal grants that provide the vehicle for most federal mandates, rules and regulations affecting the states. They also are the principal constitutional vehicle that allows Congress to adopt policies beyond its enumerated powers in such areas as education, law enforcement, community development and social services.

The court's ruling on Medicaid needs to be viewed in concert with other rulings a decade or more ago that also placed limits on the power of the federal government to "commandeer" states to carry out federal programs. In one notable case, 1997's Printz v. United States, the court ruled that the federal government could not directly order local police to conduct background checks on prospective gun purchasers. The court's previous rulings barring direct-order commandeering had left the door open to use grants instead, since the states could opt out. As my colleague Tim Conlan has noted, in the health-care ruling the court now is saying that some grants are themselves a form of coercive commandeering.

In addition, in this ruling, the court deliberately did not provide bright-line tests to define federal coercion. In a decision nearly 20 years ago, the court ruled that withholding 5 percent of highway grant funds was not sufficiently powerful to constitute coercion. But since Medicaid accounts for a far higher percentage of state revenues, federal penalties threatening the entire grant appear to have crossed that undefined coercion line. Would special-education or Title I education mandates be considered equally as coercive?

The ruling also raises new questions about whether the federal government can enforce one set of regulations by threatening to withhold funds under a separate program — what are called "crossover sanctions." The court's ruling concluded that the new Medicaid expansion was, in effect, a separate new program that impermissibly used the existing Medicaid program as a weapon to achieve leverage over the states. It is unclear whether existing federal rules that can cause withholding of highway grants for states not in compliance with federal clean-air requirements would withstand appeals based on the new ruling.

The ruling raises new uncertainties about the future of the federal role in our system. On first blush, it appears that states were the big winners, gaining newfound leverage in resisting federal grant programs. In fact, the state resistance movement had been picking up steam long before the health-care law. For example, states joined in pushing back against two of President George W. Bush's coercive initiatives: the "Real ID" security mandate for state-issued driver's licenses and the No Child Left Behind law for education.

Clearly, the new Medicaid constraints have further boxed in federal officials in responding to new national needs appearing on the federal doorstep. What options do federal officials have in working through states in the future? Given limits on federal coercion through either direct orders or grants, one scenario favored by conservatives might be for the federal government simply to foreswear national policy, leaving it in the states' hands. While appealing to some, this option fails to serve a nation whose economy is increasingly interdependent across states, nor does it account for the irrepressible compulsion by national elected officials of both parties to claim credit for legislating new programs and benefits.

Ironically, two other options might present themselves to hard-pressed federal officials. One would be to avoid the issue of coercion by expanding federal funding. In effect, the court ruled that Congress could sidestep the coercion tests by creating fully funded programs that did not burden existing programs with additional conditions.

Another option would be for the federal government to carry out the Medicaid program itself, sidestepping the states. Writing in the Fiscal Times, Merrill Goozner raised the prospect that the federal government might reconsider an offer made by President Reagan to nationalize Medicaid, as it nationalized old-age and disability assistance in 1974 under the Supplemental Security Income program.

One of the strengths of our existing intergovernmental system is that the federal government joins a partnership with 50 states and numerous local governments and nonprofits to deliver programs in ways that are adapted to the diverse conditions and values throughout our system. The premise of the court's ruling on the health-care law is that the decentralized promises of cooperative federalism have withered as the federal system has become more centralized and coercive. It would be ironic indeed if the ultimate outcome of the court's new federalism were to be a replacement of cooperative federalism with a more centralized system of direct federal management of complex national problems.

Join the Discussion

After you comment, click Post. You can enter an anonymous Display Name or connect to a social profile.

More from Management Insights