The Affordable Care Act: Implications for Federalism

Some think overturning the Medicaid expansion could have far-reaching effects.
by | March 23, 2012 AT 8:00 PM

As the Supreme Court hearings on the Affordable Care Act (ACA) loom next week, the clamor over the individual mandate and personal liberty have overshadowed another key element of the court’s considerations about the law: overturning the ACA’s Medicaid expansion could have a profound and unpredictable impact on the concept of federalism.

In brief, the 26 states that oppose the expansion of Medicaid eligibility (up to 133 percent of the federal poverty level for individuals and families starting in 2014) argue that the provision is coercive under the Constitution’s Spending Clause: states that fail to comply stand to lose some or all of their federal Medicaid funding (a minimum of 50 percent for the jointly administered program). The U.S. Department of Health and Human Services (HHS) counters that previous Supreme Court rulings have unequivocally stated that the federal government has the right to attach conditions when states receive federal grants and aid for such programs.

It is impossible, of course, to know how the justices will rule. But in conversations with Governing and in briefings held around Washington, D.C., to preview the oral arguments, some legal experts have said that striking down the Medicaid expansion could potentially have implications for other federal-to-state funding programs that include certain requirements.

“It could change the entire relationship between how the states and the federal government interact,” said Diane Rowland, executive vice president at the Kaiser Family Foundation, during a panel discussion last week. Such action by the court "could spell serious trouble, if not doom" for other federal-to-state programs, said Simon Lazarus, senior attorney for the National Senior Citizens Law Center, at another briefing.

Federal education funding is tied to student performance targets under No Child Left Behind. Transportation grants at a minimum are predicated on meeting federal safety requirements. Could overturning the Medicaid expansion lead to lawsuits challenging the federal conditions tied to those funding streams? Could upholding the law give the federal government unlimited power to impose conditions on states, as the opposing states contend?

The answer to those questions will depend on how the justices frame their decision, which is not expected until this summer, said Mark Seidenfeld, professor of administrative law at Florida State University. If the court elects to overturn the Medicaid expansion, Seidenfeld pointed to two primary issues that will have to be addressed:

  • How the court defines “the standards for coercion.” In other words, what are the specific criteria to determine if coercion is occurring? How can it be tested?
  • How the court characterizes the relationship between the ACA condition and Medicaid spending. Previous case law dictates that some kind of relationship must exist between a condition prescribed by Congress and the spending affected by that condition

The particulars of the court’s position on those two issues will likely determine how applicable the decision will be to existing and future programs. “I think judges are quite aware of these issues,” Seidenfeld said. “They want to make sure that the pragmatic implications are not disabling of government. They want it to be workable.”

The most instructive previous case is South Dakota v. Dole (1987). In that case, South Dakota challenged a federal provision requiring states to adopt 21 as the legal drinking age or they would lose 5 percent of their federal highway funding. The Supreme Court ruled in favor of the federal government, following precedents dating back to the 1930s and the New Deal that established Congress’s right to set conditions for states to receive federal funding.

Those precedents have largely established the idea of federalism that exists today, Seidenfeld said. However, in its decision, the court included a caveat: a future scenario could potentially arise in which states are unconstitutionally coerced by the federal government. But no test to determine coercion was given.

The 26 states challenging the ACA’s Medicaid expansion are arguing that they have found one.

Other states, though, are uncomfortable with that position and have stated their concerns about its implications for other programs. A separate group of states, 13 in total, issued an amicus brief to the court in support of the Medicaid expansion. They conclude their argument by saying that the argument for coercion is “unworkable and contravenes federalism.”

“In particular, the petitioners fail to grapple with the consequences of their coercion theory, for Medicaid and for other critical federal-state programs that buttress state efforts to protect the health and welfare of their citizens,” those states write.

The states challenging the ACA expansion assert, however, that the Medicaid expansion is unique because of the sheer amount of money involved, said Bill McCollum, former Florida Attorney General who filed the initial lawsuit when the law passed in March 2010, during a panel discussion last week. Medicaid is one of the largest budget items for states, and the federal government provides between 50 and 75 percent of the program’s funding.

Joy Wilson, health policy director at the National Conference of State Legislatures (NCSL), shared that general view on the potential implications of overturning the expansion. Almost no other federal-to-state funding is as influential on state budgets as Medicaid, she said, meaning that any coercion test established by the court would likely be inapplicable to most other programs.

“There aren’t many programs like Medicaid in terms of the magnitude of state dollars that are involved,” Wilson said. “For any test based on this case, I’m not sure how many other programs would have the right set of facts.”