Upcoming Obamacare Cases: Part 2- A Side Issue

Perhaps the most surprising aspect of this series of cases before the Supreme Court is their willingness to rule on the power of Congress to expand the right of “poor people” to health care benefits under Medicaid. The aim of theory at stake is to put limits on the power of Congress to spend money on public programs. It has only twice taken on the issue with no definitive application of the theory advanced and practically every year, someone or some state attempts to force the issue only to be rebuffed by the Supreme Court.

Specifically, the 26 states that have signed onto the litigation are arguing against the so-called coercion theory. This deals with the criteria set out in federal law that states must comply with in order to receive federal funds which is exactly the case here with Medicaid funds. The states argue that without constitutional limits, the Federal government’s mandates could be so onerous as to threaten the financial ability of a state and, as a result, their sovereignty is threatened. A decision in favor of the states would, in the practical sense, place limitations on Congress on what they could do under the Spending Clause. As the parameters for Medicaid coverage are expanded under the dictate of federal mandates, a state’s budget must necessarily expand also since even if the federal government increased their contributions, it would not be enough to adequately cover all the people dumped into Medicaid.

The coercion theory first entered the Court’s lexicon in 1937 in response to Roosevelt’s New Deal legislation. Then, the Court stated that it would not determine when “pressure turns into compulsion, and ceases to be inducement.” The next such attempt to revive the coercion theory was in response to federal highway funds. In 1987, South Dakota contested as “threat” by the federal government to reduce federal highway funds to states that failed to increase the legal drinking age to 21. Then, a Court generally favorable to federalism challenges from the states, decided nevertheless that the threatened reductions- 95% of what would have been normally due under the guidelines- was so minimal that it did not rise to the level of compulsion and was, instead, an inducement. And certainly receiving 5% less of what you were counting on may actually be a quite significant dollar amount. That was highway funds in the case of South Dakota and in Obamacare, we are talking about much larger sums and, perhaps, more onerous conditions.

Opponents of Obamacare lost their cases before the lower courts in this case, although the Circuit Courts, relying on more recent Supreme Court cases, found that the the Court had at least recognized some validity to the coercion theory being a threat to the federalist system established by the Constitution. The problem, as they saw it, was the Supreme Court never actually applied the limits of the theory. The lower courts stated that when an entity had a choice, there could be no coercion. To support that finding of “choice,” the courts ruled that (1) states were warned from the outset that there could be changing conditions, (2) the federal government will bear the bulk of the cost of the expansion of Medicaid, (3) the states will have more than four years to make a decision whether to comply or opt out, (4) states can use their own taxing authority if they do not like the terms of Congress, and (5) HHS was granted authority to decide whether all or only part of federal Medicaid dollars can be withheld. Taken together, the lower courts decided this was not a case of coercion/compulsion, but one of inducement.

But just like their acceptance of the AIA argument, their decision to take on this issue is equally important. It could be that this Court sees Obamacare as the perfect vehicle to tackle the coercion theory and to definitively articulate that point at which “inducement ceases and compulsion begins.” As one can surmise, the ramifications of any decision would have huge effects on any number of federal revenue sharing programs outside the health reform context. Highway funding, education dollars, and just about any program where the federal government provides funds in whole or part to be administered at the state level could be potentially impacted.

Further surprising that the Court accepted this aspect of the case is the fact that unlike the mandate question, the lower Circuit Courts were not split on this issue nor was their disagreement. Their was recognition of this amorphous coercion theory, but it never extended beyond that except in the more-favorable-to-opponents-of-Obamacare 11th Circuit. Even there, when they applied this coercion theory, they determined that it was not coercion for the reasons cited previously. In effect, it was considered yet another dead issue as concerns Obamacare, like the AIA issue explained in part 1. Unlike the AIA, which could stop challenges to Obamacare dead in their tracks (until 2015), this argument goes to the opposite extreme. Lets just assume that the Court determines the AIA does not control here and they then reach the issues of mandates and this aspect. Leave the mandate question out of the equation for a second.

A decision in favor of the government- in effect, affirming the lower court findings- would, at the least, leave the issue open for another day or, at the most, there would be essentially no federal program where coercion theory could be applied. It would be a huge expansion of the authority of Congress to attach stipulations on the receipt of federal funds under the Spending Clause. Medicaid is, by far, the largest such program meeting these definitions. It could potentially be a stake in the heart of coercion theory. Florida, the lead state here, asserts that “the ACA threatens states with the loss of every penny of federal funding under the single largest grant-in-aid program in existence- literally billions of dollars each year- if they do not capitulate to Congress’ steep new demands.” The fact that states can opt out of Medicaid is precluded by the new requirements.

One needs to question why the Supreme Court would revive this issue in the absence of Circuit Court disagreement. To state the stakes are high one way or the other would be a gross understatement. The states that are advancing this case do so at great risk actually. Should the Court decide against them in this case, there is virtually no other area where the states, in order to receive their share of federal revenue funds, would not become essentially subservient to that federal government’s whims. This also illustrates what happens when a government transforms society into one of entitlements. It illustrates the call for fundamental entitlement reform outside the judicial process where it rightfully belongs. Should the states prevail, it is a victory for federalism and state’s rights. But even a defeat can be transformed into a public relations victory against an expansive federal government and bureaucracy which is a winning talking point for any prospective Republican candidate. It is quite possible that Roberts and those granting cert in this case may believe they have enough votes or sympathetic ears to possibly, even this narrow (but potentially large, moneywise) context, agree with the states. No matter the motivation in hearing this aspect of the challenges to Obamacare, the Court has before it the opportunity to place a check on the powers of Congress under the Spending Clause without even addressing the taxing power (through AIA) or the Commerce Clause (through the mandate). Even if Obamacare was to prevail under those cases, a loss here could actually be even more far-reaching and a greater victory for conservatives than a victory striking down the mandate.