Challenging the Constitutionality of Obamacare's Medicaid Expansion

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Mario Loyola to discuss the court challenge of Obamacare’s expansion of Medicaid, how the Tenth Amendment plays a role in that argument and the growing overreach of the federal government.


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Related Links:

ObamaCare’s Next Constitutional Challenge
Renowned legal scholar Richard Epstein co-authors Wall Street Journal column with Texas Public Policy Foundation’s Mario Loyola
The Texas Public Policy Foundation amicus brief submitted to the 11th Circuit
Mario Loyola at Texas Public Policy Foundation

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Jackson: On the show today Ben and I are joined by Mario Loyola, Director of the Center for Tenth Amendment Studies at the Texas Public Policy Foundation. We’ll discuss his court challenge of ObamaCare aimed at its expansion of Medicaid forced upon the states, how the 10th Amendment may play a role in that argument, and the growing overreach of the Federal Government. I’m your host, Brad Jackson, you’re listening to the June 23, 2011 edition of Coffee and Markets.

Mario, thanks for coming on the show today. It’s great to have you here.

Loyola: Great to be with you.

Jackson: There are several court cases right now working their way through the Federal judiciary system challenging ObamaCare. So far many of those challenges have been aimed at the individual mandate sectional law, but you’re looking to challenge it on a different front, the expansion of Medicaid. I know you helped the Texas Public Policy Foundation file an amicus brief along those lines this week. Why don’t you tell us about that?

Loyola: Well, the issue that has received the most attention is the one related to the individual mandate, the mandate that everyone has to purchase health insurance or pay a tax penalty. And that’s, you know, people are seeing that as exceeding the commerce power and that was struck down in the District Court in Florida along with the rest of the law. Judge Vinson, the trial judge, said that this exceeds the commerce power. A couple of other courts have ruled the same way. He said that you can’t sever the individual mandate from the rest of the law because it’s too essential to the whole scheme. So, he ruled the entire law unconstitutional.

But there’s another issue that he issued summary judgment on, this time to the Government and against the states, and that was the challenge to the Medicaid expansion provisions. Those provisions require that states expand their Medicaid programs as a condition of continuing to receive Federal matching grants. So, on that count he ruled that there was no coercion because there’s no level of economic penalty that the Federal Government could impose on the states that would be so onerous as to be coercive. And I’ll go into a little more detail about that if you like.

Jackson: Sure. Go ahead.

Loyola: Well, on the Medicaid issue and this test, this doesn’t have to do with the commerce clause. This has to do with the spending clause of the constitution, and so it tests what the Federal Government can do with its power to tax and spend. It’s been often held by the Supreme Court and was recognized at the time of the founding that the Federal Government had the power, if the Federal Government had the power to tax everybody and then return that money to the states, only on condition that they do certain things. And it was things that the Federal Government could not have required them to do directly in any of its enumerated powers. Then there was no protection ultimately for state sovereignty. And the state sovereignty that was, you know, state regulatory autonomy that’s so essential to the Federal structure of our constitution was really just a sham, that the Federal Government could basically get around by the use of conditional Federal grants.


If it taxes enough money, you know, the states need it back so they don’t have the option of refusing to do what the Federal Government is telling them to do. I mean, they technically have the option because the Federal Government can’t force them to do it, but the economic penalty is so huge that they don’t refuse in practice, ever, to do what the Federal Government wants them to do. And so with that being the case you had, you know, you’ve had several cases going back decades saying, you know, there has to be some limited conditional Federal grants, because otherwise there’s no way to protect state regulatory autonomy.

And in the Seminole case of South Dakota v. Dole, the U.S. Government was, the Congress had given the Secretary of Transportation the authority to withhold 5% of Federal highway funds from states that refused to raise their drinking age to 21. Now, the Federal Government couldn’t raise the drinking age, couldn’t force the states to raise their drinking age to 21 on its own because they can’t force states to regulate at all.

But in that case what Justice Rehnquist said, writing for the majority, was that, you know, 5% was a mere inducement and it didn’t cross the point at which pressure turns into compulsion. But that under some circumstances, you know, an inducement might cross the point at which pressure turns into compulsion. It would be so coercive as to constitute commandeering, which is illegal, unconstitutional. You know, Federal commandeering of state agencies, that’s unconstitutional. And if the economic penalty, Rehnquist wrote, if the economic penalty was so high that the states really couldn’t refuse in fact, then that was basically, you know, the Federal Government totally subverting the government of the states.
Jackson: So, you guys are saying that this is one of those examples. This is one of those instances?

Loyola: Yeah. Yeah. And so, yeah. So, because and here, you know, the Federal Government, the Medicaid program is a huge block. I mean, it takes up, you know, a huge fraction. It’s the biggest part of every state’s budget. It’s one of the biggest line items in the Federal budget. The program itself is arguably coercive, but what’s really coercive is to say okay, now that you’ve structured your entire health and human services around this program, you the state government, now that you’ve structured your entire health and human services around this program, you really can’t do without the Federal matching grants.

It would be, you know, you would be bankrupting a major fraction of the state government, especially because tax dollars continue to flow from your state to the Federal Government. And in order to continue to receive these funds, you’re going to have to expand your Medicaid roles and it’s going to cost you more money. It’s sort of like imagine a supply contract or I agree to supply you with all of the, you know, all of the aluminum that you need for your business. And then, and you set everything up around this supply contract and you don’t have any option but to buy it from me. And all of a sudden I say, you know what, I’m not going to sell this to you any more. I’m going to breach our contract unless you pay me twice as much. And now I’ve got you right where I want you, because you don’t have a choice. And even though we negotiated one price, now I’m imposing a higher price on you. And that’s really coercive, you know, on top of the just the threat of losing the Medicaid funds entirely.

And so that’s what we’re, you know, trying to get the Court to see is that this whole scheme is, you know, is a scheme for the subversion of state governments. There’s no stopping point. The Federal Government could be doing this on a 10 times bigger scale and then they would have basically eliminated self government at the level of the states in our country. And people have to realize that’s what’s at stake here. I mean, you know, an essential part of federalism was the idea that state government has to preserved at the local level, self government, rather, has to be preserved at the local and state level because the principal of majority rule for the country as a whole is not really as democratic as when communities are allowed to be, are allowed to practice self determination and liberty within their own space.


(Commercial break)

Domenech: Mario, this is Ben. Let me jump in here and ask a question about Medicaid. I really appreciated sort of the comments that were in your Wall Street Journal piece regarding the provisions that pass along an enormous amount of burden to the states. I wonder if you could walk us through your understanding of sort of the constitutional ramifications of this burden, particularly considering the real lack of flexibility that exists there on the state’s part to even serve the initial purpose of Medicaid, which was obviously to cover the poorest of the poor and people who actually needed it, and how this burden has become something that’s much more significant than that.

Are there any constitutional ramifications that speak to this?

Loyola: Well, I mean, the most important thing I think is that the entire amalgamous Federal regulations related to healthcare make it impossible for a state with a good idea, a state whose legislature has a good idea for regulating healthcare, to do anything. We’re caught in this totally distorted absurd model in which, you know, incrementally across many decades employers and health insurance companies have become regulated like public utilities for spreading the costs of routine care. It’s basically a scheme for the socialization of medicine. People attacked ObamaCare for trying to socialize medicine, medicine is already socialized in this (unintelligible). The consumer does not pay according to any rationale market price model. Everything is an entire scheme. The whole scheme is based on cost shifting.

I mean, for example, the individual mandate, you know, they say look, you have to, the government’s justification for the individual mandate for example is, you have to pay insurance because you’re eventually going to consume healthcare. Because if you don’t pay insurance then when you go into the hospital, you know, hospitals have to give you care for free, and then they have to shift those costs onto other paying customers. But the only reasons the hospitals have to do that is because Federal regulations force them to. So, the individual mandate is there to solve a problem that’s created by Federal regulation in the first place.

And so the most unfortunate part of all this is you could have a rationale model based on, you know, expanded base of practice for nurse practitioners, community health clinics all over the place where people spend, you know, and people go to get 95% of their healthcare needs taken care of, and they can pay for it with a $20 visit, a $30 prescription, a $50 visit, they can pay for it out of pocket. And you can protect, make it all tax deductible through health savings accounts and that way you can find insurance to spreading the risk of catastrophic illness rather than spreading the cost of routine care. Because obviously when you spread the cost of routine care and the consumer is immunized from overuse, you’re encouraging overuse. It’s a clear price driver. And the folly of the current system should be obvious to many more people than it is. You know, and what Ramesh Ponnuru at National Review has called the folly of, you know, of not letting insurance be about what it used to be about, which is spreading risk and using it for something else. If you can find health insurance to just spreading the risk of catastrophic illness, then people could buy health insurance for very cheap.

You know, and you know what, if you don’t buy health insurance and you get sick, the market will quickly adapt, you know. And you will quickly see people, you know, and people that can be encouraged to do it, to make sure people don’t fall behind on their payments. But you know, you can’t, out of a concern for a social safety net, you cannot abandon the principle of self-reliance. People should be responsible for the consequences of their actions. I mean, how people if they can’t afford it, but you know, to have the state intervene between the individual and nature in such a powerful way is quite unconstitutional and very contrary to the principles on which the republic was founded.


Domenech: Let’s talk for a moment about the mandates to the individual. I obviously, you know, think that there’s a whole larger scope of question here about the role that we want government to play and I’ve attended a number of debates between, you know, leading lights from Ivy League schools about the nature of the mandate.

I wonder if you could speak, you know, sort of to the level of impact that you think the mandate will have on the individual if it stands, if the Supreme Court rules in favor of it and whether you think that there’s any point after that where there’s really any barrier to government regulation of our individual lives?

Loyola: I think that that point was reached in 1942 in the case of Wickard v. Filber (phonetic sp.) which was the case about, you know, a farmer who was producing wheat for his own personal use on his own farm. He was subject to, you know, during the 1930s in order to prop up prices, as soon as we started to come out of the Great Depression and production resumed in agriculture, prices crashed around the world. There was suddenly this huge overabundance of food on the world market. I mean, people were starving of course because there was a war in China and everything, but there was an overabundance of food on the world market and farm prices crashed. And in order to sustain them the Federal Government imposed production quotas. And they came and imposed a penalty on Wickard for producing at twice his production quota. And the farmer said, look I’m producing this wheat for my own use. I’m not even selling it to my neighbor much less across state lines. This has nothing whatever to do with interstate commerce. You can’t possibly regulate this. And the court said, the court had already been intimidated by Franklin Roosevelt’s threat in 1937 to pack the court with 14, with five more appointees and had caved in since then. And so the Supreme Court now said, you know what, you’re wrong because even though your particular activity is not related to interstate commerce, if you aggregate this kind of activity all instances of it across the country, that clearly does impact interstate commerce. It impacts the national and world price of wheat, because you’re taking your demand off the market even your own personal demand.

Well, if the Government can regulate every single instance of something related to commerce in which there is an interstate market, then it can regulate everything. It can regulate all commercial activity, not just the interstate. So, basically it was in 1942 that the Supreme Court read the expression “among the several states” straight out of the Constitution and it just disappeared. And now ever since then the Federal Government just regulates commerce, whatever commerce it wants to no matter what.

Now, almost all human activity is related to commerce. There is almost nothing that you can do that’s not related to commerce. Now here though the Federal Government came up with something that nobody had thought of before. It’s a good thing nobody has thought it of before, but it’s really terrifying. They’re not regulating what you do as a condition of entering the market. They’re not regulating your purchase of a good. They’re regulating your inactivity. It’s forcing you to buy something. And then they say they’re regulating what you’re going to do in the future because you’re a future consumer of healthcare. Well, on that basis, you know, because in the future you might do this, or in the future you might do that, in the future you might commit a crime, I’m going to arrest you know. I mean —

Domenech: I’m not going to get a hair —

Loyola: If the Federal Government can force you to buy health insurance —


Domenech: Yeah. I’m not going to get —

Loyola: — they can force you to do anything.

Domenech: I’m not going to get a haircut tomorrow, but I’m going to need a haircut.

Loyola: Yeah.

Domenech: So, why not regulate the number of times I go. I mean, if you want to have stability in the barber market, you know, and make sure there are enough hair dressers to go around, you know, we really ought to have sort of, you know, a stamp that I could get from the government that I could use to exchange for a haircut so that, you know, people could actually keep things organized and we can have a training, and a licensing program, et cetera, et cetera, so that I don’t have a bad haircut. And that I have one that’s, you know, in keeping with the needs of the community et cetera. So —

Loyola: Yeah.

Domenech: — it seems to me that if you’re looking at these things from that perspective, if you’re approaching this as, in that sort of top down way, there’s indeed nothing that can be done. I wonder though if there’s some specific conflicts where, you know, things, the regulatory burden here that’s being placed on us from Washington, goes so far and has so much overreach, that people will respond, and that there’s going to be a reaction.

And I wonder if you have an opinion on one aspect of it that we’ve been talking about recently just because of attention to it in the news. Today on Capitol Hill Ran Paul was giving the business to the head of the TSA over several of the people from his state who had all sorts of ridiculous instances of people, being particularly children, being searched and to a ridiculous degree by TSA officials. Obviously in Texas there’s a current conflict on that front. I wonder if you could speak about, you know, some of the challenges like that where maybe states can fight back against this level of overregulation.

Loyola: I’m all for the effort to pass a bill in the Texas legislature to make that kind of thing illegal. However, the Federal Government is entirely within its rights to revoke the licenses to operate for those airports. So, I think that the Federal Governments wins in the end on this one. And you’ve just got to, people have got to recognize that there is a consistent pattern, there’s a consistent theme to all of these actions that we’re watching.

Something new about the exercise of Federal power in our age as compared to previous generations, which is that the Federal Government has embraced an absolutely, I would say, even insanely absolutist form of the precautionary principles, and it’s applying it across the board in every field of regulation. It has become completely unhinged from what the aggregate social safety, you know, from the risk that they’re trying to attenuate. I mean, for a marginal reduction in a particular risk of some speculative harm to somebody, and without any calculation of how many people are really at risk, the Federal Government imposes enormous burdens on society. Just absolutely unhinged unrational burdens on society.

I mean, the cost benefit analysis that the Government at least held itself to for many decades which said, you know, if the cost of precautionary measures is less than the risk, you know, the probability of harm multiplied by the potential gravity of that harm, then you should take precautionary measures. I mean, everyone can agree with that. Otherwise, if the cost of precautionary measures is greater than the potential risk of harm, then let people recover after the fact because it’s in that social loss to waste more money on precautionary measures than the society stands to lose. Right. And if we’ve, beginning with the environmentalist movement of the late ‘90s we’ve still not cut that rationale cost benefit analysis completely out the window.


Now we don’t ask that the Federal Government that they establish any sort of rational, any sort of rational analysis of the risk involved. Any sort of rational analysis of what the causal link could be between the activity, the potentially hazardous activity in question and the risk of harm. We don’t ask it to do anything rational like that. All it has to do, all an official has to do is sit in his office and speculate that somebody might be at risk and all of a sudden he’s got the full power of the Federal Government to impose billions of dollars in regulatory burdens on industry or to strip search grannies and little children as they go through a security line.

I mean, the absurdity of it is obvious in the case of TSA. You know that the granny from Wisconsin is not a terrorist. We know this. Why are we searching her? We know that she’s not a terrorist. We know that. We know that the 5-year old is not carrying a bomb on her. We know that. We should be, if they were really interested in protecting society they would be profiling people the way that they do in other countries. Right. But no, they don’t want to take, but that crosses a PC barrier, right? You don’t want to take people who look like Mario who have dark hair and (unintelligible), right?

Domenech: Yes, of course.

Loyola: And frisk them, even though I look exactly like a terrorist.

Jackson: You’re a shady character, Mario.

Loyola: I mean, I look like, you know, in Iraq I couldn’t convince anybody that I didn’t speak Arabic. And, you know, and so I mean, just without any rational basis for targeting, you know, millions of Americans every day. I mean, every time I walk through airport security, I feel like I’m bowing down to Osama bin Laden. I’m like, look at this humiliation. I mean, what more do you want? What more do you want to accomplish Osama bin Laden? You have this entire country of 300 million people prostrating themselves every day, every time they go through airport security in this self-humiliation of a ridiculous security procedure that nobody believes is actually protecting anybody. You know, and it’s just a, everybody finds humiliating. And this is what we do because we’re so scared. You caught us exactly, you know, if what he wanted to accomplish was this, he should be very satisfied. I don’t know what more he could want to accomplish than this. So, you know, I just —

Domenech: Mario, I think you’re completely accurate on that, Mario. And I guess you know, I’ll close with this question for you. You know, as Americans think about these issues, as they become more and more aware of them, what do you think is sort of the main guideline that they should use when it comes to understanding the proper role of the Federal Government in trying to get it back to the kind of restrained limitations that we wanted to have from the get go? What is the approach they should take and how should they think about that?

Loyola: Well, I think that you’ve got to, you know, I think people should, people across the country have been starting to read the Constitution again. They’ve been starting to read the federalist papers again. They’ve been starting to read, you know, the works of the Founding Fathers. They’ve been starting to read key Supreme Court cases. You know, I think that the thing to do is to recognize how much the greatest of this society depends on community, local and state autonomy. How much the 10th Amendment is not just an abstract principal. The 10th amendment was meant to protect self-government. Because when you have everything being decided by a national majority, you know, of 150 million plus one person, you’re disenfranchising a lot of people and that’s something that people don’t understand. You know, it’s not intuitive that national majority rule could be anti-democratic.


But the thing of it is that what the Democrats have done, in particular, since the administration of Franklin Roosevelt, is justify everything on the basis of national majority rule instead of the Constitution. They are replacing the Constitution with national majority rule. And the Constitution is what protects minority rights. So as the Constitution erodes and as minority rights erode and are replaced by the naked principal of majority rule, you have exactly the tyranny of the majority that the framers were most concerned about. And we’re watching it happen right now across, in our own country, across the gamut of Federal regulation. I mean, one thing we have to owe to Obama is, you know, the EPA, if the EPA said okay, we’re going to shut down the coal industry first, and then we’re going to go after this other industry, and then we’re going to, you know, destroy the American economy piece by piece, that would be really insidious.

But luckily because they’re attacking all of American industry at the same time, in every conceivable, and every conceivable rule that they can attack with, everyone is having the reaction at the same time. In every sector of industry practically across the country people are saying, are you going to shut us down? You’re just shutting us down. You know, and now you’ve got increase support in Congress for reigning it in, and that’s, and so I think the key thing to, for people to think about is, the Constitution gives you the right to govern yourself. It gives you the right, in your community, to convern yourself. It gives you the right to convern yourselves within your states. Don’t let the Federal Government take that right from you.

It’s taken almost all of it away actually, but it keeps taking more and you’ve got to take it back. You’ve got to take it back, because otherwise there’s no way to protect this country. And there’s no way to preserve the greatness of this country for future generations.

Jackson: Well Mario, thanks again for coming on. It’s been great having you here.

Loyola: Thank you very much for having me.

(End of Podcast)


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