Monday, July 19, 2010

“Commandeering” and the ACA’s Medicaid Amendments (part 1)

In my view, the most serious sovereignty-related claim posed by the states in the Florida lawsuit concerns the ACA’s changes to the Medicaid program (Count 4 of the amended complaint). Medicaid is the joint federal-state spending program that provides health insurance for the indigent and the disabled, originally created in 1965 (now codified as title XIX of the Social Security Act).

States are not required to participate in Medicaid; indeed, Arizona did create its program until 1982. But if a state does participate—and every state now does—it must adhere to a variety of federal standards to qualify for the associated reimbursements from the federal government (reimbursements known as the “federal medical assistance percentage,” or FMAP). If a state fails to comply with the federal requirements, “the Secretary [of HHS] shall notify such State agency that further payments will not be made to the State (or, in his discretion, that payments will be limited to categories under or parts of the State plan not affected by such failure), until the Secretary is satisfied that there will no longer be any such failure to comply.” 42 U.S.C. §1396c.
The matching assistance from the federal government under Medicaid varies by state, but it generally ranges from 50% to 83% of the program’s costs. See 42 U.S.C. §1396d(b). That is, the federal government pays somewhere between half and four-fifths of the costs associated with Medicaid, depending on the state. Nonetheless, Medicaid currently constitutes a huge portion of every state’s budget. Florida, for example, expends roughly 17 percent of its annual budget on its Medicaid program.

While federal law imposes a range of requirements on states participating in Medicaid, see 42 U.S.C. §1396a, it also affords them a fair amount of flexibility in structuring their own, spate-specific programs. They enjoy considerable discretion over matters such as coverage eligibility levels, provider reimbursement rates, and the range of services covered.

The ACA reduces this state-level discretion, adding two significant federal requirements to Medicaid participation. First, ACA §2001(a)(1) mandates that, beginning in 2014, states must provide coverage to every individual under the age of 65 with incomes under 133 percent of the federal poverty level. Second, §2001(a)(2) dictates that states must offer these newly eligible recipients a “benchmark” benefits plan that contains the same minimum essential coverage as that required of any plan offered through the insurance exchanges. These requirements constitute a substantial expansion of Medicaid’s minimum coverage.

The federal government will cover the bulk of the expenses attributable to this expansion in coverage, but it will not cover all of it. As provided in HCERA §1201, the federal government will reimburse states for 100% of these costs from 2014 to 2106, 95% in 2017, 94% in 2018, 93% in 2019, and 90% thereafter.

The essence of the states’ claim is that these changes to the Medicaid program are coercive—that they effectively compel the states, against their will, to implement a federal legislative program, and thus “commandeer” them in violation of their constitutionally protected independent sovereignty. (They contend that this violates the Tenth Amendment, but it might be more accurate to phrase it as violating the principles of state sovereignty that the Tenth Amendment reaffirms or presupposes.)

If the ACA’s Medicaid amendments do, in fact, compel the states to implement a federal legislative program, they are indeed unconstitutional under current law. Two important Supreme Court decisions from the 1990s, New York v. United States, 505 U.S. 144 (1992), and Printz v. United States, 521 U.S. 898 (1997), firmly establish the constitutional principle that “Congress may not simply ‘commandee[r] the legislative processes of the States by directly compelling them to enact and enforce a federal regulatory program.’” New York, 505 U.S. at 161 (quoting Hodel v. Virginia Surface Mining & Reclamation Ass’n, 452 U.S. 264, 288 (1981)). In both New York and Printz, the Court invalidated federal statutes because they required the states to regulate their own citizens on terms set down by Congress. Because the challenged laws “offer[ed] a state government no option other than that of implementing legislation enacted by Congress,” they were “inconsistent with the federal structure of our Government established by the Constitution.” New York, 505 U.S. at 177. Thus, if the ACA’s Medicaid provisions actually force state governments to employ their sovereign powers according to the federal government’s direction, as the states contend, these aspects of the ACA should be invalid under existing principles of constitutional law.

Of course, the difficulty for the states in making such a claim is that—at least as a formal matter—the ACA’s Medicaid amendments do not require the states to do anything. Rather, they impose additional requirements with which states must comply as a condition of their participation in Medicaid (and their receipt of FMAP reimbursements). As the United States emphasizes in its memorandum in support of its motion to dismiss, “[s]tate participation in the Medicaid program is and always has been voluntary.” (P.31). States are free to withdraw from Medicaid at any time; they “can accept federal funds and the accompanying conditions, or not. Id. at 9.

The states do not really contest these points, at least as far as they go. They effectively concede, as they must, that they formally retain the power not to participate in Medicaid. But they argue that a state’s participation, while voluntary in form, is now mandatory in practice. More specifically, they allege that “if they were to end their longstanding participation in Medicaid, Plaintiff States would desert millions of their residents, leaving them without access to the healthcare services they have depended on for decades under Medicaid.” Amend. compl. ¶66. As a result, the states “are forced to accept the harmful effects of the Act on their fiscs and their sovereignty.” Id.

We are thus left with a very basic (and very important) question of constitutional law: Can conditions placed on the states by Congress in connection with a federal spending program ever be coercive because of the states’ practical difficulty in declining to participate in the program?

The Supreme Court’s decisions say yes, at least in theory. There is one critical sentence in South Dakota v. Dole, 483 U.S. 203 (1987), on which the states’ challenge to the ACA’s Medicaid amendment hinges. At issue in Dole was a federal spending condition that required states to set their drinking ages at 21 on condition of losing 5% of the federal highway funds to which they were otherwise entitled. The Court upheld this condition as a constitutional use of Congress’s spending power. In doing so, though, the Court famously stated as follows: “Our decisions have recognized that in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which ‘pressure turns into compulsion.’” Dole, 483 U.S. at 211 (quoting Steward Machine Co. v. Davis, 301 U.S. 548, 590 (1937). Having stated the possibility, the Court nonetheless had little difficulty finding that the spending condition in Dole itself was not coercive. “Congress has offered relatively mild encouragement to the States to enact higher minimum drinking ages than they would otherwise choose. But the enactment of such laws remains the prerogative of the States not merely in theory but in fact.” Dole, 483 at 211–212.

Can the states persuasively claim that the ACA’s Medicaid amendments are “coercive,” and hence a commandeering? Analyzing this issue requires us to address (at least) three distinct questions:

1. What is the precise basis on which the states contend that they have no practical capacity to withdraw from Medicaid, rendering the requirements in the ACA coercive?

2. Is this argument persuasive, factually and legally?

3. If the Supreme Court were to find the ACA’s Medicaid amendments coercive, what would be the implications for constitutional law? (And how do those implications affect our judgment as to the likelihood of the Court so holding?)

At most, this sets the table for understanding the question presented. In coming posts, I hope to analyze the various aspects of the problem in greater depth.