June 28,2012

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Supreme Court Rules that ObamaCare Medicaid Expansion is Washington Power Grab at Expense of States

WASHINGTON – Today, the U.S. Supreme Court found that the Medicaid provisions included in President Obama’s Patient Protection and Affordable Care Act (PPACA) “…runs counter to this Nation’s system of federalism.”  Medicaid, a shared federal-state program originally designed to cover the disadvantaged, was dramatically expanded under the law.

“Today, the Supreme Court validated what Republicans warned from the very beginning: the massive Medicaid mandates were a ‘gun to the head’ of states,” said Sen. Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee which has jurisdiction over the Medicaid program. “By overturning the health spending law’s mandatory Medicaid expansions, the Court dealt a blow to the Obama Administration federal overreach and upheld America’s fundamental system of federalism.”

Below is a breakdown of what this ruling means:

The Key Issue:  “When Congress threatens to terminate other grants as a means of pressur¬ing the States to accept a Spending Clause program, the legislation runs counter to this Nation’s system of federalism.”

Summary:  “The threatened loss of over 10 percent of a State’s overall budget is economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion. The Government claims that the expansion is properly viewed as only a modification of the existing program, and that this modification is permissible because Congress reserved the “right to alter, amend, or repeal any provision” of Medicaid. §1304. But the expansion accom¬plishes a shift in kind, not merely degree. The original program was designed to cover medical services for particular categories of vulner¬able individuals. Under the Affordable Care Act, Medicaid is trans¬formed into a program to meet the health care needs of the entire nonelderly population with income below 133 percent of the poverty level. A State could hardly anticipate that Congress’s reservation of the right to “alter” or “amend” the Medicaid program included the power to transform it so dramatically. The Medicaid expansion thus violates the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expan¬sion.”

Impact: “The constitutional violation is fully remedied by precluding the Secretary from applying §1396c to withdraw existing Medicaid funds for failure to comply with the requirements set out in the ex¬pansion.”  [Translation: If a state chooses NOT to expand their program as PPACA requires, they cannot be penalized by losing federal matching funds for their pre-PPACA Medicaid programs.]

Additional Highlights:

How PPACA fundamentally changes Medicaid in terms of scope and flexibility:  “The current Medicaid program requires States to cover only certain discrete categories of needy individuals—pregnant women, chil¬dren, needy families, the blind, the elderly, and the dis-abled.  There is no mandatory coverage for most childless adults, and the States typically do not offer any such coverage. The States also enjoy considerable flexibility with respect to the coverage levels for parents of needy families… The Medicaid provisions of the Affordable Care Act, in contrast, require States to expand their Medicaid pro¬grams by 2014 to cover all individuals under the age of 65with incomes below 133 percent of the federal poverty line.  The Act also establishes a new “[e]ssential health benefits” package, which States must provide to all new Medicaid recipients—a level sufficient to satisfy a recipient’s obligations under the individual man¬date.”

Main argument from the States and the Court’s response:  “The States, however, argue that the Medicaid expansion is far from the typical case. They object that Congress has “crossed the line distinguishing encouragement from coercion,” New York, supra, at 175, in the way it has struc¬tured the funding: Instead of simply refusing to grant the new funds to States that will not accept the new condi¬tions, Congress has also threatened to withhold those States’ existing Medicaid funds.  The States claim that this threat serves no purpose other than to force unwilling States to sign up for the dramatic expansion in health care coverage effected by the Act. Given the nature of the threat and the programs at issue here, we must agree…. In this case, the financial “inducement” Congress has chosen is much more than “relatively mild encourage¬ment”—it is a gun to the head.  The threatened loss of over 10 percent of a State’s overall budget, in contrast, is economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion…. Previous Medicaid amendments simply do not fall into the same category as the one at stake here.”

Why the Court thought the Medicaid expansions were a problem Constitutionally:  “At the same time, our cases have recognized limits on Congress’s power under the Spending Clause to secure state compliance with federal objectives… The legitimacy of Congress’s exercise of the spending power “thus rests on whether the State voluntarily and knowingly accepts the terms of the ‘contract.’”  Respecting this limitation is critical to ensuring that Spending Clause legislation does not undermine the status of the States as independent sovereigns in our fed¬eral system… Otherwise the two-government system established by the Framers would give way to a system that vests power in one central government, and individual liberty would suffer…. That insight has led this Court to strike down fed¬eral legislation that commandeers a State’s legislative or administrative apparatus for federal purposes… But when “pressure turns into compulsion,” ibid., the legislation runs contrary to our system of federalism.”

What this means for States:   “Nothing in our opinion precludes Congress from offering funds under the Affordable Care Act to expand the availa¬bility of health care, and requiring that States accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding…. In light of the Court’s holding, the Secretary cannot apply §1396c to withdraw existing Medicaid funds for failure to comply with the requirements set out in the expansion…  Today’s holding does not affect the continued ap¬plication of §1396c to the existing Medicaid program. Nor does it affect the Secretary’s ability to withdraw funds pro¬vided under the Affordable Care Act if a State that has chosen to participate in the expansion fails to comply with the requirements of that Act.  As a practical mat¬ter, that means States may now choose to reject the ex¬pansion; that is the whole point.”