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The latest Obamacare case was wrong to uphold Medicaid expansion—Part II

RGNStPauls On August 12, the U.S. Court of Appeals for the Eleventh Circuit struck down Obamacare’s mandate that individuals buy insurance, but upheld the Medicaid mandates imposed on states. As I already have explained, the Medicaid ruling was wrong under the Constitution’s original meaning. In this post, I explain why the ruling also is incorrect even under the modern Supreme Court’s cases.

Those cases date to the 1930s, when the Court began to pretend that Article I, Section 8, Clause 1—which grants the power to tax for the general welfare—also grants the power to spend for the general welfare. Today, therefore, courts and law professors often call the Taxation Clause the “Spending Clause.”

The modern “Spending Clause” cases allow Congress to authorize grants-in-aid to bribe states to undertake projects favored by Congress, but actually outside Congress’s enumerated powers. Those cases also authorize Congress to impose extensive conditions (mandates) on those grants-in-aid. Although federal-state grant programs initially were small and targeted, like almost everything else about the federal government they have morphed into monstrosities of astounding size. By 2008, Federal Medicaid revenues alone (not counting state revenues) amounted to about 21% of the average state general fund budget. (The data on which this calculation is based are here.)

The Obamacare law requires states to expand their programs significantly or lose Medicaid funds. In doing so, it goes too far even for modern “Spending Clause” rules.

As outlined in cases such as South Dakota v. Dole (1987), those rules are:

Rule # 1: Federal spending programs must be in pursuit of the “general welfare.”

Rule #2: Conditions on federal funds must be unambiguous, “[enabling] the States to exercise their choice knowingly, cognizant of the consequences of their participation.”

Rule #3: Conditions on federal grants probably must be related “to the federal interest in particular national projects or programs.” Presumably, a mandate that state court judges instruct juries in a certain way would not be sufficiently connected to the Medicaid program to justify the mandate.

Rule #4: The condition must not violate other portions of the Constitution (e.g., limit free speech).

Rule #5: The condition must not be “coercive” or “turn into compulsion” as against the state. In South Dakota v. Dole, a mandate enforceable by the loss of 5% of federal highway dollars was not a sufficient disincentive to be “coercive.”

You might think that Obamacare would flunk the “general welfare” text: It was the product of special interest bargaining, and clearly designed to hurt some and benefit others. Although this is inconsistent with the “general welfare” as the Founders understood that term, in practice the modern Supreme Court has never given the “general welfare” requirement any teeth.

More seriously, the threat of losing a huge chunk of state budget revenues in one fell swoop would seem to be coercive—especially since South Dakota v. Dole emphasized the very moderate nature of the penalty (5% of smaller programs) in finding that there was no coercion in that case.

But the 11th Circuit opinion listed four reasons for refusing to find coercion. All were irrelevant or misplaced. Let’s go through them:

11th Circuit: “First, the Medicaid-participating states were warned from the beginning of the Medicaid program that Congress reserved the right to make changes to the program.”

Response: Irrelevant. This goes to Supreme Court’s Rule #2, not the coercion rule (#5). Anyway, a criminal’s advance warning that if you will be shot if you don’t cooperate doesn’t make the demand any less coercive.

11th Circuit: “Second, the federal government will bear nearly all of the costs associated with the expansion. The states will only have to pay incidental administrative costs associated with the expansion until 2016; after which, they will bear an increasing percentage of the cost, capping at 10% in 2020.67 Id. § 1396d(y)(1).”

Response: Irrelevant. The measure of coercion is not the cost of compliance, but the punishment for non-compliance. Whether a robber orders you to hand over $1000 or $100 is not usually germane to whether he coercing you; what is germane is what he will do to you if you don’t comply.

Anyway, the amount demanded in this case is still enormous—and given the history of federal health care programs, is likely to be far more than projected today. And it’s not all about money: States simply may wish to pursue other approaches to health care policy, which under the Tenth Amendment they have the right to do.

11th Circuit: “Third, states have plenty of notice—nearly four years from the date the bill was signed into law—to decide whether they will continue to participate in Medicaid by adopting the expansions or not. This gives states the opportunity to develop new budgets.”

Response: Relevant to Rule #2, but not to Rule #5. Also, a requirement that a state replace such a large portion of its budget can be tough to meet in four years.

11th Circuit: “Finally, we note that while the state plaintiffs vociferously argue that states who choose not to participate in the expansion will lose all of their Medicaid funding, nothing in the Medicaid Act states that this is a foregone conclusion. Indeed, the Medicaid Act provides HHS with the discretion to withhold all or merely a portion of funding from a noncompliant state.”

Response: In an earlier part of the opinion, the Court worded this more honestly: “. . . a state whose plan does not comply with the requirements under § 1396a will be notified by HHS of its noncompliance, and ‘further payments will not be made to the State (or, in [HHS’s] discretion . . . payments will be limited to categories under or parts of the State plan not affected by such failure), until [HHS] is satisfied that there will no longer be any such failure to comply.'”

In other words, the state will be forced to sit up and beg for money taken from its own taxpayers. The budgetary future of the state thereby becomes largely subject to the whim of a few federal bureaucrats and any members of Congress who may choose to pressure them. This is not a mitigating factor, but an aggravating one: probably the worst form of torture Congress could have devised. (And it also violates Rule 2!)

Conclusion: Even under the Supreme Court’s ultra-liberal “Spending Clause” rules, Congress went too far this time. The next court to consider Obamacare should strike down the Medicaid mandates as well.

Rob Natelson