Supreme Court Oral Arguments on the ACA, Part 2: Medicaid Offers You Can't Refuse, and Severability

March 20, 2012

March 20, 2012 — Beginning next Monday, the Supreme Court will conduct 3 days of oral arguments in a landmark case about a landmark law — the Affordable Care Act, the hotly contested blueprint for overhauling the nation's healthcare system, or lack of a system.

The first day's arguments could be described as precautionary — dotting legal "i's," so to speak. They center on whether the high court can review the ACA's constitutionality this year, or whether it must wait until after the law's mandate for Americans to obtain health insurance coverage takes effect in 2014.

The second day of oral arguments on March 27, devoted to the individual mandate and the penalty for noncompliance, should prove the most momentous. Attorneys for the Obama administration and the law's opponents — elected officials from 26 states and the National Federation of Independent Business (NFIB) — will debate for 2 hours whether the Constitution authorizes Congress to require citizens to purchase health insurance without opening the door to mandates to buy cars, eat broccoli, or do anything else, for that matter. In other words, where does the power of the federal government stop?

The oral arguments on day 3, March 28, while not as central to the case, will be the lengthiest — 1.5 hours in the morning and 1 hour after a Supreme Court lunch. The afternoon session continues the discussion of federal power and its limits, but in a different vein. The opposing attorneys will delve into the ACA's dramatic expansion of the Medicaid program, which the 26 state officials view as a usurpation of states' rights. In the morning session, the 9 justices will hold court on a more technical but still portentous question: whether striking down the individual mandate dictates striking down the whole law.

The ACA has been contested in more than 2 dozen suits in federal courts. The case before the Supreme Court originated with a challenge filed by the 26 state officials and the NFIB in a district court in Pensacola, Florida. The case was appealed to an Atlanta appellate court and then kicked up to the Supreme Court.

Can States Say No to Billions in Federal Medicaid Dollars?

An estimated 32 million Americans are expected to obtain insurance coverage under the ACA through 2019, and half will do so by enrolling in Medicaid. Beginning in 2014, the law expands Medicaid eligibility beyond currently specified categories of low-income Americans, such as families with dependent children, to include everyone younger than 65 — childless adults among them — with incomes up to 133% of the federal poverty level.

Although administered by the states, Medicaid is funded with both state and federal dollars. In fiscal 2009, total Medicaid spending came to $366 billion, with $243 billion, or 66%, coming from the federal government, and the states supplying the rest.

It is this state dependence on federal funds that gives rise to the Medicaid-expansion controversy before the court. Through 2016, the federal government will pay 100% of the cost of providing medical care for Medicaid recipients who enter the program through the relaxed eligibility requirements of the ACA. After that, the federal contribution gradually decreases until it halts at 90% in 2020, leaving states with a 10% share.

The 26 state officials challenging the law argue that although the states will receive an extra $434 billion in federal Medicaid funds through 2020, they will be forced to spend at least $20 billion of their own money on their Medicaid programs, which are already straining state budgets. The ACA also creates a new minimum-benefits package for Medicaid that eliminates the flexibility that states now have to design benefit packages in keeping with their budgets, according to the state officials.

Yet they have no choice but to participate in the Medicaid expansion, the officials say, because if they do not, the federal government could withdraw all their Medicaid dollars. As a result, states would "assume the full burden of covering its neediest residents' medical costs." By using its spending power to coerce states to do its bidding, the state officials say, the federal government violates the Tenth Amendment and its enshrinement of states' rights, which counterbalance federal rights in a federalist form of government.

The Obama administration counters that the Constitution gives Congress not only the power to spend money but also the power to set conditions for federally funded programs, which has always been the case with Medicaid. Participation in Medicaid is voluntary, the administration notes, and besides, the Medicaid expansion is not as onerous as the states claim it to be. Other ACA reforms, it says, will save states $100 billion through 2019, more than offsetting their increased Medicaid outlays.

So far, the administration's position has prevailed in the federal courts, even in those that have struck down the individual mandate, such as the district court in Pensacola, Florida. There, US District Judge Roger Vinson declared that Medicaid expansion does not trample states' rights. The appellate court in Atlanta that reviewed Vinson's decision reached the same conclusion — no to the mandate, yes to Medicaid expansion.

Foes of Medicaid expansion hope that lightning will strike their way in the Supreme Court. With that hope in mind, the attorney representing the state officials next week — Paul Clement, a former Solicitor General in the George W. Bush administration — is likely to cite a 1987 Supreme Court decision titled South Dakota v. Dole. In that case, the high courtupheld the federal government's right to withhold highway funds from states that allowed individuals younger than 21 to buy or possess alcohol.

Although the federal government won that case, Chief Justice William Rehnquist wrote in the court's opinion that in some circumstances, congressional spending inducements might be so hard to refuse "as to pass the point at which 'pressure turns into compulsion.' " The 26 state officials contend that the threatened loss of billions in federal Medicaid dollars clearly qualifies as compulsion a la Dole.

Robert Alt

Robert Alt, a senior legal fellow of the conservative Heritage Foundation, agrees with the state officials. In an interview with Medscape Medical News, Alt said that the coercion embodied in ACA Medicaid expansion, with hundreds of billions of dollars at stake, dwarfs that in the Dole case, in which only 5% of South Dakota's federal highway funds were involved.

"The brief filed by the [state] parties is pretty in-your-face to the court on this point," he said. "It essentially says, 'Look, if not here, where?'

"The states don't feel as if they have any option but to participate [in Medicaid]," Alt added. "Nobody believes that it is voluntary."

Robert Schapiro

Robert Schapiro, interim dean of the Emory University School of Law in Atlanta, Georgia, said he expects the high-court justices to press Clement during oral arguments for a clear "limiting principle" on when federal grants cross the line from pressure to compulsion.

"The court will be very concerned about...not being able to draw the line about what is too much," said Schapiro. The court would view that fuzziness as an invitation to future lawsuits that could undermine other federal programs.

Does One Unconstitutional Apple Spoil the Whole Barrel?

When US District Judge Roger Vinson struck down the individual mandate in January 2011, he also struck down the entire ACA.

"I must conclude that the individual mandate and the remaining provisions are all inextricably bound together in purpose and must stand or fall as a single unit," Vinson wrote in his opinion.

Although the appellate court in Atlanta upheld Vinson's ruling on the individual mandate, it reversed his decision to throw out the entire law. The mandate, the appellate judges wrote in their opinion, was severable from the other provisions. A district judge in Richmond, Virginia, also declared the mandate to be unconstitutional and detachable.

With lower courts splitting on severability, the Supreme Court will oversee 90 minutes of oral arguments on this issue on the morning of March 28.

Attorneys for the 26 state officials and the NFIB next week will again reiterate that the ACA hinges on the requirement for everyone to obtain health coverage, either through Medicaid or through a private insurer. And they will quote the Obama administration to make their point. The administration has repeatedly argued that without the mandate, it would not be feasible to require private insurers under the law to guarantee coverage to everyone and charge them the same premium — the essence of "community rating" — instead of basing premiums on pre-existing medical conditions. If Americans are not required to obtain coverage, they could wait until they were sick before they purchased it. This "adverse selection" of sick and expensive insurees would force insurers to uniformly raise premiums for a shrinking number of customers, which would lead to a "death spiral" for private insurance, as healthcare economist Uwe Reinhardt at Princeton University put it in congressional testimony.

The state officials and the NFIB both note that an early healthcare reform bill in Congress included a severability clause that would prevent one unconstitutional apple from spoiling the entire barrel but that the final bill lacked this clause. The Supreme Court brief filed by the state officials on this point stressed that even if one ignores the issue of the severability clause, Congress clearly signalled its intent to make the mandate the central, indispensable provision of the law.

The administration counters that the state officials and the NFIB are not affected by the vast majority of the ACA's provisions — some already in effect — and therefore have no good reason to seek their demise on the grounds that the mandate is unconstitutional and inseverable. Furthermore, the ACA's opponents have not proven that Congress "would not have wanted the bulk of the Act's provisions to operate independently" of the mandate, according to the administration. It concedes, however, that if the high court were to strike down the mandate, the Supreme Court should invalidate the intertwined provisions of guaranteed coverage and community rating, but leave the rest of the law alone.

The Supreme Court appointed attorney H. Bartow Farr III as a friend of the court, or amicus curiae, to provide a nonpartisan take on severability. In the written brief that he will reiterate next week, Farr makes a case for preserving the remainder of the law if the mandate is struck down. The high court, he writes, rarely invalidates perfectly constitutional provisions of a law simply because of a single offending section. For one thing, the court wants to stay within its judicial role and respect the will of Congress as much as possible.

Farr discounts the absence of a severability clause in the ACA, noting that both the House and Senate manuals for drafting legislation describe such clauses as nonessential because the courts apply "a presumption in favor of severability anyway."

Farr goes a step further than the administration in his pro-severability stance. He writes that guaranteed coverage and community rating should remain intact if the mandate is invalidated. Congress would want these insurance reforms to stand independently, he states. And if they take effect without the mandate, they would not necessarily trigger the insurance-industry death spiral predicted by many. Farr cites a Congressional Budget Office study stating that generous premium subsidies created by the ACA would encourage "the enrollment of a broad range of people," and thus work against adverse selection.

Elizabeth Wydra

Elizabeth Wydra, chief counsel for the Constitutional Accountability Center, a progressive think-tank and law firm in Washington, DC, believes the Obama administration enjoys the upper hand on the severability issue in the Supreme Court case.

"There's a strong presumption in the court that congressional arguments are constitutional," said Wydra, echoing Farr. "It's not the court's business to rewrite legislation.

"If the court struck down the mandate, it would limit the impact on the rest of the law," Wydra predicted.

A Case About Congressional Power, Not Healthcare

During the oral arguments on severability, Wydra expects the Supreme Court justices to question the parties carefully about how the ACA is structured and how it is intended to work. However, the judges will have more than healthcare policy on their minds.

The questions "are about understanding the law and identifying what is severable rather than judging its wisdom," said Wydra.

Elliott Pollack

"It's important to remember that this case is not about whether the ACA is a good law or a bad law," she said, "but whether it is within the constitutional authority of Congress."

"This is not a debate on how to reform healthcare," added Elliott Pollack, an attorney in Hartford, Connecticut, and the health law editor for a journal on Supreme Court cases published by the American Bar Association. "It's not the role of the court to make those decisions."

Instead, the Supreme Court will make a decision within its proscribed realm — the US Constitution.

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