In its review of Obamacare’s constitutionality, the Supreme Court will examine two substantive parts of the law: the “individual mandate” that compels private citizens to purchase health insurance, and the statute’s massive expansion of Medicaid rolls. While the mandate question holds great constitutional interest, the outcome won’t greatly affect Obamacare’s operation one way or the other. The Medicaid question, in contrast, is crucial. The expanded program is expected to provide health coverage for an additional 16 million poor and near-poor, heretofore-uninsured individuals, at a cost of upwards of $500 billion between 2014 and 2019. In a brief filed earlier this week, the litigating states claim that the statute unduly “coerces” them into participating in the program, in violation of the constitutional federalism balance. Should they prevail, all of Obamacare will have to be renegotiated.
That renegotiation, of course, is the holy grail of conservative agitation. However, the states won’t prevail on their Medicaid claim. Nor should they. Conservatives’ vocal support for the states’ opportunistic position is incoherent as a matter of both policy and federalism theory.
Enacted in 1965, Medicaid is a “cooperative” federal-state program. If a state agrees to provide medical services for certain populations, the feds pay between 50 and 83 cents of each dollar spent on the service. The match, known as “FMAP,” depends on the state’s wealth, with poor states receiving higher matches. For participating states, coverage of certain populations and services is mandatory. However, states may voluntarily cover additional populations and services. All have done so, to varying degrees.
Obamacare builds on this regime. Beginning in 2014, it requires participating states to cover all individuals with incomes up to 133 percent of the federal poverty line. The federal government will pay 100 percent of the costs for these “newly enrolled” citizens. While the ratio will gradually decline to 90 percent by 2019, it will remain above — for most states, far above — the current FMAP. Texas, for example, the noisiest among the litigating states, will see its FMAP shoot up from the current 60 to almost 70 percent. What’s there not to like?
Constitutionally, the states’ brief hangs its opposition on a single sentence in the Supreme Court’s 1987 decision in South Dakota v. Dole, hinting that conditional-funding statutes may encourage but not coerce states to participate. While no federal court has ever followed that suggestion, the states argue that Obamacare crosses the threshold at which fiscal inducement ends and compulsion begins. In the great majority of states, Medicaid consumes well north of 20 percent of the state budget. No state could possibly replace the federal matching funds that would be “lost” if the state were to opt out. Moreover, because federal Medicaid expenditures are paid from general revenues, a withdrawing state’s taxpayers would still be on the hook. Their tax payments would remain unchanged — and be distributed to all other states and their Medicaid programs.
All this is true, but it doesn’t help the states’ case. All federal funding statutes provide money that the states think they cannot afford to lose (else they’d opt out), and all are cross-subsidized from general revenues, in addition to the funding from FICA taxes. A few conservative theorists have suggested that all those statutes are unconstitutionally coercive. However, the litigating states wisely disavow that position, knowing that the justices are not remotely inclined to entertain it.