A Constitutional Opening
The Sebelius ruling on the Medicaid mandate gives states an important way out.

Justice George Sutherland circa 1924 (Library of Congress)


Now that President Obama has won reelection, the states are grappling with implementation of the Patient Protection and Affordable Care Act of 2010. Last June, in NFIB v. Sebelius, the Supreme Court gave the act a mixed bill of constitutional health. It upheld the individual mandate by saying that it was constitutional under Congress’s taxing power. However, it also ruled that Congress could not compel the states to expand their Medicaid programs by threatening to cut off all Medicaid subsidies if they did not do so. Imposing onerous new requirements in a program that already represents such a large part of the states’ budgets that they can’t afford to lose federal subsidies, the Court ruled, is unconstitutional. This was the first significant limitation on the federal government’s power to use the strings attached to fiscal subsidies — “grants-in-aid,” as they used to be known — in order to make states implement federal policies.

Nearly all federal welfare programs are joint operations of Congress and the states. Congress sets the standards, and if the states devise programs that meet those standards, Congress matches, or more than matches, what the states spend on them. (Obamacare, in fact, has a “teaser” introductory rate that the new consumer-protection bureaucrats would surely outlaw if it were done by a private corporation: It picks up 90 percent of the tab for the early years of the program — an offer the states could not refuse, Congress assumed.)

The old-age-pension part of Social Security is unique in its status as a fully federal program. In 1937, the Supreme Court accepted this program as constitutional under the taxing power. On this reasoning, if Congress in 2010 had repealed the current Medicaid law altogether and created a fully federal health-insurance system, that would have been constitutionally permissible under the taxing power. But such a move was politically impossible for Harry Reid and Nancy Pelosi, so they instead retained the grant-in-aid device. That choice gave the Court an opportunity to revive a constitutional limitation.

In Massachusetts v. Mellon (1923) the Court upheld the Sheppard-Towner Act, an early health program for mothers and infants. The Court decision covered two suits against the law, one filed by the state of Massachusetts and one by an individual taxpayer. Solicitor General James M. Beck made a far-reaching argument for the exercise of federal power in maternal and infant health. The United States had “a direct and practical interest in the new citizen,” who would “have many relations to the federal government as voter, taxpayer, and possible soldier.” Beck may well have made such extravagant claims because he did not believe the law was constitutional. He had encouraged Massachusetts to challenge it, although the state was accepting federal funds under 22 previous grant-in-aid programs. He wanted to confront the Court with a stark, all-or-nothing choice — i.e., if you accept this argument, you will not be able to say no to any federal grant program.

In its suit, Massachusetts emphasized that the act deprived it of its reserved powers and could subject individual citizens to direct federal intrusion: “The forced registration of pregnancy, governmental prenatal examination of expectant mothers, restrictions upon the right of a woman to secure the services of a midwife or physician of her own selection, are measures to which the people of those states which accept its provisions may be subjected.” Prophetically, the state warned that “insurance of mothers may be made compulsory. The teaching of birth control and physical inspection of persons about to marry may be required.” Massachusetts argued that the federal taxing and spending power was limited to those areas enumerated in Article I, section 8, of the Constitution. Sheppard-Towner imposed on the state “an illegal option either to yield a part of its powers reserved by the Tenth Amendment or to give up its share of appropriations under the act.”

The Court unanimously dismissed the suits for lack of jurisdiction. Justice George Sutherland, despite his reputation as a conservative judicial activist, saw the case as a political rather than a judicial question. Since the state was not required to do anything under the act, nor were any of its powers impaired, there was no violation of Massachusetts’s rights for the Court to remedy. The Court declined to rule on whether the act was a legitimate exercise of federal power, asserting that it had no power to consider “abstract questions of political power, of sovereignty, of government.”

As for the individual’s suit, the Court ruled that while individual taxpayers might sue to enjoin spending by a local government, that was because “the interest of a taxpayer of a municipality in the application of its moneys is direct and immediate and the remedy by injunction to prevent their misuse is not inappropriate.” But “the relation of a taxpayer of the United States to the federal government is very different. His interest in the moneys of the Treasury — partly realized from taxation and partly from other sources — is shared with millions of others, [and] is comparatively minute and indeterminable.”

Like Sebelius, the decision seemed to be a model of judicial self-restraint. Sutherland did not deny that the purpose of the act was unconstitutional, but he denied that judicial remedies could be imposed when the government acted unconstitutionally unless some direct harm could be shown. The effect was a monumental release of the taxing-and-spending power. In 1932, Harvard law professor Charles Warren observed that a “flood of laws bestowing government alms has deluged our statute books.” Constitutional scholar Edward S. Corwin concluded that “the moral seems to be, that so long as Congress had the prudence to lay and collect taxes without specifying the purposes to which the proceeds from any particular tax are to be devoted, it may continue to appropriate the national funds without judicial let or hindrance.”

Sutherland’s point that an individual taxpayer’s relation to the federal Treasury was “shared with millions of others,” making it “comparatively minute and indeterminable,” opened the door to a proliferation of interest-group programs. Where benefits are concentrated and costs diffused, small interest groups thrive (as Mancur Olson explained in his 1965 classic, The Logic of Collective Action), and Mellon prevented judicial challenge to them. James Madison’s analysis of interest-group politics in Federalist 10 noted that “if a faction consists of less than a majority, relief is supplied by the republican principle, which enables the majority to defeat its sinister views by regular vote.” He overlooked the peculiar advantage of small numbers in democratic systems. Other features of the original Constitution — principally federalism and the indirect election of senators — had forestalled this development for over a century, succeeding so well that constitutionalists like Sutherland let their guard down.

Chief Justice Roberts has now raised that guard again. Observers believe Obamacare could not survive without the taxing-power-based “individual mandate.” However, it is also likely that it could not survive if a large number of states refused to go along with the Medicaid mandate. And opting out of the mandate is a constitutionally orthodox alternative to secession.

— Paul Moreno is the director of academic programs at Hillsdale College’s Kirby Center for Constitutional Studies and Citizenship.