The Corner

The Supreme Court’s Ruling on Medicaid

A little over a year ago, Richard Epstein and I wrote an op-ed in the Wall Street Journal (“Obamacare’s Next Constitutional Challenge“) about the constitutional challenge to the Medicaid expansion provisions. We argued for a revision of the Court’s coercion doctrine, and for more scrutiny of the federalism dangers inherent in programs like Medicaid. Well, the Supreme Court didn’t give us everything we wanted, but it gave us most of what we asked for, and a lot more than we expected.  

Obamacare turns Medicaid from a safety net into a massive wealth-redistribution scheme, and threatens states with the loss of all federal Medicaid matching funds if they don’t comply. While the Supreme Court has made it clear many times that the federal government cannot command state governments to do anything, it has also upheld federal grants conditioned on compliance with federal dictates, so long as the penalty didn’t cross the line from “encouragement” into “compulsion.” The seminal case was South Dakota v. Dole (1987), in which the Court upheld a provision in the federal highway bill that allowed the Secretary of Transportation to dock 5 percent of a state’s federal highway funds if they refused to raise their drinking age to 21.

Epstein and I argued that in the coercion context, the distinction between “encouragement” and “compulsion” is a logical fallacy: No matter how great the penalty, there is always a choice; and conversely no matter how small the penalty, it is always coercion. Dole was clearly wrongly decided, not just as a matter of logic but also as a matter of constitutional design. The practice of conditional federal funds to the states is justified by a desire to eliminate the “race to the bottom.” But that is just a fancy term that uncompetitive states use to describe the advantages of competitive states; the former then band together in cartels and use the federal machinery to impose their uncompetitive policies on the latter, so as to even the playing field. The net result is to eliminate the competitive federalism that was at the heart of the Constitution’s structural design. Incidentally, this is the topic of Michael Greve’s marvelous and challenging new book, The Upside Down Constitution

#more#The silver lining in yesterday’s ruling was that Chief Justice John Roberts marshaled seven votes for a significant revision of the Dole coercion doctrine. The essence of the ruling was that states must retain freedom of choice, not just in theory but also in fact. Though the Court provided little guidance in how to distinguish between mere encouragement and compulsion, it seems clear from the ruling that if the penalty is much more than nominal, it risks being struck down for eliminating the state’s freedom of choice in fact. Another crucial aspect of the ruling was that the threat of losing all Medicaid matching funds if states did not comply with Obamacare’s transformation of Medicaid was per se unconstitutional. Elevating Justice Sandra Day O’Connor’s Dole dissent into the majority, the Court ruled that it is unconstitutional to condition the funds for one program on compliance with the dictates of a different program. The Medicaid expansion is no mere modification of Medicaid, reasoned the Court: It creates an entirely new program. Now think about that for a second. Many and perhaps most conditional federal grant programs have provisions similar to the one struck down by the Roberts Court. All of those will now be open to constitutional challenge.  

Professor Epstein and I wrote three briefs for the Supreme Court in Obamacare. Here is our brief on Medicaid. In addition, I just wrote a policy paper on the Court’s Medicaid ruling, for the Texas Public Policy Foundation. Read it here. As we have advocated throughout, a broad majority of the Court embraced a remarkably strong federalism imperative as a limit to the spending power. Where that goes, nobody knows, but the consequences could be historic.  

One more point to make about this decision. Notice that that both the Medicaid and individual mandate ruling are based on the same species of logical fallacy. Just as Dole uses an imaginary sliding scale to invent a distinction between encouragement and coercion, Chief Justice Roberts used the same imaginary sliding scale to invent a distinction between a tax and a tax penalty. (See Professor Epstein’s op-ed on the tax-but-not-tax-penalty foolishness in today’s New York Times). The sliding scale is like those balancing tests that Justice Sandra Day O’Connor used to use to reach whatever result she wanted: It will cause a lot of mischief before it is finally abandoned. 

Mario Loyola — Mr. Loyola is a senior fellow at the Competitive Enterprise Institute and director of the Environmental Finance and Risk Management program of Florida International University.


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