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Medicaid Maelstrom

By Jane Norman, CQ HealthBeat Associate Editor

November 21, 2011 -- An announcement that the U.S. Supreme Court will hear oral arguments in the cases challenging the health care law included a surprise that could steal the show: the justices' decision to consider the law's sweeping expansion of Medicaid.

That issue could go well beyond health care and break new ground in the often-rocky relationship between the federal government and the states.

The 26 state attorneys general and governors who lodged the suit are arguing that the federal government is effectively "coercing" them by threatening to withhold all Medicaid money unless the state agrees to a costly new spending arrangement set out in the health care overhaul.

Such threats to cut off funding are a primary means by which the federal government imposes obligations on the states—from civil rights in state universities to speed limits on state highways. Were the high court to find this practice potentially coercive, that could raise questions not only about Medicaid, but also about the future of dozens of federal mandates imposed on states using federal funds.

The high court last aired this debate in 1987, when South Dakota challenged the federal government's power to withhold a small portion of transportation funds from states that refused to raise their drinking age to 21 in South Dakota v. Dole.

South Dakota lost. But Chief Justice William H. Rehnquist, in writing for the majority, said that "in some circumstances, the financial inducement offered by Congress might be so coercive as to pass the point at which 'pressure turns into compulsion.'" That point has been reached, the states contend. And some legal experts say the push for a ruling on Medicaid could have far-reaching consequences.

Simon Lazarus, a health law supporter and counsel for the National Senior Citizens Law Center, says the court may be taking up the Medicaid question as a courtesy to the states. But, he says, conservative jurists have worried about how much leverage Washington has when attaching strings to federal aid to states.

Were the court to accept the states' argument, requirements that states and private companies receiving federal funds cannot discriminate on the basis of race or gender might be thrown into question, Lazarus says.

The Hyde Amendment, which bars the use of taxpayer funds for abortion except in cases of rape, incest or danger to a woman's life, also might be imperiled, he says. "You can imagine the litigation explosion that would occur if the court were to grant this, which is why it's probably not going to."

On Nov. 14, the justices decided they would hold five and a half hours of oral arguments, probably in March, in response to the suits from the states, the National Federation of Independent Business and two individuals.

The health care law mandates that, as of 2014, states provide Medicaid to all children and adults under age 65 with household incomes up to 133 percent of the poverty level. The Congressional Budget Office projected that 16 million people would be added. This would be the most significant change to Medicaid since it was created in 1965. From 2014 to 2016, Washington will pay all of the costs of the newly eligible. The federal share will phase down to 90 percent by 2020.

The states say they cannot afford the extra expense, yet they have no recourse other than to drop out of Medicaid. "Congress attached the new conditions not just to new money but to billions in pre-existing Medicaid funding," the states wrote in a brief to the court. "Congress did so precisely because it knew states could not afford the loss of nearly half of all federal funding, and would therefore capitulate to its demands."

Rulings by lower courts have not agreed. U.S. District Court Judge Roger Vinson, who in January ruled most of the law unconstitutional, wrote that "there is simply no support for the state plaintiffs' coercion argument in existing case law." The Court of Appeals for the 11th Circuit struck down the individual mandate yet left Medicaid intact.

Some scholars back the states' position. James Blumstein, a Vanderbilt University law professor, says states began participating in Medicaid under conditions that have now been significantly altered. States must be able to take part in cooperative-spending programs voluntarily and knowingly, Blumstein says. He recommends that Congress start over and launch a "Medicaid 2.0" that would give states a choice to participate. That would delay but not thwart implementation, he says.

Lazarus says those affected by conditional spending guarantees, such as the civil rights community, will be flooding the court with briefs in the months leading up to March.

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