State Challenges to the affordable care act: the expanded medicaid mandate

1. State Challenges to the affordable care act: the expanded medicaid mandate Harry Phillips Inn of Court Tuesday, November 19 2013 James F. Blumstein University Professor of Constitutional Law & Health Law & Policy Director, Vanderbilt Health Policy Center Vanderbilt University Law School

2. The Relevant Provisions of the Affordable Care Act (ACA)

3. The Expanded Medicaid Mandate • ACA builds on existing state Medicaid programs • Traditional Medicaid programs linked to public assistance programs, with some mandated expansions over time (poverty medicine) • ACA requires states to cover under Medicaid persons with incomes under 133% of poverty [138% of poverty with 5% income disregard]

4. The Expanded Medicaid Mandate • About half of newly covered persons receive coverage from expanded Medicaid mandate (about 15-16 million persons) • Federal subsidies on state-run Exchanges for those with incomes between 100% - 400% of poverty • No premium subsidy for persons with income under 100% of poverty

5. some general considerations

6. types of Restraint on Federal Power: Absence of Source vs. Limitation • Two Types of Restraints on Federal Power • Absence of Source of Authority vs. Limitations on Authority • Challenge to Individual Mandate Focuses on Absence of Source of Authority • Legitimate basis for constitutional challenge • But unreliable foundation to restrain federal power • Issue surrounding adoption of Bill of Rights

7. types of Restraint on Federal Power: Absence of Source vs. Limitation • Strategic Considerations – Better to fall within a limitation on federal power • Constitutional Doctrines to Protect Limits (Peripheral Rights per Griswold) • Miranda rule • Exclusionary rule • Anonymity in political association • Political expenditures as a form of speech • Eleventh Amendment

8. types of Restraint on Federal Power: Absence of Source vs. Limitation • Principles of Limitation • Anti-commandeering (New York v. United States; Printz v. United States) • Clear Notice (Pennhurst)

9. Centrality of context • Contract Formation vs. Contract Modification • Cooperative federalism programs such as Medicaid treated under contract paradigm (Pennhurst) • Programs such as Medicaid are ongoing in nature – Relational contracts [Bennett v. Kentucky Department of Education] • Critical distinction between contract formation and contract modification

10. Centrality of context • The problem of excessive leveraging at contract modification – Lock-in effect • Different standards apply at contract formation than at contract modification (restraints on opportunistic behavior) • Concerns are excessive leveraging (all-or-nothing feature of expanded Medicaid mandate) • Reliance considerations

11. Centrality of context • Consider this example: • A fishing vessel goes out to sea • Once the ship is in fishing waters, the crew demands a substantial wage increase • This additional term is imposed at contract modification and is not upheld because of excessive leveraging • Had the crew sought the same raise before setting sail (i.e., at contract formation), a different result would obtain

12. Constitutional Structure:Some Basics

13. Constitutional Structure:Some Basics • States have inherent authority to act under the police power • The Federal Government is one of enumerated powers and must find a source of authority to enact legislation • The Federal Government must observe affirmative limits to its power

14. Constitutional Structure:Some Basics A limit on federal power -- The Federal Government may not “commandeer” states to enact legislation or administratively to enforce federal policies Under its spending authority, the Federal Government may provide financial incentives for states to participate in federal programs (cooperative federalism) and may impose conditions on how states implement federal programs in which they participate

15. Constitutional Structure:Some Basics • States’ decisions to participate (or de-participate) in cooperative federalism programs must be made voluntarily and knowingly • To protect state sovereign interests in deciding whether or not to participate in cooperative federalism programs, federal conditions (and state obligations) on federal programs must be unambiguously stated in advance [Arlington Central School District v. Murphy] • Federal financial inducements that cross the line from “pressure” to “coercion” violate state autonomy[South Dakota v. Dole] --- Functional commandeering

16. The Expanded Medicaid Mandate: Coercion

17. THE EXPANDED MEDICAID MANDATE: COERCION • No court had invalidated a federal spending program on grounds of coercion in over 75 years • But the category existed – and one might ask whether it could exist if the expanded Medicaid mandate of ACA did not fit inside • Context is contract modification • ACA such a major modification so as to be in effect a new program

18. THE EXPANDED MEDICAID MANDATE: COERCION • Action vs. Inaction Considerations • States must act to opt out of New Medicaid • Consequences of state inaction: Fund Medicaid for pre-existing eligibles at states’ expense entirely • Duty to opt out akin to prohibited commandeering • Under anti-commandeering principle, state inaction means no federal money but also no federal conditions • Coercion as functional commandeering

19. THE EXPANDED MEDICAID MANDATE: COERCION • Application • Lock-in considerations once Medicaid already in existence – choices are very different from original decision to participate • States must act to opt out – Inaction not an option and has severe consequences • Political onus on states to act to departicipate from Medicaid and undo ongoing relational contract

20. THE EXPANDED MEDICAID MANDATE: COERCION Context– No federal subsidy on state-run Exchanges for individuals with incomes under 100% of poverty, but subsidies for individuals with incomes from 100% - 400% of poverty Role of states with expanded Medicaid built into the very architecture/DNA of ACA All-or-nothing feature of choice for states under ACA – excessive leverage in context of contract modification Functional “commandeering” – Requires States to Act in Order to Opt Out (Action/Inaction) and accept political responsibility for terminating pre-existing program

21. The Clear Notice Rule

22. The Clear NOTICE Rule • Start with anti-commandeering principle • States’ decision to participate in Medicaid is and must be voluntary • Decision to enter Medicaid is a constitutionally-protected state choice • Pennhurst requires clear statement of terms and conditions imposed in federal spending programs on states • Protects state decisionmaking autonomy and integrity • When states agree to participate in Medicaid, they are acting “voluntarily” and with “knowing acceptance” of terms of contract

23. The Clear Notice Rule States assured of exercising an “informed choice” and are “cognizant of the consequences of their participation” Knowing Acceptance by States of Conditions Attaching to Federal Spending Programs Is a Cornerstone of the Constitutional Legitimacy of Federal Spending Programs Knowing Acceptance Cannot Exist Unless States Are Aware, in Advance, of the Conditions Being Imposed on Them When They Choose to Participate in a Cooperative Federalism Program

24. The Clear NOTICE Rule • States Can Only “Knowingly Accept” Conditions of Which They Are Aware and Which They Can “Ascertain” At the Time They Decide to Participate • Clear notice rule safeguards states from being surprised by imposition of “postacceptance or ‘retroactive’ conditions.” [Pennhurst] • Clear Notice Rule Has Positive and Negative Aspects

25. The Clear NOTICE Rule • Positive Aspects. Assures integrity of state decisionmaking by guaranteeing states have full and unambiguous disclosure of what is expected of them • What burdens are being accepted • Focus is on relevant time in decision process

26. The Clear NOTICE Rule The Proper perspective is that of the state official who must decide whether the state should participate in the cooperative federalism program That state official must “clearly understand” the nature and scope of the obligations being undertaken by the state when it is “engaged in the process of deciding whether the State should accept” federal funds and the attendant obligations [Arlington]

27. The Clear NOTICE Rule • Negative Aspects. A rule against ex post blind-siding – against federal bait and switch tactics, “surprising participating states with postacceptance or ‘retroactive’ conditions”

28. The Clear NOTICE Rule • Clear Notice Rule Understood Within Context of Anti-commandeering Principle • Constitutionally-derived limitation on federal power to protect state autonomy and state sovereignty embodied in anti-commandeering principle • Protects states’ decisionmaking process against bait and switch tactics of federal government • To perform its function, Clear Notice Rule must apply in advance of critical state decision to participate in (sign up for) federal spending program [Contract Formation]

29. The Clear NOTICE Rule • Scope of Application (Limiting Principle) • The clear notice rule should apply at the time that states choose to participate in Medicaid when (a) the contract modification is substantial and unforeseeable and (b) when the contract modification has a significant financial impact on a program that comprises a substantial component of a state’s budget (such as Medicaid) • Remedy: States can opt in to Medicaid (or not) without jeopardizing pre-existing Medicaid