High Court to Review ACA’s Minimum Coverage Requirement, Medicaid Expansion

Timothy Jost

Posted 11/14/11 on the Health Affairs Blog

Copyright ©2011 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.

Today, November 14, 2011, the Supreme Court decided to review a decision of the Eleventh Circuit Court of Appeals striking down the minimum coverage requirement of the Affordable Care Act (ACA) as unconstitutional.  The case will probably be argued before the Court in March and decided in the early summer.

Procedurally, the Court “granted certiorari.”  This means that it agreed to review certain questions raised by the certiorari petitions presented by the various parties in the Florida case, including the plaintiffs who challenged the constitutionality of the Affordable Care Act — 26 states, the National Federation of Independent Business, and two private individuals — and the federal government, which defended the Act’s constitutionality.  The Eleventh Circuit had ruled against the federal government on the question of whether the minimum coverage requirement of the ACA is constitutional, but had ruled against the plaintiffs on all other issues.

The Supreme Court did not rule on certiorari petitions pending before it from the Virginia, Liberty University, and Thomas More cases, two of which rejected a challenge to the ACA on jurisdictional grounds and the other of which held the minimum coverage requirement to be constitutional.  (The Virginia petition was not yet before the Court, as it was filed later than the others).  The fact that the Court only granted petitions in the Florida case probably signals nothing about the Court’s ultimate decision, as the Florida case raises all of the issues raised by the other cases and reviewing additional cases would have merely made the case more complex administratively.

A Startling Decision To Review The ACA’s Medicaid Expansion

The big surprise in the Court’s announcement was its decision to review the Medicaid expansion issue raised by the states.   The ACA expands Medicaid to cover all adults under 65 with household incomes below 138 percent of the federal poverty level beginning in 2014. This provision is expected to add 16 million Americans to the Medicaid rolls.   In states that do not already cover this population, the federal government will pay for 100 percent of the cost of this expansion for the first three years, after which the states’ share will gradually grow to 10 percent.  The states have the option of not expanding their programs, but face at least the possibility of losing all Medicaid funding if they fail to do so.

The states challenged the Medicaid expansion, claiming that Congress exceeded its authority under the spending clause of the Constitution. They claimed that the possibility of losing all Medicaid funding was unduly coercive, given the dependence of the states on Medicaid funding, the largest source of federal funding for most states.

The coercion theory’s sketchy underpinnings. The coercion theory comes from the Supreme Court’s decision in South Dakota v. Dole, a case that challenged the requirement that states raise their drinking age to 21 as a condition of receiving certain federal highway funds.  The Court in that case upheld the spending condition, but suggested in dicta (relying on dicta in an earlier case) that a condition imposed on a state through the spending clause might be unconstitutional if it were a requirement the federal government could not otherwise impose on a state and “the financial inducement offered by Congress” to the states to participate in the federal/state program were “so coercive as to pass the point at which ‘pressure turns into compulsion.’” (Dicta is language that does not directly address the issues presented by the case before the court.)

The decision of the Court to hear this question is remarkable because there is no Supreme Court — or even lower court — precedent applying the theory.  Although appellate courts have considered the coercion theory from time to time, the Eleventh Circuit could find no case that has ever struck down a federal law on these grounds.  Indeed, a number of the courts of appeals have simply refused to recognize the validity of the coercion doctrine.

Both the district court and the Eleventh Circuit rejected the application of the theory in the Florida case.  The Eleventh Circuit held that the theory did not apply in any event in the Florida case because 1) Congress from the beginning reserved the authority to amend the Medicaid statute and indeed has often done so; 2) the federal government is bearing most of the costs of the expansion; 3) the states have plenty of notice of the expansion, which does not take effect until 2014, and can decide to withdraw from the program and make other provision for their low-income populations; and 4) HHS does not in fact have to withdraw all Medicaid funding for states that choose not to implement the expansions.

Additional uncertainty for ACA implementation. The fact that the Court has granted certiorari as to this issue merely means that at least four members of the Court think that the question is serious enough to be argued.  It does not mean the Court is willing to strike down the Medicaid expansions.  Indeed, given the lack of precedent, that would be remarkable.

But raising the question does inject additional uncertainty into the ACA implementation process.  The Medicaid expansions are key to the ACA’s commitment to cover uninsured Americans.  Working out the interface between Medicaid and the exchanges is a key challenge facing the states.  States need to be actively at work right now, and in particular in winter and spring legislative sessions, to get legislation online to implement the exchanges and to figure out how to make the relationship between the exchanges and Medicaid work.  It is unfortunate that state legislatures and officials working on ACA implementation will face another eight months of uncertainty.

An actual decision that the Medicaid expansions are unconstitutional would pose a major threat to the implementation of the ACA.  The Medicaid expansions are key to reducing the number of uninsured in the United States. The expansions also form the platform on which the insurance reforms and premium tax credits are built.  A decision that the expansion is unconstitutional would leave millions more Americans uninsured and increase dramatically the cost of the premium tax credit program.

The coercion theory’s broad implications. Moreover, the coercion theory calls into question a multitude of federal government programs.  Many federal programs, and not just health care programs, operate through conditional grants to the states.  Were the Supreme Court to hold that the Medicaid expansions are unconstitutional, it would open every one of these programs to judicial challenge.  New programs, or changes in existing programs, could be tied up for years as litigation proceeded.  Such as decision could pose a much greater threat to the power of Congress to address national problems than might a decision holding that Congress exceeded its authority under the Commerce Clause in enacting the individual mandate. It would be a truly radical decision.

Other Notable Aspects Of The Supreme Court’s Certiorari Decisions

Several other features of the Supreme Court’s actions on the certiorari petitions are notable.  First, it scheduled five and a half hours of argument on the various issues.  The normal oral argument lasts an hour, and it is very unusual—probably unprecedented in modern times–to have arguments of this length in a Supreme Court case.

The Anti-Injunction Act. Second, the Court asked the parties to brief the question of whether the tax Anti-Injunction Act applies, and scheduled an hour of argument on this question.  A decision that the AIA did apply would postpone a decision on the merits of the minimum coverage requirement issue (but not the Medicaid issue) until 2015.  All of the parties to the case argue that it does not apply, but the Fourth Circuit held that it applies, a decision with which Judge Kavanaugh of the D.C. Circuit agreed.  The fact that the Supreme Court agreed to hear this issue does not mean it is inclined to put off a decision in the case (although Judge Kavanaugh offered good reasons for doing so in his opinion), but it is generally believed that the federal courts have no jurisdiction over a case if the AIA applies, so the Court must decide this question before it can proceed to the rest of the case.

Severability. Third, the Supreme Court set 90 minutes for oral argument on the question of severability.  If the Supreme Court decides that the minimum coverage requirement is unconstitutional, it will need to decide whether any of the rest of the ACA falls with it.  It is possible that the Court could hold, as did the district court in Florida, that the entire ACA is unconstitutional.  This result is virtually inconceivable, since so much of the ACA is entirely independent of the minimum coverage requirement.  Indeed, many provisions of the ACA are already in force, although the minimum coverage requirement does not take effect for two more years.

The Court could also hold, as did the Eleventh Circuit, that the minimum coverage requirement is completely independent of the rest of the statute, and nothing else falls with it.  Third, the Court could strike down a couple of other provisions that are arguably related to the minimum coverage requirement, including the guaranteed issue and community rating requirements or the pre-existing condition exclusion prohibition. This is the result that the federal government has argued for and that was reached by a district court in Pennsylvania.

If the Court holds the Medicaid expansions to be unconstitutional, it will also need to address the severability issue.  The 90 minutes that the Court has set for argument on this issue suggests that the Court sees this as a serious question.  I do not believe, however, that it suggests how the Court will lean on the merits of these issues.

Issues which the Court will not review. Finally, the Court did not grant certiorari on other issues raised by the petitions, including the constitutionality of the penalty imposed on employers who do not offer their employees adequate or affordable insurance and whose employees receive premium tax credits, or the application of this requirement to the states.  Clearly the Supreme Court does not see a substantial constitutional question as to whether these requirements are within the power of Congress.