Harry Phillips Inn of Court

Tuesday, November 19 2013

James F. BlumsteinUniversity Professor of Constitutional

Law & Health Law & Policy

Director, Vanderbilt Health Policy CenterVanderbilt University Law School

STATE CHALLENGES TO THE AFFORDABLE CARE

ACT: THE EXPANDED MEDICAID MANDATE

THE RELEVANT PROVISIONS OF

THE AFFORDABLE

CARE ACT (ACA)

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• 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]

The Expanded Medicaid Mandate

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• 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

The Expanded Medicaid Mandate

SOME GENERAL CONSIDERATIO

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Two Types of Restraints on Federal PowerAbsence of Source of Authority vs. Limitations on Authority

Challenge to Individual Mandate Focuses on Absence of Source of Authority Legitimate basis for constitutional challengeBut unreliable foundation to restrain federal power Issue surrounding adoption of Bill of Rights

TYPES OF RESTRAINT ON FEDERAL POWER: ABSENCE OF SOURCE VS.

LIMITATION

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Strategic Considerations – Better to fall within a limitation on federal power

Constitutional Doctrines to Protect Limits (Peripheral Rights per Griswold)Miranda ruleExclusionary ruleAnonymity in political association Political expenditures as a form of speechEleventh Amendment

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TYPES OF RESTRAINT ON FEDERAL POWER: ABSENCE OF SOURCE VS.

LIMITATION

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Principles of Limitation

Anti-commandeering (New York v. United States; Printz v. United States)

Clear Notice (Pennhurst)

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TYPES OF RESTRAINT ON FEDERAL POWER: ABSENCE OF SOURCE VS.

LIMITATION

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Contract Formation vs. Contract ModificationCooperative 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

CENTRALITY OF CONTEXT

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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

CENTRALITY OF CONTEXT

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Consider this example: A fishing vessel goes out to seaOnce 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

CENTRALITY OF CONTEXT

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CONSTITUTIONAL STRUCTURE:SOME BASICS

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•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

Constitutional Structure:Some Basics

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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

Constitutional Structure:Some Basics

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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

CONSTITUTIONAL STRUCTURE:SOME BASICS

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THE EXPANDED MEDICAID MANDATE: COERCION

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• 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

THE EXPANDED MEDICAID MANDATE: COERCION

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Action vs. Inaction ConsiderationsStates 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

THE EXPANDED MEDICAID MANDATE: COERCION

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•ApplicationLock-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

THE EXPANDED MEDICAID MANDATE: COERCION

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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

THE EXPANDED MEDICAID MANDATE: COERCION

THE CLEAR NOTICE RULE

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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

THE CLEAR NOTICE RULE

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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

THE CLEAR NOTICE RULE

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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

THE CLEAR NOTICE RULE

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Positive Aspects. Assures integrity of state decisionmaking by guaranteeing states have full and unambiguous disclosure of what is expected of themWhat burdens are being acceptedFocus is on relevant time in decision process

THE CLEAR NOTICE RULE

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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]

THE CLEAR NOTICE RULE

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

THE CLEAR NOTICE RULE

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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]

THE CLEAR NOTICE RULE

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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

THE CLEAR NOTICE RULE

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