TBA Law Blog

Posted by: Lynn Pointer on Sep 19, 2012

By:  Mary Foust

An overlooked portion of the recent National Fed’n of Indep. Bus. v. Sebelius case (2012 US LEXIS 4876), where several states challenged the constitutionality of the Affordable Care Act (the “ACA”), is the Court’s decision partially to strike down the expansion of the Medicaid program.  After the 11th Circuit upheld the ACA’s expansion of Medicaid, the Supreme Court granted certiorari to decide whether Congress exceeded its authority under the Spending Clause of the U.S. Constitution.  On review, the Supreme Court held by a 5 to 4 vote[1] that Congress exceeded its authority under the Spending Clause. Justice Roberts, writing for the majority, stated that “[t]here is no doubt that the Act dramatically increases state obligations under Medicaid.”  The dissent called the consequence of not participating in the expansion “a severe sanction for any state that refuses to go along: termination of all the State’s Medicaid funding.”    This article will examine the rationales expressed in the opinions about the proposed changes to the Medicaid law.


As noted by Justice Roberts in the majority opinion, “[the ACA] expands the scope of the Medicaid program and increases the number of individuals the states must cover.” The current Medicaid program was originally enacted in 1965 and requires states to cover four categories of persons: blind, disabled, elderly, and “needy families” with dependent children.  42 U.S.C. Section 1396a(a)(10).  Section 2001 of the ACA establishes, says the Court, a new “essential health benefits” package that states must provide to all new Medicaid recipients — at a level sufficient to satisfy a recipient’s obligation under the so-called individual mandate of the ACA.  The federal government, however, obligates itself to pay one hundred percent of costs for newly eligible individuals from 2014 thru 2016, tapering to ninety percent in year 2020.

The ACA also expands Medicaid’s grant to another class of folks. “Childless” adults are now eligible for coverage under the new law if they meet certain income requirements.  Thus, a single adult earning up to $14,856 per annum now qualifies for Medicaid while a family of three earning up to $26,344 annually can similarly obtain coverage.  

Other notable amendments to Medicaid include:

  • Section 2001 of the ACA amends the “least minimum essential coverage,” a/k/a Medicaid Benchmark Benefits (42 U.S.C. Section 1396u-7(b)), to include coverage of prescription drugs and mental health services. 
  • Section 2004 provides mandatory coverage for former foster care children between the ages of 19 and 26 who had been in state foster care custody and enrolled in Medicaid when they reached 18 year of age.  
  • Section 2551 decreases the disproportionate share hospital payments.  The Secretary of HHS is directed to impose the largest percentage reductions on the states that “have the lowest percentages of uninsured individuals” or on those states who do not “target” their DSH payments to “hospitals with high volumes of Medicaid inpatients and hospitals that have high levels of uncompensated care.”
  • Section 2951 requires states to conduct a state wide needs assessment for maternal infant and early childhood home visitation programs.
  • Section 2501 increases the minimum rebate for prescription drugs as well as extending drug discounts to enrollees of Medicaid Managed Care organizations. 
  • Section 2402 provides states with the option of providing home and community based services to individuals eligible for services under waiver, if the individual’s income is less than 300 percent of the SSI rate.

The Spending Clause: Some Strings Attached

Art.1, Sec. 8 of the Constitution authorizes Congress “to pay the Debts and provide for the general Welfare of the United States.”  In exercising its spending powers, Congress can attach strings to appropriations to induce states to act in ways that Congress could not otherwise require them to act.  In this manner, Congress may legitimately influence state policy choices.  The conditions imposed by Congress “ensure that the funds are used by the states to ‘provide for the general Welfare’ in the manner Congress intended.”  Roberts opinion, p. 23.

In South Dakota v. Dole, the Court outlined four factors for reviewing the appropriateness of Congressional spending conditions: (1) whether the conditions promote the “general welfare,” (2) whether the conditions unambiguously inform states what is demanded of them, (3) whether the conditions are germane to “the federal interest in particular projects or programs,” and (4) whether the conditions induce the states to act in an unconstitutional manner. 483 US 203, at 207-208.  In Dole, Congress conditioned appropriation of federal highway funds on compliance with the National Minimum Drinking Age Act.  The threatened funds were less than a percent of South Dakota’s budget in 1986, leading the court to hold that this was not coercive but a “relatively mild encouragement.” 

The language used to phrase the issue in Justice Roberts’ opinion, i.e., where is the line drawn when determining whether a grant is unconstitutionally “coercive” or a “fair” inducement, is from Steward Machine Co. v. Davis, 301 US 548, 590 (1937).  Congress might be prohibited from offering a “financial inducement so coercive as to pass the point at which ‘pressure turns into compulsion.’” Dole at 211(quoting Steward).

A Gun to the Head?

Section 1396c of the ACA provides that if a state’s Medicaid plan does not comply with the requirements of the Act, the Secretary of HHS may terminate the state’s Medicaid funding. Justice Roberts found that the “threatened loss of over 10 percent of a State’s overall budget leaves the states with no real option but to acquiesce in the Medicaid expansion,” a/k/a a “gun to the head.”  “What Congress is not free to do,” wrote Justice Roberts, “is to penalize states that choose not to participate in that new program by taking away their existing Medicaid funding.”  And, as Justice Roberts noted, “Section 1396c gives the Secretary of [HHS] the authority to do just that.”  Thus, the majority found Section 1396c unconstitutional when applied to withdraw existing Medicaid funds from states that decline to comply with the expansion. 

The dissent, however, would have upheld the provision in light of the fact “the stated goal of the ACA is near-universal health care coverage.”  Thus, the dissent noted that “[t]o achieve this goal, the ACA mandates that every person obtain a minimum level of coverage.”  The dissent further noted that “for low-income individuals who are simply not able to obtain insurance, Congress expanded Medicaid, transforming it from a program covering only members of a limited list of vulnerable groups into a program that provides at least the requisite minimum level of coverage for the poor.”

Fiscal Impact on the States

In terms of the fiscal impact on the states, Justice Ginsberg opined that “state Medicaid spending” will increase only by 0.8 percent after the expansion.  Thus, Justice Ginsburg argued that fiscal impact to the states is not the stated reason for the majority opinion; rather, the attempt to “foist an entirely new health care system” on the states was the reason.  Justice Roberts argued, however, that this ignores state administrative expenses and assumes that the federal government will continue to fund the expansion at the statutorily specified levels.

Both the majority and the dissent agree, however, that the offer made to the states under the ACA is quite unlike anything the Court has seen in prior spending clause cases.  The two opinions also agreed on the fact federal funds account for anywhere from 50% to 83% of each state’s total Medicaid expenditures while also accounting for a substantial percentage of combined state expenditures.

What does the Decision Mean for State Medicaid Programs?

Justice Roberts utilized the severability clause provided in Section 1396c to sever the authority of the Secretary to withdraw all (existing) funding for noncompliance with the new Medicaid provisions.  In discussing the holding, Justice Roberts wrote that the “Court today limits the financial pressure the Secretary may apply to induce States to accept the terms of the Medicaid expansion,” and  “[a]s a practical matter, that means States may now choose to reject the expansion … .”  Thus, States are free to enter into an expansion of Medicaid or to forego the expansion.  States possibly could opt for some portions of the expansion and not for others.


Mary Foust is an attorney practicing in Nashville, Tennessee.

[1] Justices Ginsburg, Sotomayor, Breyer, Kagan concurred with Roberts, in Part V.