As Democrats decide which parts of the big reconciliation bill to keep and which to drop, they need to consider legal riskthe risk that a provision will be struck down by the conservative majority on the Supreme Court. That, in fact, is a serious risk for one major part of the legislation: the extension of broader Medicaid eligibility into the 12 states that have refused to adopt the Medicaid expansion created under the 2010 Affordable Care Act.
It was the Supreme Courts 2012 decision in NFIB v. Sebelius that enabled states to reject the expansion. After Medicaid was enacted in 1965, not all states immediately participated in the program; the last holdout, Arizona, finally established a Medicaid program in 1982. Once states joined, however, they had to accept dozens of changes to Medicaid enacted by Congress over the years if they wanted to get any federal funds under the program. But, ruling in 2012, the Court declared that the withdrawal of all Medicaid funds if states refused the new expansion would so burden the states that it violated their constitutionally guaranteed co-equal sovereignty.
As a result of that ruling, Congress cannot require states to extend Medicaid eligibility to people with incomes up to 138 percent of the federal poverty level (about $17,800 for an individual and $30,000 for a family of three). And since the 12 states that have refused the expansion are concentrated in the South (and include Florida and Texas), its not surprising that a majority of the 2.2 million people who fall into the Medicaid coverage gapthe gap created by red-state refusalsare Black or Hispanic.
Expanding Medicaid into the non-expansion states, however, is no easy thing to do. Under the American Rescue Plan Act, Congress has already offered the states such strong incentives to participate that they would make a profit for the first two years. But, at least so far, none of the holdouts have relented. Conceivably, Congress could federalize the entire Medicaid program for all states, but that would entail an enormous federal budgetary cost because of the share that states currently pay for.
In effect, the reconciliation bill would create two classes of states.
Instead, the reconciliation legislation proposes to do three things. The first would extend until 2024 a provision of the American Rescue Plan Act enabling people with incomes below 138 percent of poverty to obtain subsidies for ACA marketplace coverage. That, however, is intended only to serve as a bridge to a second policy: a 100 percent federally funded and operated Medicaid program for the coverage-gap beneficiaries in states that have not enacted the program on their own.
In addition, to prevent currently participating states from dumping the full cost of their expansion on the federal government, the bill, as it stands in the House, also has a penalty provision requiring any state abandoning its expansion to pay the federal government 10 percent of the cost of the expansion beneficiaries.
In effect, the reconciliation bill would therefore create two classes of states: 12 where the federal government pays the full cost of the expansion beneficiaries and 38 states plus the District of Columbia where it pays 90 percent of their cost.
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To be sure, the federal government has long used a matching formula for Medicaid costs that varies the share borne by different states, but the formula uses such facially neutral variables as a states per capita income (a measure of fiscal capacity). There is no precedent that I am aware of for the federal government treating states unequally solely because of their refusal to participate in a federal program. In this case, the federal government would not be penalizing the refusing states; in fact, it would be rewarding them fiscally. A Supreme Court with a different majority might therefore conclude the states where the federal government was intervening suffered no injury. But the current majoritywhich is even further right than the majority was in 2012might well build on the earlier decision and view this effort to circumvent the states decisions as a violation of their co-equal sovereignty.
Instead of creating a new federally funded program for non-expansion states, the legislation could also just list the 12 states by name, which would eliminate the need for any penalty provision for states abandoning their Medicaid expansions. But the federal government would still be treating states unequally with no justification other than their compliance with an earlier program (though defenders of the law could argue it was based on the principled distinction that residents in the non-expansion states lacked insurance coverage for which similarly situated residents in other states were eligible).
The strategic question for Democrats is how to use the limited funds they have for the Build Back Better Act.
Im not suggesting that the Court ought to strike down the expansion, only that the current majority is likely to do it. The strategic question for Democrats is how to use the limited funds they have for the Build Back Better Act. According to the Congressional Budget Office, the Medicaid expansion provisions will cost around $300 billion. That money could be devoted to policies more likely to survive.
There are other reasons to be wary of the Medicaid expansion provisions. It will be administratively burdensome for both beneficiaries and the federal government. Having a state operate one part of a program and the federal government another is no ones idea about how best to run publicly funded health insurance. Aside from the constitutional issues, do we really want to create a precedent for treating states unequally according to their willingness to go along with a federal policy? And do we want to reward right-wing intransigence on programs benefiting the poor?
Unquestionably, the immediate moral case for the Medicaid expansion is powerful: The reconciliation bill would provide coverage to more than two million of the uninsured, which would be a major gain for health care equity. The expansion also has morally compelling advocates: Georgias two new Democratic senators, one of whom, Raphael Warnock, is running for re-election in 2022, and Rep. James Clyburn of South Carolina. Joe Biden and the Democratic Party stand in their debt. They may not be able to say no to them.
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But the risk that the Supreme Court will overturn this attempt to extend Medicaid into the non-expansion states should make us think twice about it. There will be times when Democrats should enact legislation and dare this Supreme Court to overturn it, knowing that the Court will endanger its own legitimacy by doing so. This is not one of those cases. The Court can strike down the Medicaid expansion without much political blowback. Democrats have to take that into consideration in resolving the decisions about the bill.
It took 17 years from the passage of Medicaid in 1965 for Arizona to establish its Medicaid program, and it may take 17 years from the passage of the ACA in 2010 for all states to adopt the Medicaid expansion on their own. In fact, year by year, red states have been moving in that direction. This is one area of policy where Democrats already have fiscal incentives strongly on their side. From a long-term perspective, investing in other parts of the reconciliation package may be the wiser choice.