The government’s reply brief on Obamacare’s Medicaid expansion (“Obamacaid”) provides a competent, confident defense of the statute. It also provides occasion to revisit the parties’ positions one more time and to draw two conclusions. One: in attempting to buttress a losing argument against Obamacaid, the plaintiff-states may have detracted, unwittingly, from a winning argument against Obamacare’s “health benefit exchanges.” Two: the true problem isn’t Obamacaid’s constitutionality but its pernicious political economy.

What’s at Issue

To recap an earlier post: the federal government may—within its enumerated powers—freely preempt the states by means of prohibitory regulation; it may never commandeer them. States and the federal government may bargain around these constitutional entitlements: Congress may offer states money to execute federal commands, and states may accept (or decline) those offers as they see fit. However, the conditions ofthose quasi-contractual bargains must be clearly stated in the text of the federal spending statute. In doubtful cases, the instrument must be construed against the party that wrote it (i.e., the Congress).

There are some additional wrinkles. For example, the bargains must not violate any independent constitutional limitation. More important, federal-state bargains cannot create third-party enforcement rights (“entitlements”) unless the parties unmistakably made them part of the bargain. (The Supreme Court will reaffirm this principle in a pending case.) And there is a plausible argument that spending conditions must be reasonably related to the purposes of the federal grant.

Obamacaid does not violate any of these strictures. (In particular, the right of Congress to alter, amend, or repeal any aspect of Medicaid at any time is stated with unmistakable clarity, 42 § U.S.C.  1304.) The question in the litigation is whether spending statutes/bargains are subject to any additional judicially enforceable limitations. Are they?

The Plaintiffs’ Case

The answer is “no,” subject to this proviso: the bargains must actually be bargains, not impositions. The federal government my encourage and incentivize state participation; it may never compel it. In a single sentence in South Dakota v. Dole, the Supreme Court suggested that spending statutes may reach a point at which “pressure turns into compulsion” [483 U.S. 203, 211]. Neither the Supreme Court nor any appellate court has ever found any federal statute to have crossed that threshold. Moreover, forests have perished in scholars’ futile attempts to specify where, if anywhere, that threshold might be. Recognizing the difficulty, the plaintiffs argue that wherever the line might fall, Obamacaid has plainly crossed it on account of its unique (combination of) features. The arguments are unpersuasive.

• Congress, plaintiffs say, never expected any state to opt out of Obamacaid. (For example, the PPACA makes no provision for covering uninsured poor individuals if a state were to opt out.) This is true, but irrelevant. Even assuming that Congress’s state of mind bears on the coercion analysis, Congress may have relied on the fact that all states have participated in the program for nearly three decades. An expansion on yet more advantageous terms, Congress may have thought, would be a no-brainer for the states.
• Medicaid’s sheer size renders the Obamacaid bargain coercive. Obamacaid confronts states with an all-or-nothing choice between consenting to Medicaid’s expansion or else, forfeiting the entire funding stream with its “built-in,” “entrenched” constituencies. This, too, is true. As noted, however, the Medicaid statute puts states on notice that this might happen; and as plaintiffs concede, some earlier Medicaid expansions presented the same choice. Moreover, to a large extent, the funding stream is a product of the states own decisions to cover “optional” populations and services (more below).
• States  have no realistic alternative to continued Medicaid participation: if a state were to opt out, it citizens would still be compelled to pay “their” share of federal taxes in support of other states’ Medicaid programs. Again, this is true. However, the fiscal asymmetry characterizes all federal funding programs (including Medicaid in its pre-PPACA incarnation), and the plaintiffs’ claim was litigated and conclusively rejected in Massachusetts v. Mellon (1923). As presented by the plaintiffs, moreover, the claim has a very bizarre consequence: the more generous the grant offer, the harder it is to say “no”; hence, the higher the degree of coercion (Pl. Br. at 47). Suppose, though, that Congress legislates a program expansion on less advantageous terms than those governing existing constituencies: presumably, the states would also complain about “coercion,” except more so. A theory that would find a program expansion on any financial terms “coercive” cannot be right.

Perhaps, the unique combination of features pushes Obamacaid over the coercion threshold. However, that sort of multi-factor test from Justice Breyer’s playbook tends to set the conservative justices’ teeth on edge, and the plaintiffs’ counsel (Paul Clement) is far too good a lawyer to commit to such a position.

Of Balance and Exchanges

Repeatedly, the states’ brief adverts to Obamacaid’s supposed threat to the Constitution’s federal “balance” between Washington and the states. My earlier post insisted that there is no such balance and that the federal structure aims to protect citizens, not “states as states.” The plaintiffs’ brief illustrates the constitutional errors that tend to flow from the “balance” perspective. It compares the “coercive” Medicaid regime (which offers no statutory alternative to an expanded Medicaid) with the PPACA’s arrangement for federally subsidized health benefit exchanges: if a state declines to establish such an exchange, the federal government will establish and run an exchange in that state. Unlike Obamacaid, say plaintiffs, that arrangement (known to constitutional lawyers as “conditional preemption”) provides states with a genuine choice, and the balance liveth. Pl. Br. at 24.

This strikes me as very badly wrong. Conditional spending statutes and conditional preemption statutes both present states with an opt-in/opt-out choice. From the vantage of state officials, the “bargains” present the same sorts of considerations: accept (and shirk), or decline (and forgo the benefits of regulating). For citizens, in contrast, the calculus is very different. Saying “no” to a federal spending programs has no coercive consequence at all: but for the state’s acceptance, the federal statute has all the force of a congressional press release. Conditional preemption, in contrast, is a true Hobson’s choice: be ruled by an impenetrable intergovernmental conspiracy between state and federal officials or else, by a federal bureaucracy that has every incentive to make direct regulation look grim and “flexible” state rule attractive, the better to bamboozle states into a “cooperative” regulatory arrangement in which responsibility and accountability disappear. HHS is pursuing this strategy as we speak. It has no intention of running state exchanges, because it can’t.

The Supreme Court sustained conditional preemption statutes in a pair of intensely controverted decisions (here and here). Those cases, however, predate Printz and cannot survive its logic. The federal government’s power to regulate directly entails a prohibition against regulating indirectly except by voluntary bargain, for consideration, with a state.

Curiously, the exchanges—the engine that drives Obamacare, and its constitutionally most vulnerable element—are not part of the pending litigation. By getting the constitutional structure backwards and, as it were, upside-down, the plaintiff-states may have made future challenges a bit more difficult.

Of Contracts and Political Economy

An earlier post mentioned James Blumstein’s fine amicus brief in support of the states. Blumstein starts in the right place: spending statutes are (quasi-)contracts. What’s at stake in Obamacaid, Blumstein helpfully explains, isn’t the initial formation of a contract but its modification, and that bears on the “coercion” analysis. Ex ante and on-shore, a captain and his prospective crew may bargain for any terms they see fit. Once the ship is on the high seas, however, the captain may not unilaterally change employment conditions to the crew’s detriment and, as here, condition the receipt of any compensation on the performance of non-bargained-for duties.

The analogy is apt: Medicaid presents the unhappy spectacle of bilateral monopoly bargaining, atop a rising tide of tax dollars. The difficulty is that, first, the state crew consented to permitting such unilateral amendments; and, second, that the opportunistic risks of bilateral monopoly bargains really do run both ways. The states’ games to maximize their Medicaid “take” are the stuff of legend, and well over half of all Medicaid spending is attributable to the states’ voluntary decisions to expand Medicaid in pursuit of federal dollars. To that extent, their Medicaid dependency is their own fault.

It’s fair to reply that the federal government, for its part, has permitted and encouraged that conduct (and, on that account, should now be barred from exploiting it). However, it’s impossible to think of a federalism doctrine that would check the parties’ opportunism in an effective and constitutionally principled fashion. Any such doctrine, moreover, would fail to account for, and could not possibly control for, the risk (nay, the fact) that the bargain is calculated to produce bilateral opportunism. State misbehavior will draw more money into the system; but then, so does Obamacaid. The parties have a common interest in maximizing the dollars that keep the system afloat; all they are haggling over is the distribution, aka “balance.”

Constitutionally, economically, and politically, that question is irrelevant. The true problem is the “cooperative” system itself. The looming recognition that it has no judicial answer should intensify the search for a political solution.