Spend and Regulate

Quick update on Friday’s post, before launching into today’s clueless musings: approximately 10 minutes after I put the blog to bed, the Supreme Court publicly issued its cert grant in American Trucking Ass’n v. Los Angeles. Thanks to occasional contributor Adam J. White for the alert.

On to a case argued this past week before the Supreme Court:  Delia v. EMA, presents a Medicaid wrinkle that (if I’m right) poses a constitutional question of considerable import. The justices don’t seem to think so, though. Either they’re wrong, or else I am missing something.

The Statute

State Medicaid programs will often pay medical expenses for beneficiaries who then seek and obtain recovery from a third party, typically as part of a tort settlement or verdict.  The federal Medicaid statute obligates participating states (meaning all) to “take all reasonable measures to ascertain the legal liability of third parties . . . to pay for care and services available under the [State's Medicaid] plan.”42 U.S.C. 1396a(a)(25)(A) (emphasis added, for reasons infra). In order to secure its reimbursement from liable third parties, the state must,

to the extent that payment has been made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, [have] in effect laws under which, to the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services.

1396a(a)(25)(H) (emphasis added). Beneficiaries, in turn must “assign the State any rights … to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party.” 1396k(a)(1)(A).

While obligating states to seek recovery, though, Medicaid also limits their right to do so. The federal statute prohibits the imposition of a lien “against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan.” Moreover, “no adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made.” 1396p(a)(b).

The purpose behind the recovery and anti-lien provisions is perfectly clear and sensible. The difficulties, however, are endless. (The Fourth Circuit’s opinions in Delia provide a thorough, thoughtful discussion.) Suppose state Medicaid pays $200,000 and the beneficiary recovers $500,000: $100,000 in medical expenses, $400,000 in pain and suffering. Is the state entitled to put a lien on, and recover, the second $100,000? Answer “yes,” and it looks like you’re overrunning the anti-lien provisions. Answer “no,” and you give lawyers (and juries) an incentive to game the system. $1 in medical expenses, $999,999 in pain and suffering: happy now? (Does it matter for purposes of the federal statute whether the award was divvied up in a settlement or by a jury or judge?) In Delia, the state (North Carolina) enacted a law to the effect that one-third of every award is deemed reimbursable medical expenses, up to expenses actually incurred by the state: is that consistent with Medicaid, or does the state have to obtain a (state) judicial determination in each case? In oral argument, the justices seemed torn. I don’t blame them.

The Constitution

The question in Delia, supposedly, is whether Medicaid preempts North Carolina’s law. That’s how the case has been briefed and argued throughout by all sides (except a fine amicus brief by the State of Texas, which flags the argument below)—principally, because that’s how the Supreme Court analyzed the problem in its unanimous decision in Arkansas Department of Health & Human Services v. Ahlborn (2006). I think this is wrong.

The federal government’s power to “preempt”—to displace state law—comes from the Supremacy Clause, in conjunction with the Necessary and Proper Clause. However, the anti-lien provisions cannot trump state law for that reason. If they did, the mandatory recovery provisions would be unconstitutional. The federal government has absolutely no business telling a state to “have a law in effect” or to “take all reasonable measures” to do any damn thing at all. See New York v. U.S. (1992)(prohibiting the “commandeering” of state legislatures); Printz. V. U.S. (1997) (“commandeering” of state executive officers is not “proper” and therefore unconstitutional).

So why is Medicaid constitutional? Answer, because it’s a Spending Clause statute. If a state takes the feds’ money, it generally must abide by the accompanying spending conditions, including conditions that, sans spending, would violate the anti-commandeering rule. But the legal force of federal law comes from the state’s acceptance, not the Supremacy Clause. Put differently and somewhat imprecisely, the Spending Clause empowers the federal government to spend (conditionally); it does not permit it to regulate.

Does it matter? To me it does: while the world will little note nor long remember my blogs, I’ve peddled this argument in The Upside-Down Constitution, which I’ll have to live with and stand by for some time. But does it matter in real life?

In Ahlborn-Delia-style cases, probably not. If you crank the case through the Supreme Court’s ordinary, surprisingly sensible Spending Clause jurisprudence, the authority to enforce spending conditions (such as the recovery and anti-lien provisions) belongs in the first instance to the federal government, which in the event of violations can haggle with the state, withhold funds, or (statute permitting) sue the state. The question of whether private beneficiaries can enforce funding conditions depends on whether the provision at issue clearly intends their protection, see Blessing v. Freestone (1997). That’s probably (although not incontrovertibly) true of the anti-lien provisions, which may help to explain the Supremes’ loose “preemption” talk. However:

First, the vast bulk of federal funding conditions, under Medicaid and elsewhere, are not intended for the benefit of private parties and therefore, under Spending Clause canons, not enforceable by them. Re-phrase the inquiry as “preemption”: lo, it turns out that anybody—at least, any “regulated” party—can enforce the conditions in federal court vis-à-vis the states by means of injunctive and declaratory relief. Hordes of rent-seekers will volunteer for the job, and a feckless and opportunistic administration will cheer them on. Private enforcement was the chief engine of the welfare state until the Supreme Court gradually shut it down, beginning a generation ago. The “preemption” maneuver threatens that considerable accomplishment.

Second, there’s the little matter of constitutional integrity. The Spending Clause empowers Congress to spend for, among other things, the “general Welfare,” meaning to all legal intents anything Congress takes to be the general welfare. (You can fight that proposition but Medicaid, education, etc. fit the bill on any plausible account.) Why would a sentient framer, committed to a limited national government, write a clause like that into the Constitution? Answer, because the force of spending legislation hangs on state consent—which the feds can invite but never compel. To repeat, the clause authorizes Congress to spend, not to regulate or commandeer.

It is fiendishly hard to police the boundary. For example, it’s plausible to say that spending conditions must be “germane” to the purpose of the federal grant (lest they threaten to become freestanding regulations), and South Dakota v. Dole (1987) suggests something to that effect. I’m not sure that it is possible to work out a plausible federalism jurisprudence with bite in this domain. I think I know this, though: if the Supreme Court cannot keep the conceptual distinctions clear in easy cases, the hard ones will prove a nightmare.

Friday Roundup, November 16th

  • Don’t miss the next Liberty Law Talk with Adam White on the significant power of independent federal agencies. The NLRB is just the tip of the iceberg.
  • The ACLU, yes the ACLU, is suing Morgan Stanley over adjustable rate mortgages. Mission Creep?

In a sane world, if occupational licensure existed at all, it would be automatically relaxed at a time of extremity like this, with lives as well as gigantic economic damage at risk. But this is New York, where apparently even the protectionist exclusion of qualified electricians who hold licenses in the next county over can’t be waived.

It’s at a time of disaster that the irrationality of so many market-blocking rules, licensure among them, becomes most obvious. In a splendid report issued by the Institute for Justice in May, License To Work: A National Study of Burdens from Occupational Licensing, by Dick M. Carpenter II, Lisa Knepper, Angela Erickson (formerly of Cato) and John K. Ross examine what should be the most dispensable tranche of occupational licensure laws, those for occupations like bartender, shampooer and animal trainer, typically lower-income and often somewhat entrepreneurial that are licensed in some but not all of the fifty states. Usually, the result is a controlled real-world demonstration that without the legal restriction of a given trade, life just goes on normally.

  • Ted McAllister on the crisis in journalism: “The crisis of contemporary journalism and the deeper problem of modern, mass democracy turns out to be, in large measure, a problem of democratic leadership.  Perhaps.  [Walter] Lippmann’s presumption in 1922 . . . was that the national scale of politics, . . . was irreversible. But there is an alternative that stresses a different scale of politics—an alternative that understands the United States to be a public of publics, where robust local governance gives to each place a distinctive public character and wherein citizens can possess the knowledge necessary to deliberate together.”

The Rise and Rise of Independent Federal Agencies

Boeing 737

This next edition of Liberty Law Talk is a discussion with Adam White, a lawyer in Washington with Boyden Gray & Associates, about the increasing policy significance of independent agencies. White discusses how these agencies have assumed increasing power for implementing policy items that are politically unpalatable but are favored by key segments of a president’s political coalition. Analyzed by White in this podcast are the NLRB-Boeing episode, the derailing of the Yucca Mountain nuclear  repository project, and the avalanche of independent agency power delegated by the Dodd-Frank Act.


Obamacare: What Can One Wish For?

Adam White has a characteristically insightful piece in the Weekly Standard on the Obamacare litigation. After a concise summary of the legal issues and their trajectory in the lower courts, Adam notes that NFIB v. Sebelius “is the latest case in a remarkable string of cases confronting the Roberts Court with an unprecedented assertion of government power, and leaving the Court with the difficult task of how to preserve our constitutional structure.” The earlier cases include Citizens United; the Gitmo cases; and Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB) (2009), where the Court held that the congressional creation of an independent agency within another independent agency (the SEC) violated the Constitution. Adam correctly identifies the common thread among these disparate cases:

In each, the government had attempted to ground an unprecedented assertion of power in the letter of old precedents. In each, the change involved a fundamental innovation in the structure of government… And in each, the justices lacked useful rules guiding their decision, leaving them to exercise judgment rooted in more fundamental principles. The Court responded in each case by exercising prudence, drawing a new line in the constitutional sand, and requiring the government to step back to a more limited assertion of power…The Court’s review of the individual mandate poses no less a challenge, and merits no less a response.

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