This commentary originally appeared in the Wall Street Journal on May 13, 2015.
Florida Gov. Rick Scott sued the federal government late last month for threatening to withhold more than $1 billion in Medicaid funds due the state under a waiver program first approved in 2005. And in Texas the Obama administration is threatening to cancel a five-year, $29-billion Medicaid waiver approved in 2011.
What’s going on? The Obama administration says that expanding Medicaid under the Affordable Care Act would be a better way to accomplish the goals of the waivers. In other words, the feds are attempting to force the hand of these states, which have declined to expand Medicaid.
This raises issues that most Americans thought had been settled. In NFIB v. Sebelius(2012), the Supreme Court upheld the constitutionality of the Affordable Care Act, but it struck down a provision that would withhold all Medicaid funding from any state that did not expand the program as prescribed in the law. This coercion of state governments—a “gun to the head,” as Chief Justice John Roberts put it—was a blatant violation of the constitutional principle of federalism.
The ruling was a major blow to ObamaCare, in part because the law relies on Medicaid to cover everyone earning less than 138% of the federal poverty level. Everyone above that threshold gets a subsidy for private coverage on the state exchanges. It was also unexpected. Most attention had been focused on the constitutionality of the individual mandate—that is, whether the federal government could force an individual to purchase a private product, in this case health insurance.
Nevertheless, the ruling in NFIB v. Sebelius—and the administration’s attempt now to get around it—opens “cooperative federalism” to new scrutiny. This is the scheme whereby Congress taxes a state’s residents and then offers to give some of the revenue back in exchange for adopting federal policies that the state had heretofore declined to adopt on its own.
Myriad programs work like this, from Common Core to the Clean Air Act, but Medicaid is the perfect example. What began in 1965 as a small program to provide health care to well-defined groups like the disabled and the elderly has now become a sprawling enterprise covering myriad groups and consuming on average one quarter of total state expenditures, according to the National Association of State Budget Officers.
The federal system of Medicaid payments is complex and varies by state. In some, including Florida and Texas, Medicaid waivers allow for new ways of providing coverage, such as contracting with managed-care companies to coordinate health care for patients. States must get federal approval for their waivers, and although technically most are limited to five years, in practice they can be renewed or extended indefinitely. Some state waivers are decades old.
Florida and Texas have waivers to get federal funding for otherwise uncompensated care payments to hospitals that treat Medicaid patients and the uninsured. But on April 14, federal officials sent a letter to Florida stating that Medicaid expansion “would reduce uncompensated care in the state,” and that the waiver and expansion “are linked.” No one in state government missed the clear implication. Not agreeing to the ObamaCare Medicaid expansion might endanger the waiver renewal. Federal officials have reached out to state officials in Texas and seven other states with the same message.
The Obama administration is playing a dangerous game that could drag it back to the Supreme Court. The waivers in Florida, Texas and other states do share some common goals with Medicaid expansion—like reducing emergency room costs and improving health outcomes for the uninsured. But funding offered under these waivers is not the same as agreeing to expand Medicaid under the Affordable Care Act—which would expose the states to a sprawling new health-care entitlement.
As Chief Justice Roberts noted in NFIB, Medicaid expansion under ObamaCare “accomplishes a shift in kind, not merely degree,” because Medicaid “is no longer a program to care for the neediest among us, but rather an element of a comprehensive national plan to provide universal health insurance coverage.”
NFIB v. Sebelius was the first time the Supreme Court found conditions on federal funding to be coercive, even though almost every federal program of assistance to the states contains punitive conditions and penalties. When federal funds with conditions attached comprise such a large portion of state’s budgets, do states really have any choice but to comply?
The Obama administration’s gambit with the Medicaid waivers in Florida and Texas shows that states, red and blue, may be unprotected from coercion once they enter into cooperative federalism schemes. But it could provide an opportunity for the Supreme Court to conclude that “cooperative federalism” is not cooperative, but coercive, period.
Mr. Davidson is director of the Center for Healthcare Policy at the Texas Public Policy Foundation.