Hoover Daily Report

ObamaCare's Phony Medicaid 'Deal'

via Wall Street Journal
Monday, May 10, 2010

The Wall Street Journal

ObamaCare's Phony Medicaid 'Deal'

The new health law unconstitutionally coerces the states.


The attorneys general of 13 states recently filed a lawsuit in federal court challenging the constitutionality of the Medicaid portions of the new health law. Given the dismal track record states and individuals have had challenging New Deal social programs, many pundits have concluded their suit will be dismissed out of hand. I wouldn't be so sure.

The new health law gives states frontline responsibility for setting up an untried system of "exchanges" through which individuals will purchase health-care insurance. States receive partial federal support for running the exchanges up to 2015, after which they run them at their own considerable but uncertain expense. States can opt out of organizing these exchanges—but only if they extend Medicaid coverage to more of their residents, including all uninsured persons whose incomes are 133% to 200% of the poverty level.

This program is highly coercive and it raises a constitutional problem of the first magnitude.

ObamaCare's defenders say there is no problem—since no state has to participate in Medicaid at all, they're free to walk away entirely from the ObamaCare deal. But this too is a fake option.

Suppose a thief takes your family portrait worth $100 to you and then makes a take-it-or-leave it offer to sell it back to you for $50. You prefer the picture to the money. He prefers the money to the picture. Does that make the thief's offer a win/win? Of course not. It is ransom.

And thus the ObamaCare deal: States may leave Medicaid but the Medicaid taxes their citizens pay will support the program in other states. The state's option to leave Medicaid would be real only if the federal government refunded its citizens' Medicaid taxes or paid them into the state treasury.

There is one big obstacle to state success in the courts. In Frothingham v. Mellon (1923), a citizen of Massachusetts and the state itself challenged the use of federal tax dollars for infant and maternal health under the 1921 Maternity Act. Their argument was that the payments to individual people were not expenditures for the "general welfare of the United States," which, properly understood, only covered standard public goods like national defense.

But the Supreme Court there mistakenly held that neither the individual citizen nor the state had standing to challenge the program—on the peculiar ground that any potential constitutional violation that hurt everyone could be challenged by no one. That ruling put Massachusetts (like states today) in an impossible bind. A principled decision not to accept the federal funds meant that its citizens' tax dollars simply would go to mothers and infants in other states.

Fortunately, the obstacle that the Supreme Court raised to a state's standing to sue has already been breached. In Massachusetts v. EPA—the notorious 2007 decision allowing the EPA to treat carbon dioxide as a pollutant—the Supreme Court recognized that the state had standing to sue to protect its own coastline from the supposed ravages of excess CO2. The Supreme Court should likewise also recognize a state's standing to sue when the federal government seeks to command its resources to serve federal objectives. In New York v. United States (1992), the Court prevented the U.S. from forcing states to take title to nuclear waste. It can surely prevent the federal government from mandating massive expenditures of scarce state resources.

Under the Constitution the states are not wards of the federal government. Clever federal tax and spending statutes must not be allowed to reduce states to a servile status that allows the federal government to force massive wealth shifts among them.

The federal government should be told either to refund to the states their citizens' Medicaid tax dollars when they pull out of the program or to drop the new mandates to expand Medicaid coverage as the price the states must pay to escape ObamaCare-created duties.

Mr. Epstein is a professor of law at the University of Chicago and a senior fellow at the Hoover Institution.