Obamacaid Revisited

In the pending Obamacare litigation, the plaintiff-states argue that Title II of the Affordable Care Act (“Obamacaid”) unconstitutionally “coerces” them to participate in a grand expansion of Medicaid. I’ve argued here and there (link no longer available) that the plaintiffs will and should lose that argument. A terrific amicus brief (link no longer available) by Vanderbilt Law School professor James Blumstein makes a powerful case on the other side.

Ultimately, Jim’s brief doesn’t fully persuade me. But it comes very, very close on account of its recognition that Obamacaid’s crucial problem has to do with the bilateral risk of opportunistic defection from a pre-existing, quasi-contractual relation (Medicaid), not with some “economic coercion” story about federalism’s “balance” and the poor, pitiful states and their faithful public servants. (For ConLaw dorks: the key cases are Pennhurst and Printz, not South Dakota v. Dole or Steward Machine.) I hope to explain sometime next week; today, a few additional remarks on economic coercion.

Obamacaid’s “Choice”

Since 1966, Medicaid has offered states a federal match for state health care expenses for “covered” services and populations. No state is compelled to participate; however, all have chosen to do so. The federal match—“FMAP”—runs between 50 and 83 percent, with poorer states receiving a higher match. Some services and populations are mandatory for participating states. Others are “optional”: states may but need not cover them.

Building on this regime, Obamacaid purports to give states a further choice.

Option (A): Starting in 2014, you (state) cover everyone up to 133 percent of the federal poverty level. If those people aren’t already covered under your state Medicaid plan, we (the feds) will pay a 100 percent FMAP. The ratio will gradually decline to 90 percent in 2019. Further, there is a Maintenance of Effort requirement (“MOE”): you may not reduce currently covered services to currently covered populations.

Option (B): If you opt out and reject Option (A), you will lose your entire Medicaid funding.

The states’ supporters—Christopher J. Conover, in a fine reply to my earlier posts, and the American Action Forum in an amicus brief signed by over 100 prominent economists—have produced data showing that as a practical matter, no state can opt out of the statute. The AAF brief compares federal state-by-state Medicaid payments in FY 2009 to each state’s budget expenditures and own-source revenues and shows that nationwide, federal Medicaid expenditures equaled 22.5% of state expenditures and 33.4% of state tax collections. In many individual states, the numbers run much higher, to over 40% and 50% respectively. Conover shows that the notion of replacing the federal contributions is obviously absurd (as is the notion of letting Medicaid recipients fend for themselves). Thus, there is no Option (B) and no choice: that’s the crux of the “economic coercion” argument. I remain unpersuaded.

Let’s Do the Numbers

The economists’ brief compares federal Medicaid expenditures for a single FY (2009) with the states’ budgets and own-source tax revenues. (The feds’ FY does not actually coincide with the states’ fiscal years, but let’s ignore the mismatch and treat resulting calculation errors as noise.) 2009 is the last year for which data are available; but it’s also a very funky year:

  • State tax collections suffered a wholesale collapse that year, courtesy of the financial crisis and the stock market swoon.
  • Medicaid payments in 2009 were unusually high. The American Recovery and Reinvestment Act (“ARRA,” aka the “Stimulus”) had increased the FMAP for all states. Even the richest state (Connecticut) sported a 59% federal match.

In combination, these factors produce wildly inflated ratios. The main point, though, isn’t the math. It’s the oddity of arguing that the ARRA bailout, which relieved the states from pre-existing financial obligations and for which the states were pleading at the time, also contributes (in no small measure) to unconstitutional “coercion.” There are many reasons why Congress should say “no” when states come begging; but the notion that saying “yes” might cross the threshold to coercion isn’t among them.

Try a different take: the economists’ brief illustrates the stupendous fiscal differences among states’ Medicaid programs. Federal payments in 2009 appear to have ranged from well under 10% of state expenditures to over 40%; from well under 20% of state tax receipts to over 50%; from $330 per state resident in Nevada to a mind-blowing $1,447 in New York. One has to take the single-year cross-state comparisons with a ton of salt: the economic downturn hammered states with highly cyclical tax systems (e.g. California), while leaving others (e.g. Wyoming) virtually unaffected. Still, the brief is consistent with more systematic studies (for example, by my colleague Bob Helms): Medicaid payments bear no relation to any plausible rationale (need, equity among individuals or states, you name it). The huge variances, however, also raise additional questions about the plaintiffs’ coercion theory.

  • In a few states, federal Medicaid transfers equal no more than 7% or 8% of the budget. Replacing that amount is far from unthinkable:  tax hikes of that magnitude are routine for many states. Does the “coercion” test require that no state can realistically opt out? Only a few? Most? Conversely, if 8% under Medicaid is still coercive, suppose a federal conditional grant program (say, for K-12 education) exceeds that limit in three or four states: do they have a coercion claim when Congress confronts them with an Obamacaid-style choice (as with No Child Left Behind)? If so, what’s the remedy—invalidation of the program for all fifty states, including those that desperately want the program? A funding increase for the plaintiff-states, so that their officials feel better? A funding reduction, to the point where the loss of funds no longer feels “coercive”?
  • At the other end of the distribution, federal Medicaid transfers exceed 30% or even 40% of the state budget (again, with the stated caveats). High Medicaid dependency has many contributing causes. Foremost among them, however, is the states’ past eagerness to cover “optional” populations and services without any federal prompting and often under state-demanded waivers, usually for the purpose of maximizing federal transfers. As a practical matter, those states are now least able to opt out. Ignore that some of those states (such as Oregon and Kentucky) are not among the plaintiffs and have in earlier briefs (link no longer available) rejected any notion of coercion. Instead, note that the “coercion” theory would further entice states to gamble recklessly with and on federal transfers. And recall that the expansive waivers that allowed the states to Medicaid themselves into financial ruin and dependency were designed to restore the “federal balance” and to free states from (“coercive”!) federal mandates—to the acclaim of the same conservatives who now complain about the “coercive” consequences.  To hold both these positions produces a federalism theory for crack addicts. We should be able to do better.

Eanie, Meanie MOE

On the coercion theory, the problem isn’t the added cost of the ACA (even Conover’s numbers show that those costs are fairly minor). The problem is (B): accept and expand or else, forfeit all Medicaid funding. Had Congress offered a genuine choice—accept Obamacaid, or keep the existing Medicaid—there’d be no problem, say the plaintiffs. But that supposedly constitutional alternative is no alternative at all.

Suppose it were the statutory choice: Obamacaid offers states the option of covering millions more near-poor people, at near-zero marginal cost and while raising the average FMAP. How many states would reject that bargain and tool around with their skimpy old FMAP? Indeed.

Why didn’t Congress adopt that non-coercive option (or adopt it now, to moot the plaintiffs’ case)? Because states would first reduce their “optional” populations and services and then opt into the far more generous Obamacaid. To block that opportunistic maneuver, Congress enacted the MOE. And it’s that part of the bargain that bothers the states. As they say, the MOE prevents them from “cutting costs now” to prepare for spending increases in 2019 or thereabouts. Pl. Br. At 9.

But the MOE can’t be unconstitutional, either. ARRA, like Obamacaid (and like countless other statutes), contained an MOE, for an excellent reason: when Congress showers many billions on the states to preserve existing health coverage, it’s hard to think of an argument (let alone a constitutional argument) that would bar it from ensuring that the money will in fact be devoted to that purpose—in other words, to enact an MOE. So with the Obamacaid MOE.

It’s sometimes the case that two constitutional rights—a Medicaid expansion and an MOE—make a constitutional wrong. But that’s rare, and I don’t see it here. Congress could have enacted a freestanding MOE (without the coverage expansion) any day of the week. Why can’t it combine the MOE with an expansion that reduces the states average cost?

Allons Enfants

Appearances notwithstanding, the intramural disagreement at issue shouldn’t block, and should perhaps even clear the way for, agreement on what I take to be the central point: with or without the ACA, Medicaid is a train wreck in the making. Look at the Conover and AAF numbers: they’re jaw-dropping. Once this litigation is over, let’s put our minds to putting the beast out of its misery.