Federalism and Health Care Reform: Understanding the States Challenges to the Patient Protection and Affordable Care Act

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1 Federalism and Health Care Reform: Understanding the States Challenges to the Patient Protection and Affordable Care Act Bradley W. Joondeph* *Santa Clara University; Currently, a total of twenty-eight states are challenging the constitutionality of the Patient Protection and Affordable Care Act (PPACA) in federal court. Their principal claims are that the PPACA s regulation of the states violates their independent sovereignty, and that the Act s minimum coverage requirement exceeds Congress s enumerated powers. This litigation is immensely important, as it concerns a hugely significant statute and raises fundamental questions of constitutional federalism. This article offers a detailed description of the claims raised by the states and analyzes their plausibility under current law. It then addresses the likelihood that the Supreme Court will ultimately sustain the states arguments and invalidate the PPACA. On March 23, 2010, President Obama signed into law Public Law , better known as the Patient Protection and Affordable Care Act (or the PPACA). Whatever its merits as a matter of policy, it was a historic legislative achievement. No prior administration had successfully pushed national health reform through Congress, despite several attempts, and Obama had largely staked his presidency on its passage. Understandably, the mood at the Act s signing ceremony was festive, even raucous (Stolberg and Pear 2010). Not all Americans were as excited as the President. Within hours, the attorney general of Virginia filed suit in federal court claiming that the PPACA is unconstitutional. Later that same day, the attorneys general of twelve other states filed a similar action in Florida. Since then, fourteen other states have joined the Florida lawsuit, and Oklahoma has filed its own constitutional challenge. The three state-initiated lawsuits along with roughly twenty other private actions challenging the PPACA are now winding their way through the lower federal courts, and the matter seems destined to reach the Supreme Court. The states lawsuits make a variety of constitutional claims, many of which have little chance of success on the merits; governing law is too much of a barrier. But two of the states arguments pose a legitimate threat to the PPACA. First, the states Publius:TheJournal of Federalism volume 41number 3, pp. 447^470 doi: /publius/pjr010 AdvanceAccess publication April 28, 2011 ß TheAuthor Published by Oxford University Press on behalf of CSFAssociates: Publius, Inc. All rights reserved. For permissions, please journals.permissions@oup.com

2 448 B. W. Joondeph plausibly contend that the Act s amendments to Medicaid and specifically, its requirement that the states expand eligibility to all legal residents under age sixty-five earning up to 138 percent of the federal poverty level effectively compel them to implement a federal legislative program. The importance of federal Medicaid funding in a typical state s budget means the states have little choice but to implement the PPACA s changes to Medicaid. And the Constitution forbids Congress from requiring the states to govern their citizens according to federal instructions. Hence, the Act s Medicaid provisions might constitute an impermissible commandeering of the states. Second, current law might be understood as dictating that the PPACA s so-called minimum essential coverage provision which requires almost every person legally residing in the United States to acquire minimally adequate health insurance by January 1, 2014 exceeds Congress s enumerated powers. The United States has defended the mandate, set out in PPACA Section 1501(b), as a valid exercise of Congress s powers to tax and to regulate interstate commerce. As to Congress s taxing power, several lower courts have already concluded that the exaction imposed on those failing to acquire qualifying coverage is not a bona fide tax, but instead a regulatory penalty, and thus cannot be justified by Congress s taxing authority. As to the commerce power, Congress s regulation of the failure to obtain health insurance conduct that arguably constitutes no more than passive inactivity may well exceed its authority to regulate activities substantially affecting interstate commerce, either because the regulated conduct is not an activity, or because a mandate to purchase a good or service in a private market can never be a proper means of regulation. These are not necessarily the best readings of the Constitution or of current doctrine. But they are sufficiently plausible to form the basis of a judicial decision invalidating significant parts of the PPACA and even to strike down the entire Act on the ground that the unconstitutional provisions are unseverable. Indeed, the district courts issued such decisions in the Virginia and Florida cases (Commonwealth v. Sebelius [2010]; Florida v. HHS [2011]). In the end, what really matters is whether five justices of the Supreme Court would find these arguments convincing. And political science tells us that this will largely turn on (i) the ideological preferences of the justices, and (ii) a range of institutional pressures that will remain unsettled until the matter reaches the Court, such as which party controls the Senate and the House of Representatives, who occupies the White House, the popularity of health care reform with the American public, and how the lower courts have ruled on the issue. But there is another factor likely to influence the justices deliberations that conventional political analysis might overlook namely, the degree to which vindicating the states claims would disrupt the doctrinal rules of constitutional law.

3 Federalism and Health Care Reform 449 The daily grind of a Supreme Court justice, as much as anything else, concerns the superintendence and rationalization of constitutional doctrine. This core professional responsibility generally leads the justices to eschew arguments or legal theories that seriously disrupt or complicate judge-made constitutional law (Posner 2005, 97 98). For this reason alone, the Court is unlikely to invalidate the PPACA s Medicaid provisions; the implications of such a holding would be far-reaching and doctrinally destabilizing. In contrast, it would be relatively simple for the Court to craft an opinion invalidating the minimum coverage provision without causing much of a disturbance to constitutional law. And the existence of this doctrinal space, in which the Court could declare the individual mandate unconstitutional without triggering any broader implications, makes it quite possible that the Court will strike down Section 1501(b) or at least more likely than many have presumed. The States Constitutional Claims According to Virginia attorney general Kenneth Cuccinelli, his state s lawsuit challenging the PPACA is not about health care, it s about our freedom and about standing up and calling on the federal government to follow the ultimate law of the land the Constitution (Wagner 2010). Of course, it is unclear how far Virginia s case (or Florida s or Oklahoma s) will go; Congress could repeal or modify the Act s challenged provisions, the lower courts might dismiss the lawsuits on procedural grounds, or the Supreme Court could simply decline review. Still, most observers believe that, one way or another, the Supreme Court will ultimately decide whether the PPACA is constitutional. And if it does, its judgment would represent one of the more momentous pronouncements on federalism in the nation s history. The states claims fall into two basic categories: (i) those contending that various provisions of the PPACA, in their regulation of the states themselves, violate the structural principles of federalism; and (ii) those contending that the minimum coverage provision is unconstitutional. The following sections analyze these arguments in turn. State Sovereignty Claims The lawsuits brought by Virginia and Oklahoma only challenge the PPACA s minimum coverage provision. In contrast, the twenty-six states that are party to the Florida lawsuit additionally contend that the PPACA unconstitutionally regulates the states as states. Specifically, they argue that the Act violates the structural principles of federalism by (i) mandating that the states, as employers, offer their employees a certain level of health coverage; (ii) requiring the states to establish

4 450 B. W. Joondeph health insurance exchanges; and (iii) amending Medicaid so as to impose coercive conditions on the states. The first two claims have no realistic chance of success. At least since its decision in Garcia v. San Antonio Metropolitan Transit Authority (1985), the Supreme Court has held that Congress can regulate the conduct of state governments through generally applicable legislation, rules that subject[] a State to the same legislation applicable to private parties (New York v. United States [1992], 160). No one disputes that the obligations the PPACA imposes on large employers are generally applicable : they apply to all employers exceeding a certain size. Thus, they are perfectly constitutional under existing law. The states challenge to the insurance exchanges is equally unavailing. Critically, the PPACA does not require the states create exchanges. Instead, it gives them a choice: a state can create its own exchange that complies with the Act s various requirements, or it can step aside and the federal government will operate an exchange for that state. The constitutionality of this sort of conditional preemption of state law even on subject matters (such as health insurance) that have historically been regulated by the states is well established. As the Supreme Court has held on several occasions, [w]here federal regulation of private activity is within the scope of the Commerce Clause, Congress can offer states the choice of regulating that activity according to federal standards or having state law pre-empted by federal regulation (New York, ). The one sovereignty-related claim raised by the states that merits serious consideration concerns the PPACA s amendments to the Medicaid program. Medicaid is the joint federal-state spending program that provides health insurance for the indigent and the disabled. States are not required to participate in Medicaid (Harris v. McRae [1980]). But if they do, they must adhere to a variety of federal standards to qualify for the associated federal funding known as the federal medical assistance percentage, or FMAP (42 U.S.C., Section 1396c). The size of the FMAP varies by state, generally ranging from 50 to 76 percent of the program s costs [42 U.S.C. Section 1396d(b)]. In other words, the federal government pays somewhere between one half and four fifths of a state s costs associated with Medicaid, depending on the contours of the state s program. Still, despite this federal subsidy, Medicaid constitutes a huge portion of every state s budget, averaging more than 20 percent of state spending nationally. Even before the PPACA, federal law imposed numerous requirements on states participating in Medicaid. And if a state fails to comply with these requirements, the Secretary [of HHS] shall notify such State agency that further payments will not be made to the State (or, in his discretion, that payments will be limited to categories under or parts of the State plan not affected by such failure), until the Secretary is satisfied that there will no longer be any such failure to comply (42 U.S.C. Section 1396c). At the same time, federal law has also afforded states a

5 Federalism and Health Care Reform 451 fair degree of flexibility in structuring their own Medicaid programs. Historically, the states have retained discretion over matters such as coverage eligibility levels, provider reimbursement rates, and (with some limitations) the range of services covered. The PPACA reduces this state-level discretion. Most importantly, PPACA Section 2001(a)(1) mandates that, beginning in 2014, states must provide coverage to all individuals under the age of 65 with incomes under 133 percent of the federal poverty level. (Given the Act s definition of modified adjusted gross income, this effectively means 138 percent of the federal poverty level.) This constitutes a substantial expansion of Medicaid s baseline scope of coverage. The federal government will reimburse states for the bulk of their expenses attributable to this expansion, but it will not cover all of them. As provided in Section 1201 of the Health Care and Education Reconciliation Act the law enacted three days after the PPACA to modify some of its provisions the United States will pay for 100 percent of these costs from 2014 to 2016, 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent thereafter. The crux of the states claim is that these changes to Medicaid are coercive: they effectively compel the states to implement federal law. Supreme Court precedent specifically, New York v. United States (1992) and Printz v. United States (1997) firmly establishes that Congress may not simply commandee[r] the legislative processes of the States by directly compelling them to enact and enforce a federal regulatory program (New York, 161; Hodel v. Virginia Surface Mining & Reclamation Association [1981], 288). Thus, if the PPACA s Medicaid provisions indeed force the states to govern their citizens according to the federal government s directives, these aspects of the PPACA should be unconstitutional. The difficulty for the states is that the PPACA s Medicaid amendments do not formally require the states to do anything. Rather, the PPACA imposes additional conditions to which the states must adhere as participants in Medicaid to receive their FMAP reimbursements. As the federal government has emphasized in its filings, [s]tate participation in Medicaid under the [PPACA] is, as it has always been, voluntary. 1 States are free to withdraw from Medicaid at any time; they can accept federal funds and the accompanying conditions, or not. 2 The states do not really contest this point, at least as far as it goes. Instead, they argue that a state s present participation in Medicaid, while voluntary in form, is mandatory in practice. Specifically, they allege that if they were to end their longstanding participation in Medicaid, Plaintiff States would desert millions of their residents, leaving them without access to the healthcare services they have depended on for decades under Medicaid. 3 As a result, the PPACA coerce[s] the Plaintiff States to participate in the new Medicaid regime and assume billions of dollars of additional costs and other responsibilities against their will. 4 The states argument thus presents a very basic and very important question of

6 452 B. W. Joondeph constitutional law: can conditions placed on the states by Congress in connection with a federal spending program ever be coercive, and thus amount to an impermissible commandeering, due to the states practical inability to reject the conditioned federal funds? The Supreme Court s decisions suggest the answer is yes. The most important case is South Dakota v. Dole (1987). At issue in Dole was a federal spending condition that required states to set their drinking age at twenty-one to avoid losing 5 percent of the federal highway funds to which they were otherwise entitled. The Court upheld the provision as a valid spending condition. But in doing so, the Court explained that [o]ur decisions have recognized that in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which pressure turns into compulsion (Dole, 211; Steward Machine Co. v. Davis [1937], 590). In Dole itself, the Court had little difficulty in finding that the spending condition was not coercive. Congress has offered relatively mild encouragement to the States to enact higher minimum drinking ages than they would otherwise choose. But the enactment of such laws remains the prerogative of the States not merely in theory but in fact ( ). The Court has said almost nothing on the topic since. The states contention that the PPACA s conditions are coercive rests on three factual claims. First, they assert that they originally agreed to participate in Medicaid with a particular understanding of the program s terms, terms that the PPACA has fundamentally altered. The states could not possibly have foreseen, when they originally opted into Medicaid and established their individual programs, that the federal government would make such sweeping and unilateral changes to the program. 5 Second, having implemented their state-specific programs, they have cultivated a reliance on the continued provision of health coverage for their indigent and disabled residents. Third, if a state were to turn down its FMAP dollars, [r]eplacing these revenues would necessitate gargantuan state tax increases. 6 Thus, given the enormous annual funding at stake, the state cannot possibly afford to withdraw from Medicaid, as they practically cannot make up the shortfall. 7 This last point is the most significant. For if the states could maintain their existing indigent health insurance programs without federal assistance, there would be no basis for claiming coercion: the states could walk away from Medicaid unharmed. Whether these circumstances actually establish a case of coercion under Dole is unclear. But given existing budgetary realities, one can sympathize with the states contention that they have no practical choice but to accept the PPACA s changes to Medicaid. That is, it is difficult to imagine a state incurring the fiscal repercussions of turning away FMAP dollars comprising one fifth of its budget. In a sense, then, the PPACA s Medicaid amendments are coercive. And this makes the claim that the PPACA unconstitutionally commandeers the states legally plausible. 8

7 Federalism and Health Care Reform 453 The Minimum Essential Coverage Requirement The target of the states other set of claims is the Act s so-called minimum essential coverage provision, the requirement that every legal American resident (with limited exceptions) acquire minimally adequate health coverage by January 1, 2014 [PPACA Section 1501(b) 2010]. An individual failing to obtain such coverage must pay an exaction, collected through her income tax return, and computed according to a variety of factors, including her adjusted gross income and the local cost of health insurance. The states (as well as scores of individual plaintiffs in the various private lawsuits) have challenged Section 1501(b) on two basic grounds. First, they contend that it impermissibly infringes on the individual liberty protected by the Due Process Clause of the Fifth Amendment. This claim lacks merit under current law. Unless the Supreme Court turns back the clock seventy-five years to the Lochner era, Section 1501(b) does not implicate any substantive right that a court would consider fundamental for purposes of due process. 9 A person s liberty interest in not being compelled to purchase health insurance, whatever its importance, is not analogous to the handful of noneconomic rights that the Court has afforded heightened protection, at least since Thus, as a matter of due process, Section 1501(b) should trigger only rational basis review. And even the most ardent opponent of the PPACA must concede that Congress had a rational basis for requiring all Americans to obtain health coverage. The far more serious constitutional claim is that the minimum coverage requirement exceeds Congress s enumerated powers. On this score, the United States has defended Section 1501(b) on two distinct grounds: that it constitutes a valid exercise of Congress s taxing power, and that it falls within Congress s authority to regulate interstate commerce. Congress s Authority to Tax PPACA Section 1501(b) states that [a]n applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month. The only sanction for failing to comply with this mandate, however, is the imposition of an exaction, the amount of which is determined largely by the individual s adjusted gross income and the cost of insurance. Moreover, the mechanism by which an individual pays the exaction is by remitting it on her annual income tax return. The United States thus argues that Section 1501(b) is a tax on persons who, despite having the means, choose not to obtain insurance. It is no different than a range of federal taxes that, though raising some revenue, are principally intended to encourage a form of socially beneficial behavior.

8 454 B. W. Joondeph The federal government s position is strongly supported by modern Supreme Court precedent, which has construed the taxing power broadly. First, [i]t is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed (United States v. Sanchez [1950], 44). As the Court has acknowledged, [e]very tax is in some measure regulatory (Sonzinsky v. United States [1937], 513), and an examination of the true intent behind a lawful tax is beyond the scope of judicial inquiry (A Magnano Co. v. Hamilton [1934], 44). Second, the fact that a tax raises only negligible revenue, or that the goal of generating revenue was only secondary to its regulatory objectives, is irrelevant (Sanchez, 44). Third, in pursuing these regulatory objectives, Congress may influence conduct that it could not regulate directly. As the Court has explained, [f]rom the beginning of our government, the courts have sustained taxes although imposed with the collateral intent of effecting ulterior ends which, considered apart, were beyond the constitutional power of the lawmakers to realize by legislation directly addressed to their accomplishment (A Magnano, 47). Together, these principles seriously complicate the states claim that Section 1501(b) exceeds the taxing power: (i) that Congress s principal objective in enacting the provision was to encourage Americans to acquire health insurance, and not to raise revenue, is immaterial; (ii) in any event, Section 1501(b) is estimated to raise close to $4 billion annually, a more than negligible amount; and (iii) even if Congress could not directly regulate a person s decision whether to acquire health insurance, this fact is immaterial to whether Section 1501(b) constitutes a valid tax. Hence, it seems to meet each of the constitutional criteria for Congress to impose a tax. But is Section 1501(b) a bona fide tax in the first place? The states principal submission is that, for constitutional purposes, the exaction is actually a regulatory penalty. And in making this argument, the states have two points in their favor. First, no Supreme Court decision has explicitly addressed whether the taxing power can justify a federal law that Congress itself has denominated a regulation. Rather, the cases on which the United States relies have concerned whether a law, despite being packaged as a tax, was beyond the taxing power because it effectively operated as a regulation. Second, language in the Court s precedent suggests that whether a particular exaction constitutes a tax or a penalty can depend, at least in part, on the legislature s intent. For instance, in the Department of Revenue v. Kurth Ranch (1994), the Court invalidated the imposition of a purported tax on the possession of dangerous drugs on the ground that it amounted to a criminal sanction, and thus violated the Double Jeopardy Clause. In so holding, the Court reasoned that taxes are typically different from penalties because they are usually motivated by revenue-raising, rather than punitive purposes ( ). Similarly, in Helwig v. United States (1904), where the Court

9 Federalism and Health Care Reform 455 resolved whether a levy imposed by the Customs Administrative Act of 1890 was a tax or a penalty, it reasoned that [i]f it clearly appear that it is the will of Congress that the provision shall not be regarded in the nature of a penalty, the court must be governed by that will (613). In other words, whether Section 1501(b) is a bona fide tax may turn on Congress s intent. Here, many of the facts surrounding the adoption of the PPACA s minimum coverage provision suggest that Congress conceptualized Section 1501(b) as a penalty for violating the requirement to obtain minimally adequate insurance. Consider the following: (i) the provision is phrased as a mandate, and then followed by a sanction for failing to comply with that mandate; (ii) unlike prior versions of the bill, which characterized the exaction as a tax in the text of the legislation, the PPACA refers to the exaction imposed by Section 1501(b) as a penalty ; (iii) in contrast, the text of the Act refers to the PPACA s various other revenue-raising provisions as taxes ; (iv) in several places, Congress expressly referenced the reasons that the minimum coverage requirement constitutes a valid exercise of its commerce power, but it never referred to its power to tax; (v) the PPACA, though placing Section 1501(b) in the Internal Revenue Code, strips the government of the typical enforcement tools for the collection of other taxes; (vi) the PPACA fails to mention any of the revenue that Section 1501(b) would raise, despite doing so for seventeen other revenue-raising provisions in the Act; and (vii) President Obama publicly argued (on national television), as Congress was debating the PPACA, that the minimum coverage requirement was absolutely not a tax, and that nobody considers it a tax increase (Florida v. HHS [2010], 1133, 1139). Of course, it is unclear whether Congress s subjective intent should even be relevant. There are strong arguments that the tax-or-penalty question should turn entirely on how the law operates in practice. But as a matter of current doctrine, the states position is plausible. It is hardly shocking, then, that the district courts in the Virginia and Florida cases both rejected the federal government s characterization of Section 1501(b) as a tax. As the court concluded in Florida v. HHS, because it clearly appears from the statute itself that Congress did not intend to impose a tax when it imposed the penalty, the United States may not rely on Congress s taxing authority under the General Welfare Clause to try and justify the penalty after-the-fact (1144). Congress s Authority to Regulate Interstate Commerce The United States s argument that the minimum coverage requirement is a valid exercise of the taxing power is really a fallback position. Its frontline contention is that Section 1501(b) regulates commerce among the states, either under the Commerce Clause alone or as augmented by the Necessary and Proper Clause.

10 456 B. W. Joondeph The current framework for analyzing whether a federal law falls within Congress s commerce power comes from the Supreme Court s decision in United States v. Lopez (1995). There, the Court stated that Congress can regulate three different subjects: (i) the use of the channels of interstate commerce; (ii) the instrumentalities of, or persons or things in, interstate commerce; and (iii) activities substantially affecting interstate commerce ( ). It is undisputed that Section 1501(b) does not fall within the first two categories, so the pertinent inquiry is whether it regulates an activity that substantially affects interstate commerce. The most significant factor in answering this question according to Lopez and two subsequent decisions, United States v. Morrison (2000) and Gonzales v. Raich (2005) is whether the regulated activity is economic or commercial in nature. In both Lopez and Morrison, the Court found that the regulated activities (the possession of a gun in a school zone and an act of gender-motivated violence, respectively) were not in any sense of the phrase, economic activity (Morrison, 613). This was the critical analytic step in both decisions, for, as the Court explained in Morrison, thus far in our Nation s history our cases have upheld Commerce Clause regulation of intrastate activity only where that activity is economic in nature (613). In contrast, the Court in Raich found the activity regulated by the Controlled Substances Act (CSA) the cultivation, possession, and distribution of illicit narcotics to be quintessential economic activity, and thus upheld the challenged application of the CSA (25). Hence, a critical step in deciding whether the PPACA s minimum coverage requirement constitutes a valid regulation of interstate commerce is to determine the nature of what it does: what exactly is the conduct that it regulates, and can that conduct fairly be categorized as economic or commercial? These are precisely the points on which the litigation s battle lines have been drawn. The states contend that Section 1501(b) regulates passive inactivity. The object of congressional regulation under the commerce power must be some form of commercial or economic activity, and [n]ot having healthcare insurance simply is not an activity. 10 The federal government, on the other hand, argues that individuals who choose to self-insure (despite having the means to afford coverage) are making an economic decision : they are choosing a method by which to finance their health care, care they are virtually certain to consume at some point. This financing decision whether to acquire insurance or instead to pay with cash, to borrow, or to rely on public or private charity constitutes economic activity. Indeed, the real conduct Section 1501(b) effectively regulates is the act of obtaining health care without insurance, a practice that, in aggregate, shifts billions of dollars in costs to others. Thus, says the United States, Congress has the authority to regulate this conduct under a straightforward application of Lopez. 11

11 Federalism and Health Care Reform 457 To be clear, whether a given activity substantially affects interstate commerce is not really an empirical question, despite what its phrasing suggests. Were it so, Lopez and Morrison almost certainly would have come out differently. Rather, the test is a formal, legal one that turns largely (though perhaps not exclusively) on whether the regulated activity is deemed economic or commercial. Because these terms are hardly self-defining, and because there is no clear precedent dictating how to categorize the conduct regulated by the minimum coverage provision, there is ample room for a court to adopt the states position. Indeed, if one sees Section 1501(b) as regulating the passive inactivity of failing to purchase insurance, the minimum coverage provision seems indistinguishable from the laws invalidated in Lopez and Morrison. But prevailing on this point alone is not enough for the states to establish that Section 1501(b) exceeds Congress s authority to regulate interstate commerce. The United States has a second argument that relies on the Commerce and Necessary and Proper Clauses in combination, which is widely recognized as the strongest constitutional basis for the minimum coverage provision. Specifically, regardless of how one characterizes the conduct regulated by Section 1501(b), the insurance mandate is an essential component of the PPACA s broader regulatory scheme a scheme that, seen in its entirety, plainly regulates interstate commerce. That is, even if Section 1501(b) does not by itself regulate interstate commerce, it constitutes a necessary or appropriate means to the PPACA s regulation of the interstate markets for health insurance and health care services. This rationale is grounded in the Supreme Court s recent decision in Raich, as well as its more distant decision in Wickard v. Fillburn (1942). Again, at issue in Raich was the constitutionality of the CSA as applied to Angel Raich s personal, noncommercial cultivation and possession of marijuana. In upholding the application of the CSA to Raich, the Court reasoned that the precise nature of Raich s own conduct was beside the point (27 32). Through the CSA as a whole, Congress was regulating interstate commerce specifically, a multi-billion dollar market in illicit narcotics. The relevant question, then, was whether Congress had acted rationally in subjecting Raich s activities (or the class of activities of which hers were a part) to the CSA s broader scheme (26 27). Because Congress had reasonably concluded that exempting this class of activities would undercut the effectiveness of the CSA, Congress could regulate even intrastate, noncommercial manifestations of marijuana cultivation and possession (32 33). Raich closely tracked the rationale of the Court s 1942 decision in Wickard. Wickard involved the Agricultural Adjustment Act (AAA), which Congress had enacted to stabilize crop prices during the Depression. To pursue that end, the AAA, among other things, limited the acreage of wheat each farmer could put into production annually, the goal being to reduce the supply of wheat on the market (and thus prop up prices). These acreage limits applied to any wheat farmers grew,

12 458 B. W. Joondeph even if it was never sold. Roscoe Filburn argued that Congress s attempt to regulate the wheat he had grown solely for consumption on his own farm exceeded the commerce power. But the justices disagreed. A unanimous Court reasoned that Congress had a rational basis for concluding that regulating the cultivation of all wheat, regardless of its use, was an integral component of the AAA s broader scheme. Wheat grown for home consumption reduced demand in the commercial market, which in turn drove down the commercial price of wheat, thereby undermining one of the AAA s principal objectives ( ). Relying on Raich and Wickard, the United States argues that, through the PPACA, Congress has comprehensively regulated the health insurance and health care services markets. And due to the problems of adverse selection and cost-shifting that plague these markets, this broader regulatory scheme can only be effective if all Americans are required to acquire minimally adequate coverage. The PPACA regulates health insurers in a variety of ways, two of the most significant being that it prohibits insurers from denying or dropping a person s coverage because of her health status (the guaranteed issue provision) or from pricing a person s policy based on her medical history (the community rating provision) (PPACA Section ). These reforms can only work, argues the United States, if insurers are assured that those seeking health insurance are not disproportionately unhealthy persons who reasonably anticipate that their health care costs will exceed the price of their premiums. Congress therefore had a strong empirical basis for concluding that Section 1501(b) is an indispensible component of the PPACA s broader regulatory scheme. The states attack this essential-component-of-a-larger-regulatory-scheme argument on four grounds. First, they contend that, even under the rationale of Raich and Wickard, any conduct Congress ultimately regulates must still constitute economic activity (even if it need not be commercial). Second, the states argue that, even if the regulated conduct need not be economic, it nonetheless must be activity. In every prior case in which the Supreme Court has upheld a federal statute as a valid regulation of interstate commerce, the regulated party had taken some sort of volitional act before becoming subject to the challenged federal regulation. Third and this may be essentially the same argument the states contend that it is never proper (as textually required by the Necessary and Proper Clause) for Congress, in regulating interstate commerce, to force individuals to enter into private commercial transactions. Finally, the states capstone argument invokes the proverbial slippery slope: if Congress could force individuals to purchase goods or services in a private market as a means of regulating interstate commerce, it could compel people to purchase GM cars to stimulate the U.S. auto industry, to join exercise clubs to reduce the nation s health care costs, or even to eat daily rations of broccoli. Its authority would effectively be unlimited, rendering the Constitution s enumeration of powers meaningless.

13 Federalism and Health Care Reform 459 When the states first filed their lawsuits, many dismissed these arguments as baseless. But they are eminently plausible. The Supreme Court has not squarely addressed whether Congress can use its commerce power to regulate conduct that is not, at a minimum, economic in nature. If anything, language in the Court s opinions, taken on its face, suggests that it cannot. Nor has the Court addressed whether Congress can regulate behavior that might be described as passive inactivity, even when necessary to the effectiveness of a broader regulatory scheme. It is therefore unsettled whether forcing individuals to purchase a good or service from a private vendor can constitute an appropriate means to regulating interstate commerce. A judge troubled by the implications of licensing Congress to impose such a mandate could well find the activity inactivity distinction an attractive limiting principle it seems reasonably administrable, if somewhat arbitrary and thus conclude that Section 1501(b) is a bridge too far. Indeed, this is precisely what the district courts held in Commonwealth v. Sebelius (2010) and Florida v. HHS (2011). As Judge Hudson concluded in the Virginia case, the minimum coverage requirement compel[s] an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market ; the regulation of such inactivity necessarily exceeds the Commerce Clause powers vested in Congress under Article I (Commonwealth v. Sebelius, 782). Similarly, Judge Vinson held in the Florida case that [i]t would be a radical departure from existing case law to hold that Congress can regulate inactivity under the Commerce Clause, for if Congress could compel an otherwise passive individual into a commercial transaction with a third party, then it is not hyperbolizing to suggest that Congress could do almost anything it wanted (Florida v. HHS, *22). Looking Ahead: The PPACA and the Roberts Court No matter what happens in the lower courts, the ultimate fate of the states constitutional challenges to the PPACA will likely hinge on their ability to garner five votes at the Supreme Court. And a range of factors will undoubtedly affect the justices receptiveness to these claims, many of which will remain unsettled until the case reaches the Court. First, the justices ideological dispositions (or attitudes) will surely shape their approach to the states claims. A host of scholars most notably, Segal and Spaeth (2002) have demonstrated through scores of studies that there is a significant association between the justices pre-existing political views and their voting patterns at the Court (Posner 2008, 19 25). Conservative justices tend to vote for conservative outcomes, and liberal justices tend to vote for liberal ones. This is especially true on high-profile, politically charged issues such as the constitutionality of the PPACA where the justices, like all human beings, cannot help but be moved by their deeply held values and convictions (Posner 2006, 48).

14 460 B. W. Joondeph Thus, it will be unsurprising if the Court s most liberal justices (Ginsburg and Sotomayor) vote to uphold the Act, and if the Court s most conservative justices (Thomas and Alito) vote to strike it down. Scholars have likewise demonstrated that the Court is influenced by a range of external, institutional pressures (Epstein and Knight 1998; Peretti 1999). In cases freighted with political significance, the justices views are often shaped by the preferences of those institutions with the capacity to threaten the Court most notably, the President and the Congress. Thus, whether President Obama is still in office (and how strong he is politically), whether the Republicans still hold the House, and whether the Democrats still hold the Senate are bound to affect the justices deliberations. Similarly, the Court is surely affected by the Nation s existing social and political mores (Klarman 2004; Rosen 2006). Thus, it will likely matter how the American public views the PPACA when the Court takes up the case. A decision invalidating a popular law that touches the lives of every American would be a bold judicial strike. But a decision striking down unpopular legislation that, in hindsight, looks like a Democratic overreach the product of a progressive political moment that has since given way to a conservative retrenchment would be much less controversial. Moreover, the justices are certainly susceptible to the influence of an audience quite important to their self-conceptions: their fellow judges and the nation s legal elites (Baum 2006). Specifically, it will be far easier for the Court to invalidate the PPACA if several lower courts have already done so and those decisions have won the approval of some respected constitutional lawyers which would confer a measure of legitimacy on the states arguments. Though these influences on the Court s decision making are well documented in the political science and public law literature, there is another factor that conventional political analysis might understate: the degree to which a particular legal argument would create doctrinal complications for the Court in its ongoing attendance to the details of constitutional law. The principal intellectual task in which the justices are engaged, in every case they consider or decide, is managing the coherence of legal doctrine, particularly as it pertains to the Constitution. Regardless of their deeper instincts and motivations, the justices must justify their votes in written opinions that attempt to rationalize and harmonize the mass of doctrinal rules that govern federal law (Friedman 2006). This is why the briefs lawyers submit to the Court, and the justices questions at most oral arguments, focus principally on the broader implications of the parties claims or legal theories. No matter how sympathetic a party s plight might be in a given case, if the theory on which her claim rests portends a range of far-reaching implications implications that would seriously disrupt the justices task of rationalizing legal doctrine it is unlikely to prevail. To be sure, other variables may be more significant in explaining the justices behavior in a particular case, or across the full run of the Court s decisions. But it seems clear that, as a general rule, the justices

15 Federalism and Health Care Reform 461 are disinclined to sustain legal arguments that carry disruptive doctrinal implications. This is hardly a novel theory of judicial behavior. It is merely a particular way in which legal doctrine can constrain the justices decision making, an influence widely acknowledged (if not universally accepted) among public law scholars (Friedman 2006; Gillman 2001; Kahn 2006). And this constraint may be especially important to the fate of the states challenges to the PPACA. Specifically, because invalidating the Act s Medicaid provisions as an impermissible commandeering would significantly disrupt constitutional doctrine, it seems unlikely to succeed. Conversely, because striking down the Act s minimum coverage requirement would do little to disturb constitutional law going forward, there seems a decent chance that the Court will declare Section 1501(b) unconstitutional, depending on how the various other factors play out. The Medicaid Amendments Again, the precise question raised by the states commandeering claim is whether, given the importance of federal Medicaid dollars to the states budgets, they have no practical capacity to withdraw from Medicaid, effectively rendering the conditions imposed by the PPACA coercive. How likely is the Supreme Court to sustain such a claim? First, as a conceptual matter, it is unclear whether states can ever really be coerced by conditions attached to federal spending programs. In Dole itself after conceding that prior decisions had recognized that some forms of federal financial inducement might constitute compulsion the Court nonetheless acknowledged that [t]o hold that motive or temptation is equivalent to coercion is to plunge the law in endless difficulties. The outcome of such a doctrine is the acceptance of a philosophical determinism by which choice becomes impossible. Till now the law has been guided by a robust common sense which assumes the freedom of the will as a working hypothesis in the solution of its problems. (Dole, 211; Steward Machine Co. v. Davis 1937, ) In other words, the idea of coercion may be inapposite in this context. States have no constitutional entitlement to federal funding; they possess an independent taxing power, permitting them, with the necessary political fortitude, to generate more revenue whenever necessary; and they are sophisticated, complex entities, not natural persons who might be vulnerable to various forms of psychological manipulation. In any event, even if there were some universe of spending conditions that might be coercive, holding that the PPACA s Medicaid provisions commandeer the

16 462 B. W. Joondeph states would likely generate precisely the endless difficulties to which the Court alluded in Dole. First, it is unclear how the Court could devise a judicially manageable standard for determining when a spending condition becomes coercive. Would it turn on the amount of money at stake? (It would seem odd if the Constitution forbid Congress from offering state governments some threshold amount of funds.) Would the amount vary by the size of the state s population, its income, or its taxing power? Alternatively, might the standard turn on the percentage of the state s spending in that area represented by the federal funds in question? If so, how do we define the relevant area? Or should the standard depend on the proportion of the state s total budget at stake? And if so, should we take into account that states choose to tax and spend at differing rates? More broadly, why should a state s decision to become relatively more dependent on federal subsidies affect the constitutionality of a federal spending statute? The more one considers how the Court might operationalize the idea of practically coercive spending conditions, the more problems seem to emerge. Of course, every constitutional rule has some arbitrariness around the edges, and the Court could try to leave the details for another day. But working out those details would be more than just a minor hassle. In many respects, the entire project looks unworkable. And this is an extremely important point of constitutional law, one that affects thousands of federal spending programs. The absence of a workable standard could hardly be ignored for long. Moreover, even if the Court could devise a judicially manageable standard, finding the PPACA s Medicaid amendments coercive would have perverse doctrinal implications. To the extent the Court found coercion due to the states reliance on the basic terms of the Medicaid program remaining static, it would create a rule effectively requiring Congress, once it has created such a spending program, to leave it largely unaltered, indefinitely. To change the program, Congress presumably would have to repeal it in full and then reenact the entire scheme as amended. This seems bizarre. To the extent the Court found the PPACA s Medicaid amendments coercive due to the amount of federal dollars at stake, it would effectively mean this: the more the federal government defrays the costs of the states in a joint federal-state spending program, the less control it possesses over how those dollars are spent (as each dollar added by Congress would increase the chances of the conditions being coercive). This seems backwards. Presumably, the more funding the federal government provides the states, the more it should be entitled to dictate the terms on which that money is spent. A final implication is that finding coercion in circumstances like this would potentially undermine some other important principles of constitutional federalism. Most clearly, it would jeopardize Congress s capacity to regulate the states taxation of interstate commerce.

17 Federalism and Health Care Reform 463 It has long been understood that the Commerce Clause grants Congress the authority to regulate the states taxation of activities substantially affecting interstate commerce (Quill Corp. v. North Dakota [1992]; Moorman Mnfg. Co. v. Bair [1978]). And Congress has exercised this authority through several statutes, such as Public Law (1959), the Railroad Revitalization and Regulatory Reform Act (1976), and the Internet Tax Freedom Act (1998). These laws, even when prescribing how states are to implement their tax schemes, can be reconciled with the anti-commandeering principle of New York and Printz because, at least in form, they afford states a choice: states can adhere to the terms prescribed by Congress, or they can decide not to impose the affected tax. Understood this way, Congress has not forced the states to govern their citizens in any particular way. But if the constitutional talisman were whether the states have a practical choice, this distinction would dissolve. Congress would lack the authority to regulate any state taxes that are too practically difficult for the states to abandon. For example, if it were financially infeasible for the states to discard their corporate income taxes as it likely is for those states that impose them any attempt by Congress to dictate the parameters of such taxes (such as by establishing uniform rules for the state-by-state attribution of a business s income) would constitute an impermissible commandeering. It would coerce states to tax their citizens on the federal government s terms. This implication may seem rather insignificant, especially when compared to the survival of the PPACA. But the long-term ramifications of disempowering Congress from regulating state taxation are important. In 2007, state and local governments collected roughly $1.3 trillion in tax revenue, accounting for more than one-third of the overall tax burden in the United States (U.S. Census Bureau 2010, 273, 314). Moreover, the growing complexity and heterogeneity of state tax regimes has caused an increasing number of economic inefficiencies. Congress has recently considered several bills aimed at bringing greater uniformity and rationality to state tax systems, and the need for such legislation will only grow more acute in the future. 12 In short, the doctrinal implications of a decision holding that the PPACA s Medicaid amendments are coercive, and thus a commandeering, would be quite destabilizing for constitutional law. Thus, whatever the intuitive appeal of the states claim of compulsion, it seems unlikely to succeed at the Supreme Court. The Minimum Essential Coverage Provision The states challenge to the minimum essential coverage provision is a different matter. Obviously, were the Court to hold that Section 1501(b) exceeds Congress s enumerated powers, its decision would have enormous ramifications for American politics and public policy. Its long-term impact on constitutional doctrine, however,