Medicaid Expansion and Obamacare Subsidies

With the decision last week by the Supreme Court to hear an appeal of the King v. Burwell case, there is renewed interest in the arguments surrounding the case. Today, Brian Beutler at the New Republic poses a legal solution which he says is in keeping with the Court’s previous ruling on Medicaid expansion. Let’s consider his solution.

Back in June 2012, the Supreme Court issued a decision challenging the constitutionality of the Affordable Care Act. The decision, with regard to the Medicaid expansion, was that the federal government had exceeded its powers by threatening to take away all of the states’ pre-existing Medicaid funds if they refused to expand the program to those making up to 138% of the federal poverty line. The Court said this threat was unconstitutionally coercive, i.e. it held a gun to the state’s head leaving them no genuine choice in the matter.

The Court’s solution was to make Medicaid expansion optional. Those states which opted in would get the cost of new sign-ups paid for by the federal government, but those who stayed out would not get the additional money. Seven Justices of the Supreme Court thus agreed to draw a distinction between threats to existing funds and conditions placed on acceptance of new funds. So, with that as a backdrop, here’s Brian Beutler’s case for making state exchanges optional but preserving subsidies:

Roberts…could agree with the challengers that the plain
language of the statute unambiguously precludes the provision of
subsidies to states that don’t set up their own exchanges. But that
doesn’t have to be the end of the story. Because if that’s how you
read the statute, then you’re positing that Congress has used its
spending power to compel states to set up their own exchanges. But if
it’s unconstitutionally coercive for the federal government to say “take
this [i.e. Medicaid expansion money], or lose all of your existing
federal Medicaid funds,” it might also be unconstitutional for the
federal government to say, “do this [i.e. set up an exchange] or we’ll
break the insurance markets in your state.”

The key word in this description is “existing.” It was not unconstitutional for the feds to condition new Medicaid funds on state’s agreement to expand Medicaid.

It’s easy to
imagine at least a few Healthcare.gov states freaking out about the
possibility of a bad ruling, and ramping up their own exchanges, which
they weren’t inclined to establish in the first place. Which would go to
show that they were coerced into doing something they otherwise
wouldn’t have done.

Again, it was not unconstitutional for the feds to give states a choice to expand Medicaid (and take the money that came with that expansion). By the same logic, it would not be unconstitutionally coercive to ask states to set up exchanges and offer money to cover the cost of building the sites and subsidies for those buying insurance on them.

It seems to me that Beutler is asking us to treat exchange subsidies as if they are pre-existing funds being threatened. But this is assuming the thing that needs to be proved. If the Court rules that those funds were disbursed based on the feds overstepping their authority to interpret the text of the law, then the funds should not have existed in the first place. It would be a strange bootstrapping argument to say funds which should not have been disbursed in the first place now can not be threatened.

Beutler does note that an argument about advance notice and coercion is being made by several states in the Halbig case. This seems like one of the strongest arguments for the government position. But as for the coercion piece of it, the Court has already ruled with regard to Medicaid expansion that it is permissible for the feds to create a financial incentive to carry out federal insurance schemes.