Could the same “state’s rights” argument that struck down the Medicaid expansion, save the subsidies?

To completely ignore the Supreme Court’s oral arguments last week in King v. Burwell would be a disservice to you, our readers. Even though this is a Medicaid blog, in a post-ACA world is it increasingly difficult to separate out the individual pieces of our insurance system.  The ACA (at least in how it was designed) was intended to create a continuum of coverage: Medicaid for the lowest income Americans, tax subsidies applied to Exchange plans for lower-income Americans, and unsubsidized Exchange coverage or employer-sponsored coverage for the rest of Americans.   Yesterday, the Supreme Court held oral arguments for a case that will  determine whether or not individuals currently receiving subsidies in federally-facilitated Exchanges will continue to receive those subsidies.  This case may also ultimately determine the entire landscape of our current insurance market.  For more on the nuts and bolts of the King decision, go here.

Today we want to focus on one particular legal argument that came through in yesterday’s oral arguments that gave us flashbacks to Supreme Court’s consideration of the the Medicaid expansion in NFIB v. Sebelius.  Yesterday, Justice Kennedy gave some hints that he made side with the government in King on the basis of Federalism:

“Let me say that from the standpoint of the dynamics of Federalism, it does seem to me that there is something very powerful to the point that if your argument is accepted, the States are being told either create your own Exchange, or we’ll send your insurance market into a death spiral. We’ll have people pay mandated taxes which will not get any credit on on the subsidies. The cost of insurance will be skyhigh, but this is not coercion. It seems to me that under your argument, perhaps you will prevail in the plain words of the statute, there’s a serious constitutional problem if we adopt your argument.”

While this case has always been largely focused on the textual (whether tax credits are really only available to for coverage purchased by an exchange “established by the State”), Justice Kennedy raises an interesting Constitutional argument that may ultimately help the Government’s case.  Essentially, Kennedy is arguing that the plaintiffs’ interpretation could result in unconstitutional “coercion” of state governments, who would be pressured into setting up their own exchanges in order to avoid the loss of federal subsidies.

This coercion argument may ring some bells as it is the nearly identical to the argument that ultimately overturned the mandated Medicaid expansion in 2012.  In NFIB v. Sebelius, Chief Justice Roberts for the majority wrote:

“In this case, the financial “inducement” Congress has chosen is much more than “relatively mild encouragement”—it is a gun to the head. Section 1396c of the Medicaid Act provides that if a State’s Medicaid plan does not comply with the Act’s requirements, the Secretary of Health and Human Services may declare that “further payments will not be made to the State.” 42 U. S. C. §1396c. A State that opts out of the Affordable Care Act’s expansion in health care coverage thus stands to lose not merely “a relatively small percentage” of its existing Medicaid funding, but all of it.”

Could the concern for state’s rights that undermined the Federal effort to expand Medicaid, save the Exchange subsidies? It certainly is an interesting proposition and the general takeaway from the oral arguments seems to be a slight bump for the Government’s camp, at least in part due to Kennedy’s federalism concerns.

I would note, however, that there does seem to be a certain logical flaw in Kennedy’s argument. Underlying the principal of federalism is a concern for State’s rights and yet Kennedy seems to be using this same doctrine to justify an interpretation of the ACA that expands federal “intrusion” rather than limits it.  The Washington Post has a nice piece that makes a similar point.


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