March 29, 2012

Day Three – The Supreme Court Hears Argument on the Severability of the Individual Mandate and State Sovereignty

On Wednesday, the U.S. Supreme Court heard oral argument on the two remaining issues involving the ACA. The morning session concerned the issue of severability–if the Court determines that the individual mandate is unconstitutional, can the mandate be severed from the rest of the ACA, or does it drag down part or all of the ACA with it? The afternoon session concerned the issue of state sovereignty–did the federal government improperly coerce the States into acquiescing in  the ACA's expansion of the Medicaid program in violation of the Spending Clause?

Severability. Paul D. Clement, representing the States challenging the individual mandate, argued that the mandate cannot be severed from the rest of the ACA. The individual mandate, he said, is clearly tied to the guaranteed issue and community rating provisions, because there is a Congressional finding that the former is "essential" to the latter. Those provisions, in turn, are inextricably linked to other parts of the Act, such as the insurance exchanges and the employer coverage requirement, and so on and so on throughout the bill. At the end, all that is left is a hollow shell. At that point, Mr. Clement argued that the test was whether a rational Congress would have enacted that hollow shell independently, and he suggested that the answer was clearly "no." In fact, as Chief Justice Roberts noted, "This was a piece of legislation which, there was–had to be a concerted effort to gather enough votes so that it could be passed. And I suspect with a lot of these miscellaneous provisions ... that was the price of the vote." There is no reason to believe they would have passed on a standalone basis.

Edwin S. Kneedler, an Assistant Solicitor General of the United States, argued on behalf of the government. His first argument was that the challengers did not have standing to request that much of the Act be stricken, because they were not affected by those provisions. That argument did not appear to gain much traction with the Court. Turning to severability, he agreed with Mr. Clement that the guaranteed issue and community rating provisions were inextricably linked to the individual mandate, and cited the same Congressional finding that the latter was "essential" to the former. Thus it was reasonable to assume that Congress would not have enacted the insurance reforms without the mandate. But he drew the line there. The other provisions of the bill, including the insurance exchanges, the employer coverage requirement, and hundreds of other provisions in the 2,700-page bill could stand on their own, he said, and there is no reason to believe that Congress would not have passed those provisions even without the three stricken provisions. 

Because none of the parties defended all the rest of the ACA, the Court appointed an outside lawyer (H. Bartow Farr) as a true amicus curiae to argue that point. Mr. Farr argued that the guaranteed issue and community rating provisions should not be stricken because those insurance reforms were the "crown jewels" of the ACA that Congress most wanted to enact. In his view the individual mandate was just one of several "tools" that Congress used to make the insurance reforms work, and those reforms could still work without the mandate. The key severability question was whether Congress would want to undo those insurance reforms in the absence of the individual mandate. Although he admitted that Congress made a finding that the individual mandate was "essential" to the insurance reforms, he argued that finding was made in a very specific context, and that in that context the term meant nothing more than "useful" or "helpful."

The Justices were once again very active. None of them appeared persuaded by Mr. Farr's argument that, if the mandate were stricken, all of the other provisions should remain intact. The real debate seemed to swing between the positions taken by Mr. Clement on the one hand (the entire ACA should fall) and by Mr. Kneedler on the other (only the community rating and guaranteed issue provisions should fall). Justice Scalia appeared to be of the view that the entire ACA should fall.  "Once you've cut the guts out of it, who knows, who knows which of them were really desired by Congress on their own and which ones weren't."  Justice Alito seemed also to support that view. On the other side, Justice Ginsburg seemed to be of the view that given "a choice between a wrecking operation … or a salvage job," "the more conservative approach would be salvage rather than throwing out everything." Justices Sotomayor and Kagan seemed to echo that view.  

For those who want to follow the arguments in greater detail, the audio recording and written transcript of the arguments are available on the Supreme Court's website.

State Sovereignty.

Whereas Tuesday's arguments regarding the individual mandate focused primarily on Congress's power under the Commerce Clause, Wednesday's argument regarding the expansion of Medicaid addressed Congress's power under the Spending Clause. If anything, the Spending Clause issue is the more consequential of the two.

In the ACA, Congress expanded Medicaid to provide its health-care coverage to more people. If a State chooses to participate in the expansion, federal funds will pay for most of the new care. But if a State chooses not to participate, the Secretary of Health and Human Services may deny not only the new federal funds for the expansion, but also all of the existing Medicaid funding for that State. At oral argument, Solicitor General Donald B. Verrilli, Jr., declined to limit the Secretary's discretion to take this step, stating, "I do want to be careful in saying I don't think it would be responsible of me to commit now that the Secretary would exercise the discretion uniformly in one way or another."

This possibility that a State could lose all Medicaid funding if it declined to participate in the expansion prompted 26 states, represented by Paul D. Clement, to argue that conditioning the continued receipt of existing funds on agreeing to the expansion was an unconstitutionally coercive limitation and thus exceeded Congress' power under the Spending Clause of the Constitution.

The Court recognized that, when Congress provides money to States as part of a federal program, it is perfectly permissible for Congress to condition how that program operates and how that money is spent.  As Chief Justice Roberts noted, the States, having elected to participate in a federal program with strings attached, "shouldn't be surprised if the Federal Government is going to start pulling them." On the other hand, the Solicitor General seemed to accept the notion, based on dicta from prior Supreme Court opinions, that the conditions put on the federal funds could be so coercive that they would violate the Spending Clause. The question was where to draw the line between those two broad principles. 

Mr. Clement acknowledged that the line separating coercion and permissible limits may be difficult to draw but emphasized the importance of drawing it somewhere: "[W]e're not here to tell you that this is going to be an area where it's going to be very easy to draw the line. We're just telling you that it's exceptionally important to draw that line, and this is a case where it ought to be easy to establish a beachhead, say that coercion matters." This was so, he said, because three factors contributed to the coerciveness of the expansion: "One is the sheer size. Two is the fact that this statute uniquely is tied to an individual mandate which is decidedly nonvoluntary. And three is the fact that they've leveraged the prior participation in the program."

The questioning once again broke largely along ideological lines. Justices Ginsburg, Kagan, and Sotomayor directed hard questions to Mr. Clement. Justice Sotomayor asked, at "what percentage does it become coercive? Meaning, as I look at the figures I've seen from amici, there are some states for whom the percentage of Medicaid funding to their budget is close to 40 percent, but there are others that are less than 10 percent. And you say, across the board this is coercive because no state, even at 10 percent, can give it up. What's the percentage of big gift that the federal government can give?"

The more conservative wing of the Court, particularly Justices Scalia and Alito, seemed receptive to the argument that the threat of taking away all Medicaid funding crossed the line, notwithstanding the fact that that provision has been in the Medicaid statute for over four decades..  They asked hard questions of General Verrilli about whether the States really have any meaningful ability to say no to the federal government when the threat of losing all Medicaid funding is so draconian, or whether that it is the fiscal equivalent of holding a gun to their head.

But the Chief Justice asked whether the difficulty of the States in refusing federal money was a problem of their own making because it is "a consequence of how willing they have been since the New Deal to take the Federal Government's money?" To which Mr. Clement responded, "I don't think we can say that, you know, the States have gotten pretty dependent, so let's call this whole federalism thing off." Justice Kagan followed up, "Cooperative federalism does not mean that there are no Federal mandates and no Federal restrictions involved in a program that uses 90 percent here, 100 percent Federal money."

Justice Breyer suggested that the answer might be found in the Administrative Procedure Act and the case law, which he contended require the Secretary to act reasonably and not arbitrarily. In that case, if the Secretary actually ever cut off all of a state's Medicaid funds for failure to comply with a much more modest change in the Medicaid program, the state could challenge that action as arbitrary and capricious. 

For those who want to follow the arguments in greater detail, the audio recording and written transcript of the arguments are available on the Supreme Court's website.


Yesterday's arguments concluded the three days of hearings on the ACA. For those who missed our write-ups on the previous two days of argument, they are available here: Day 1 and Day 2.

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