Are Obamacare's Medicaid provisions unconstitutional?

On Wednesday the Eleventh Circuit Court of Appeals will hear arguments in the appeal from federal District Judge Roger Vinson’s ruling in a case brought by 26 states that Obamacare is unconstitutional. Courtroom observers will watch the oral argument closely; two of the three judges on the panel were appointed by Bill Clinton, one by George H. W. Bush. Judge Vinson ruled that the mandate to buy health insurance was unconstitutional and that because the bill lacked a severability clause the whole law was too.


But even if the Eleventh Circuit reverses Judge Vinson’s decision, there is another challenge to the law that is worth noting. Vanderbilt Law Professor James Blumstein has submitted a brief as amicus curiae arguing that Obamacare’s substantial changes to Medicaid are unconstitutional. The law requires that states expand Medicaid to cover by 2014 all persons with income below 133% of poverty; the only alternative is for states to opt out of Medicaid entirely and relinquish the federal dollars that come with it.


In 1981 the Supreme Court in Pennhurst State School and Hospital v. Haldermann ruled that while the federal government could require states to fulfill specific conditions in order to receive federal dollars under aid programs like Medicaid, the federal government could not sharply change those requirements. These programs are in the nature of a contract, the Court said, and terms which the federal government could demand at the formation of such a contract could not be added as a requirement by modification of the contract. In a contract case, for example, sailors could demand a certain wage before leaving port to which the shipowner could agree. But it’s unfair for the sailors to modify that by demanding much more money when the ship has reached the fishing grounds.  Similarly, Blumstein argues, Obamacare’s substantial changes in Medicaid, made after states have become dependent on federal dollars to maintain their existing programs, constitutes an unfair modification of a preexisting contract. The states have acted in reliance on the previous contract and done things they would not otherwise have done, leaving them vulnerable to grave damage if the rules are changed in the middle of the game.


Blumstein does not argue that a court finding this section of Obamacare unconstitutional would have to throw out the whole law, as Judge Vinson did. Rather, he says, it should require that if Congress wants to institute a new regime in Medicaid, it would have to repeal the existing Medicaid law and substitute a wholly new one, which states could choose to enter or not, as was the case with the original Medicaid law. Of course at this political juncture it’s unlikely that either the House or the Senate would repeal the original Medicaid law and it’s clear that neither would reenact the Obamacare sections on Medicaid. So the Obamcare Medicaid changes would be dropped. This would result in clear failure to achieve one of Obamacare’s purported goals, increased health insurance coverage, since the Medicaid provisions are projected to account for more than half of the increased percentage of households with health insurance.


It strikes me that policymakers from both parties and those in between should be thinking hard about what to do if all or (as Blumstein urges) part of Obamacare is found unconstitutional.

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