Health Care Reform a Federalism ‘Bait and Switch’ on Medicaid

Capitol Ideas Growth and Prosperity Special Edition / April 21, 2011

Changing the Medicaid program through the Affordable Care Act—the health care reform bill Congress passed last year—is a form of bait and switch for states that signed up for one program and now are faced with implementing another.

That’s the opinion of Jim Blumstein, a Vanderbilt University law professor who specializes in cooperative federalism. Blumstein spoke during The Council of State Governments’ Growth and Prosperity Virtual Summit of the States’ session, “The Future of Federalism: State/Federal Relations in an Era of Austerity.”

Blumstein said the relationship between the federal government and states in cooperative federalism programs—those programs in which the federal government offers incentives for states to participate—is governed by contract law.

“States can only knowingly accept these terms of cooperative federalism programs if they’re aware of these terms and know what the conditions are,” Blumstein said. “Medicaid is an ongoing program and this is a modification of terms and conditions of that contract.”

The solution, he said, would be for Congress to discontinue traditional Medicaid and have states sign on again with their obligations made clear during the contract formation stage. Blumstein said clear statement obligations—those requirements under the law to which states agree— cannot be made during a contract modification stage, which is what is occurring under health care reform.

The issue of federalism and Medicaid is one issue in play in the debate over federal health care reform. But there are others, as illustrated by the lawsuits states have filed challenging the law.

Roderick Hills, a law professor at the New York University Law School, said the constitutional case challenging the federal mandate that every citizen have health insurance is weak. And, he questions whether states will have standing to challenge that individual mandate.

“The court has never held that states have general standing to protect citizens within their boundaries,” he said.

He predicted the individual mandate will be upheld when the U.S. Supreme Court ultimately rules on the case.

Blumstein is skeptical of some arguments over the constitutionality of health care reform. One argument is that the penalty assessed on citizens who do not have health insurance is a tax.

“I’ve not been persuaded by opinion that federal government should not be allowed to assert it is a tax,” he said. “But you have to have enough political gumption to defend it in court as a tax.”

Blumstein does believe the “necessary and proper” clause may be the strongest argument for the federal government. Under the Commerce Clause, Blumstein said, the federal government has the authority to eliminate discrimination of people with pre-existing conditions to purchase health insurance as “necessary and proper.” He argues there must be a stream of revenue to make the concept of guaranteed issue work.

“Why would you buy insurance if you could wait until you’re sick to buy it?” he said.

States would have a better argument against implementing health care reform, particularly with regard to Medicaid, he said, if they challenge the new Medicaid requirements under health care reform because of the changes made in the program under reform.

“I think that’s the best shot because it puts the courts into the modest mode of saying, ‘You can do this, but have to do this right,’” Blumstein said.