Spending Power Bargaining After Obamacare

July 11, 2012
Guest Post

By Erin Ryan, a Fulbright Scholar in China. She is a professor of law at Lewis & Clark Law School, where she will return this summer. Ryan is also author of Federalism and the Tug of War Within. Read her previous guest post “Health Care Reform and Federalism’s Tug of War Within.”


In the wake of the Supreme Court’s Affordable Care Act (ACA) decision, it’s easy to get lost in debate over the various arguments about how the commerce and tax powers do or don’t vindicate the individual mandate. But the most immediately significant portion of the ruling –

and one with far more significance for most actual governance – is the part of the decision limiting the federal spending power that authorizes Medicaid. It is the first time the Court has ever struck down congressional decision-making on this ground, and it has important implications for the way that many state-federal regulatory partnerships work.

The Spending Clause authorizes Congress to spend money for the general welfare. Congress can fund programs advancing constitutionally specified federal responsibilities (like post offices), and it can also fund state programs regulating beyond specifically delegated federal authority (like education).  Sometimes, Congress just funds state programs that it likes. But it can also offer money conditionally – say, to any state willing to adopt a particular rule or program that Congress wants. In these examples, Congress is effectively saying, “here is some money, but for use only with this great program we think you should have” (like health-insuring poor children). 

In this way, the spending power enables Congress to bargain with the states for access to policymaking arenas otherwise beyond its reach. A lot of interjurisdictional governance takes place within such “spending power deals” – addressing matters of mixed state and federal interest in realms from environmental to public health to national security law.  Congress can’t just compel the states to enact its preferred policies, but spending partnerships are premised on negotiation rather than compulsion, because states remain free to reject the federally proffered deal.  (If they don’t like the strings attached, they don’t have to take the money.) In South Dakota v. Dole, the Court famously upheld spending power bargaining, so long as the conditions are unambiguous, reasonably related to the federal interest, promote general welfare, and do not induce Constitutional violations.  No law has ever run afoul of these broad limits, which have not since been revisited – until now.

In challenging the ACA, 26 states argued that Congress had overstepped its bounds by effectively forcing them to accept a significant expansion of the state-administered Medicaid program, even though Congress would fund most of it. All states participate in the existing Medicaid program, and many feared losing that federal funding (now constituting over 10% of their annual budgets) if they rejected Congress’s new terms. Congress had included a provision in the original law stating that it could modify the program from one year to the next, as it had done nearly fifty times previously. But the plaintiff states argued that this time was different, because the changes were much bigger and because they couldn’t realistically divorce themselves from the programs in which they had become so entangled.   

The Court’s decision set forth a new rule limiting the scope of Congress’s spending power in the context of an ongoing partnership. Chief Justice Roberts began by upholding the presumption underlying spending bargaining – that the states aren’t coerced, because they can always walk away if they don’t like the terms of the deal. In a choice rhetorical moment, he offered: “The States are separate and independent sovereigns. Some­times they have to act like it.” The Medicaid expansion was accordingly constitutional in isolation, because states that don’t want to participate don’t have to. 

But then the decision takes a key turn. What would be unconstitutional, he explained, would be if Congress were to penalize states opting out of the Medicaid expansion by cancelling their existing programs. Given how dependent states have grown on federal funds in administering these entrenched programs, this would be unfairly coercive. By his analysis, plaintiffs chose the original program willingly, but were dragooned into the expansion. But to make his analysis work, he had to construe Medicaid as two separate programs: the current model, and the expansion. Congress can condition funding for the expansion on acceptance of its terms, but it can’t procure that acceptance by threatening, “at gunpoint,” to defund existing programs. The upshot: Congress must allow states to opt out of the expansion while remaining in the current program.

Justice Ginsburg excoriated this logic in dissent, arguing that there was only one program before the Court: Medicaid. For her, the expansion simply adds beneficiaries to what is otherwise the same partnership, purpose, and means: “a single program with a constant aim – to enable poor persons to receive basic health care when they need it.” She criticized the Chief Justice for enforcing new limitations on coercion without clarifying when permissible persuasion gives way to undue coercion, and she pointed to myriad ways his inquiry requires “political judgments that defy judicial calculation.”

On these points, Justice Ginsburg is right.  The decision offers no limiting principle for evaluating coercive offers. “I-know-it-when-I-see-it” reasoning won’t do when assessing the labyrinthine dimensions of intergovernmental bargaining, but the decision provides little else.  Moreover, the rule is utterly unworkable. No present Congress can bind future congressional choices, so every spending power deal is necessarily limited to its budgetary year. But now, Congress can never modify a spending partnership without potentially creating two tracks—one for states that like the change and another for those preferring the original (and with further modifications, three tracks, ad infinitum). The decision fails to distinguish permissible modifications from new-program amendments, leaving every bargain improved by experience vulnerable to litigation.  And it’s highly dubious for the Court to assume responsibility for determining the overall structure of complex regulatory programs – an enterprise in which legislative capacity apexes while judicial capacity hits its nadir. 

Nevertheless, the decision exposes an important problem in spending power bargaining that warrants attention: that is, how the analysis shifts when the states are not opting in or out of a cooperative federalism program from scratch, but after having developed substantial infrastructure around a long-term regulatory partnership. It’s true that the states, like all of us, sometimes have to make uncomfortable choices between two undesirable alternatives, and this alone should not undermine genuine consent. But most of us build the infrastructure of our lives around agreements that will hopefully last longer than one fiscal year (lay-offs notwithstanding).  The Chief’s analysis should provoke at least a little sympathy for the occasionally vulnerable position of states that have seriously invested in an ongoing federal partnership that suddenly changes.  (Indeed, those sympathetic to the ACA but frustrated with No Child Left Behind’s impositions on dissenting states should consider how to distinguish them.) 

It’s important to get these things right, because as I show in Federalism and the Tug of War Within, an awful lot of American governance really is negotiated between state and federal actors this way. Federalism champions often mistakenly assume a “zero-sum” model of American federalism that emphasizes winner-takes-all competition between state and federal actors for power.  But countless real-world examples show that the boundary between state and federal authority is really a project of ongoing negotiation, one that effectively harnesses the regulatory innovation and interjurisdictional synergy that is the hallmark of our federal system.  Understanding state-federal relations as heavily mediated by negotiation betrays the growing gap between the rhetoric and reality of American federalism – and it offers hope for moving beyond the paralyzing features of the zero-sum discourse. Still, a core feature making the overall system work is that intergovernmental bargaining must be fairly secured by genuine consent.

Supplanting appropriately legislative judgment with unworkable judicial rules doesn’t seem like the best response, but the political branches can also do more to address the problem. To ensure meaningful consent in long-term spending bargains, perhaps Congress could provide disentangling states a phase-out period to ramp down from a previous partnership without having to simultaneously ramp up to new requirements – effectively creating a COBRA policy for states voluntarily leaving a state-federal partnership. Surely this beats the thicket of confusion the Court creates in endorsing judicial declarations of new congressional programs for the express purpose of judicial federalism review. But in the constitutional dialogue between all three branches in interpreting our federal system, the Court has at least prompted a valuable conversation about taking consent seriously within ongoing intergovernmental bargaining.

*An extended version of this essay first appeared on OUP Blog