"Cooperative" fiscal federalism programs cover a vast range of government services, from education to transportation to health care. Far and away the largest of these programs is Medicaid, (1) which constitutes close to forty-five percent of all federal transfer payments and something like twenty-four percent of the States' budgets. (2) The Patient Protection and Affordable Care Act (3) (PPACA) works a further, massive expansion of the program.
That expansion, as all but the comatose know, was challenged on constitutional grounds by the (state) petitioners in National Federation of Independent Business v. Sebelius (4) (NFIB). The challenge sounded a recurrent theme of conservative politics, advocacy, and scholarship for the better part of four decades: some federal funding programs are unduly "coercive." In NFIB, the Supreme Court--for the first time ever--agreed, up to a point. As construed by the government, Chief Justice Roberts wrote for three members of a 7-2 majority, the PPACA's Medicaid expansion was "a gun to the head." (5) The Court held that a state that declines to participate in Medicaid's expansion could be made to suffer the loss of federal funds that would pay for such an expansion but not the loss of all federal Medicaid funding, including funding for preexisting programs. (6)
Like many other observers, I view the Court's holding and rationale as incoherent (7) The point of this brief essay, though, is broader. The NFIB holding is a this-day-and-train-only ticket: It is hard to think of any other federal funding program that would fail to pass muster under the Court's analysis, or of another federal funding statute whose operational content the Court might want to rewrite so as to avoid a direct constitutional holding. In contrast, the conservative "funding as coercion" critique is meant to cut a much wider swath, across a broad range of federal funding programs. But it, too, strikes me as incoherent. More fatefully, the critique misses--and fails to provide a remedy for--the truly destructive effects of cooperative federalism programs.
The problem with (some) conditional spending programs, supposedly, is "coercion." The term cannot be taken in its literal sense. An outright, affirmative federal order to any state ("do this or else") is called "commandeering"; and that, we know on good authority, is unconstitutional. (8) Even the authors of the PPACA, whose constitutional sensibilities are charitably described as attenuated, recognized the point: having provided that each state "shall" establish a health care exchange, (9) they provided an alternative--the establishment of a federal exchange-in non-compliant states. (10) "Coercion," then, must mean something more subtle and metaphorical--something more like duress.
I can think of a constitutional "coercion" theory. It hangs on the distinction between a mere prohibition and an affirmative command, which the NFIB Court rightly recognized in its Commerce Clause holding and which, in the federalism context here at issue, translates into the distinction between preemption and commandeering. (11) I can not think of a coherent, constitutionally grounded theory of duress. (12) Even if one could articulate such a theory, however, it would miss the political economy of federal conditional funding programs.
NFIB was argued and won on the theory that Congress had crossed the line that separates unattractive choices and "incentives" from a "gun to the head" (coercion, duress, call it what you will). (13) Presumably, the decision removed that mortal threat: What else was the point?
Not all states, however, viewed the PPACA offer as a threat. (14) Moreover, after the threat was gone, some of the petitioner-states in NFIB began to make a beeline for Medicaid expansion funds. (15) That altogether predictable result has to do not with coercion but with Medicaid's warped incentives.
At its inception in 1965, Medicaid was almost an afterthought--a modest addition to the much larger and highly popular Medicare program. However, Medicaid has grown by leaps and bounds over the decades, not so much because the federal government requires it but because states demand it. Medicaid covers "mandatory" services and populations that participating states must cover. (16) But it also covers states' "optional" services and populations: states decide to provide, and the federal government writes the checks. At least forty percent and by some estimates over sixty percent of all Medicaid spending is optional. (17) To that extent the program is all carrot and no stick, let alone a gun to the head. Medicaid's state-driven expansion casts grave doubt on conservative agitation over "coercion," in more than one way.
In the 1980s and 1990s, conservatives railed against "unfunded mandates." Federal funding programs, they said, were "coercive" because the federal government tossed a few dollars into the street and then refused to pay the full price for the implementation of the conditions that came along with the programs and the money. (18) The Unfunded Mandates Reform Act,19 part of the GOP's 1994 "Contract With America," was a product of a broader attempt to make federal grant conditions more favorable to state and local recipients.
Compare that posture to the NFIB case: The petitioners...