It has long been accepted, without a whisper of any constitutional doubt, that “[a]lthough participation in the Medicaid program is entirely optional, once a State elects to participate, it must comply with the requirements of the [Act],” Harris v. McRae, 448 U.S. 297, 301 (1980)—including, most fundamentally, the requirement to use the federal dollars on the categories of persons that Congress has deemed eligible for assistance by providing them the types of benefits that Congress has prescribed. If a state for some reason does not like the terms of the deal Congress offers, it can reject the deal. For good reason, no state has ever turned down Medicaid dollars, which are, of course, very popular with the electorate in each and every state. And thus all states have, for almost half a century, complied with the (very generous) terms on which the federal government offers Medicaid funds, ensuring that they pay for the health care needs of the various individuals who Congress has deemed eligible for such aid.

The plaintiff States’ argument in this case, however, is that whenever Congress changes the coverage requirements in a politically popular cooperative spending program—as Congress does regularly in Medicaid, as in countless other spending regimes—each state is constitutionally entitled to pick and choose which components of the deal it will comply with: to cover these beneficiaries but not those; to distribute federal funds for functions A-C but not for functions D-F. Such an argument challenges what the Solicitor General aptly describes as “the very core of Congress’s power under the Spending Clause and the Appropriations Clause to specify the criteria under which funds in the treasury will be paid out and spent.”

To demonstrate how unusual this argument is, please indulge my mixing of the now-de rigueur vegetable analogies. Imagine the following scenario:

As I explain below the fold, this argument is not only audacious; it also wrenches out of context the Court’s previous references (in dicta) to a possible “undue coercion” limit on Congress’s spending power. It is one thing to suggest—as litigants in many past Spending Clause cases have—that Congress may not use the lure of its valuable funding to “coerce” the States to spend their own funds outside the federal program, or regulate their own citizens, in a way that Congress could not insist upon directly. The Court has always rejected such arguments, and for good reason. But at least such arguments make some logical sense, as an analogy to the “unconstitutional conditions” doctrine in cases where the government imposes conditions on private individuals’ receipt of benefits.

Here, by contrast, the thing the States are allegedly being “coerced” to do is to spend federal dollars to benefit the States’ own citizens in the manner that Congress has chosen. It’s all carrots, and no stick. What the States’ argument thus amounts to is, in effect, a claim that each State should be able to pick and choose among the terms on which federal dollars are to be expended. Acceptance of that argument would upend the basic terms on which Congress has long exercised its Spending authority.

* * * *

Medicaid is the largest and most familiar of numerous “cooperative” spending statutes—those in which Congress offers a large pot of money to the States, and asks the States to distribute those funds to specified classes of its citizens for specified purposes, and under specific conditions. Roughly speaking, the vast programs of federal spending on education, transportation, and the like work in similar fashion.

Congress first enacted Medicaid in 1965, establishing a cooperative federal-state program to fund medical care for needy individuals. It required participating States to comply with statutory terms—including, most importantly, the categories of persons eligible for assistance and the categories of benefits to which they are entitled—in exchange for the federal government’s contribution of most of the costs the States would incur in funding medical assistance. Participating States must also comply with various other requirements, including those that protect against waste, fraud, and abuse; those that protect the health and safety, and the privacy, of Medicaid beneficiaries; those that ensure that the States adequately accomplish the goals of the program (see the recent decision in Douglas v. Independent Living Center); and those requiring compliance with antidiscrimination and other federal civil rights norms.

When it enacted Medicaid, Congress expressly reserved the “right to alter, amend, or repeal any provision” of the Act, 42 U.S.C. 1304—and therefore each State Medicaid plan expressly provides that its plan “will be amended whenever necessary to reflect . . . [c]hanges in Federal law.” 42 C.F.R. 430.12(c)(1)(i). And, not surprisingly, Congress has altered the terms of Medicaid numerous times.

At its outset, Medicaid required participating States to provide medical assistance to individuals receiving welfare benefits under any of four federal programs administered by the States, including AFDC. In 1972, Congress replaced the three programs other than AFDC with Supplemental Security Income for the Aged, Blind, and Disabled (SSI), thereby both expanding Medicaid eligibility to many individuals who had not previously been eligible under standards set under state-run programs, and displacing the primary State burden by assuming responsibility for both funding payments and setting standards of need. Then, beginning in the Reagan Administration, Congress continued to add further classes of Medicaid beneficiaries, eventually covering all pregnant women, children age five and under with family incomes below 133% of the federal poverty line, and children between the ages of six and 18 with family incomes below the federal poverty level.

At each stage of expansion, Congress required that States include these new groups as a condition of the States’ continued participation in Medicaid; and during all of these expansions, Medicaid required the States themselves to foot a not-insubstantial percentage of the bill, as part of the deal by which they would receive the massive influx of federal dollars. No State complained, let alone raised any constitutional objection—and why would they?: After all, Medicaid was an enormously generous and beneficial program for their citizens.

* * * *

The new Medicaid amendment in the ACA—what is at issue in the argument before the Court Wednesday afternoon—is of a piece with these previous four decades of development. Congress has now extended Medicaid eligibility to certain individuals under 65, not receiving Medicare, with incomes up to 133% of the federal poverty level. Notably, the federal government itself will bear nearly the entire cost of the medical assistance for these newly eligible individuals. (From 2014 through 2016, the federal government will pay 100% of the costs—an estimated $434 billion over the course of this decade; and even after 2020, the federal government will pay 90% of those costs. Moreover, although the federal government ordinarily pays only 50% of most state administrative costs, through 2015 the federal government will pay 90% of new state administrative expenses.) Indeed, as the Solicitor General notes at page 11 of his brief, “[a]s a result of these and other effects, studies project that, under the Affordable Care Act, overall state spending will be approximately $100 billion lower through 2019 than it would have been without the changes made by the Act.”

The States’ constitutional argument, then, is not about how they are being “coerced” by the ACA to spend their own funds, but instead that they are being required to provide medical benefits to a category of their own needy citizens at federal expense that they would choose not to provide, given their druthers. That is to say, they claim a right to continue to accept the federal dollars for aid to all of those categories of individuals covered under Medicaid between 1965 and 2010, but to decline the additional $434 billion in federal largesse attributable to the cost of assisting those individuals under 65, not receiving Medicare, with incomes up to 133% of the federal poverty level. (That’s how I read their argument, in any event. It is fairly clear from the States’ briefs that their complaint is not about the way in which their own funds are to be spent. Although they mention such costs in their opening brief, they do not focus their coercion argument on such costs; and in their reply brief, in direct response to the government’s argument that what is at issue here is a complaint about the way in which federal funds are to be spent, the States do not mention burdens on the state fisc, referring only obliquely to the “requirement that States expand their Medicaid programs to cover millions of additional individuals”—individuals who will be covered at federal, not state, expense. It is understandable, moreover, why the states are not complaining about the requirements of state expenditures: As the SG points out, the states will end up saving money because of the Medicaid amendments; and the remedy the plaintiff States are seeking is not simply the right to withhold state funds, but instead the right not to spend federal funds on the new class of beneficiaries, and thus to be entitled to accept only the pre-ACA percentage of the dollars the federal government is offering.)

* * * *

What is the doctrinal support for this remarkable assertion? The States rely almost exclusively upon a single dictum in South Dakota v. Dole, in which Chief Justice Rehnquist noted that in one of its prior decisions in 1937, the Court had “recognized that in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which ‘pressure turns into compulsion.’” 483 U.S. at 211 (quoting Steward Machine Co. v. Davis, 301 U.S. at 590).

It is important to emphasize a couple of things about the Dole "compulsion" dictum. First, it was made in the context (unlike here) of a spending condition that the State legislate to regulate its citizens’ conduct in a manner that Congress could not have directly mandated: Under the federal law at issue in Dole, the States were required to raise their drinking age to 21 lest they lose five percent of the highway maintenance dollars they received from Congress. That is to say, at issue was not the way in which the federal dollars themselves were to be expended—neither South Dakota nor any other State challenged those conditions. Secondly, even as to the category of “outside the federal program” conditions such as the one at issue in that case, the Dole Court hardly suggested that it would embrace a “coercion” limitation on Congress’s Spending authority. To the contrary, the Court reiterated the skeptical caution it had articulated in Steward Machine that if there is such a metaphysical point at which “pressure turns into compulsion,” it is unlikely the judiciary is capable of discerning it: “‘[T]o hold that motive or temptation is equivalent to coercion is to plunge the law in endless difficulties. The outcome of such a doctrine is the acceptance of a philosophical determinism by which choice becomes impossible.’” Id. (quoting Steward Machine, 301 U.S. at 589-90).

Not surprisingly, therefore, in Dole and other cases the Court has always rejected such “coercion” limitations whenever they have been suggested, even in cases where the condition on a state’s receipt of federal dollars was that the state act in a certain way outside the federal program that Congress could not directly insist upon. For example:

-- In Steward Machine itself, Congress offered a tax credit to employers within a state on the condition that the state itself tax its citizens for the purpose of establishing a state unemployment compensation plan. The Court upheld that condition, rejecting petitioners’ argument that the “dominant end and aim” of the federal law was “to drive the state legislatures under the whip of economic pressure into the enactment of unemployment compensation laws at the bidding of the central government.” 301 U.S. at 587.

-- In Dole, the Court upheld (by a 7-2 vote) the condition there, namely, a requirement that South Dakota raise its drinking age.

-- In Board of Educ. of Westside Community Schools v. Mergens ex rel. Mergens, 496 U.S. 226 (1990), the Court upheld a challenge to the Equal Access Act, under which a public secondary school that receives federal assistance must provide students “equal access” to any “limited open forum,” without regard to the “religious, political, philosophical, or other content” of the speech at such meetings. In the course of its discussion, the Court, per Justice O’Connor, wrote this with respect to the fact that a school district has little realistic choice but to accept the federal funds, and the conditions that go with it (id. at 241): “[B]ecause the Act applies only to public secondary schools that receive federal financial assistance, . . . a school district seeking to escape the statute's obligations could simply forgo federal funding. Although we do not doubt that in some cases this may be an unrealistic option, Congress clearly sought to prohibit schools from discriminating on the basis of the content of a student group’s speech, and that obligation is the price a federally funded school must pay if it opens its facilities to noncurriculum-related student groups.”

-- Finally, and perhaps most tellingly, there is New York v. United States, 505 U.S. 144 (1992). The most well-known holding of the Court in New York was that Congress could not constitutionally give states a choice between legislating a solution to the problem of radioactive waste in their territory, on the one hand, and taking title to that waste and becoming liable for all damages waste generators suffer as a result of the States' failure to do so promptly, on the other. “A choice between two unconstitutionally coercive regulatory techniques,” Justice O’Connor wrote, “is no choice at all.” Id. at 176.

In their brief in the ACA case, the plaintiff States argue that this case is just like New York, because the statute allegedly “interferes with state sovereignty by effectively ordering States either to regulate medical assistance for the needy according to Congress’ dictates or to assume full responsibility for all medical assistance to the needy themselves.” That is a distortion both of the Medicaid statute and of the Court’s analysis and holdings in New York. The Medicaid Act does not order states to “regulate medical assistance for the needy according to Congress’ dictates”; it offers them the opportunity to spend federal funds on such assistance, in accord with Congress’s terms. And if a State does not wish to take that generous offer, the statute does not require it to “assume full responsibility for all medical assistance to the needy themselves”; such a state can assume such responsibility or not, as it sees fit, and the Medicaid statute does not impose any directive one way or the other. Although the States attempt (Opening Brief at 21) to characterize the Medicaid Act as coercing them “into bringing their police power to bear on subjects far outside Congress’ limited and enumerated powers,” the Act does nothing of the sort.

More to the point, the Court in New York contrasted the unconstitutional dual-mandate choice (“regulate or take title”) that it declared invalid there with a spending condition such as the one at issue in the Medicaid case, describing the latter as one of “a variety of methods, short of outright coercion, by which Congress may urge a State to adopt a legislative program consistent with federal interests.” Id. at 166. Indeed, the Court in New York actually sustained the constitutionality of a different choice Congress had given the states under its Spending Clause authority—a choice between legislating to solve the radioactive waste program (something Congress could not impose directly) and being denied federal funds that were offered to the states to assure the safe disposal of radioactive waste. Congress offered the “carrot” of such funds in order to “encourag[e] the States to regulate according to the federal plan.” The Court held that this incentive, “in which Congress has conditioned grants to the States upon the States’ attainment of a series of milestones, is . . . well within the authority of Congress” under its Spending Clause authority. Id. at 173. By contrast, the “regulate or take title” provision, the Court explained, was “of a different character.” In imposing that choice, unlike the Spending Clause choice, Congress had “crossed the line distinguishing encouragement from coercion.” Id. at 175. A spending statute choice, in other words, is how Congress can realize its ends without undue “coercion” of the states.

What this unbroken line of precedents demonstrates is that even if the plaintiff States in the ACA case were complaining about being coerced to spend their own funds, that challenge would be groundless, particularly since the use of those funds would be in the cooperative benefits program itself, which is largely subsidized with federal funds. And the constitutional “coercion” objection would be futile even if the States were correct as a matter of realpolitik that because of the overwhelming popularity of Medicaid, it is an “unrealistic option,” Mergens, for state officials to choose to forego the federal funding and the conditions that come with it.

* * * *

But if the States were merely complaining about the way in which they must spend their own money under Medicaid, such an argument would at least take the logical form of the objections in those past cases. The States’ constitutional objection here, however, is much more extreme than that, and different in kind, because it is challenging the requirement that the States use the federal funds themselves for all of the purposes Congress prescribed.

As the Solicitor General explains at page 24 of his brief:

[T]he additional eligibility standards in the Affordable Care Act, like the prior [Medicaid] standards, are not mere conditions, designed to further a goal related to the Medicaid program (although, as Dole, 483 U.S. at 207, and New York, 505 U.S. at 166-167, make clear, Congress may impose such conditions). The eligibility standards define the Medicaid program, going to the very core of the offer of federal financial assistance that Congress has extended to the States and specifying how the federal dollars will be spent. For the same reasons, the new eligibility standards in the Affordable Care Act, like pre-existing standards, also go to the very core of Congress’s power under the Spending Clause and the Appropriations Clause to specify the criteria under which funds in the treasury will be paid out and spent.

Or as the excellent amicus brief for the SEIU puts the point (p.10): “While Petitioners here cite Dole, their challenge here does not in any sense implicate the potential concern Dole raised. Petitioners are not challenging a requirement that to receive Medicaid funding they must engage in some activity or adopt some regulation outside the scope of Medicaid. Rather, they are challenging Congress’ fundamental decision to expand the scope of the federal Medicaid program itself, seeking directly to limit the discretion of Congress regarding how federal money should be spent.”

This is, in other words, a far cry from the situations found in Dole and New York. That much can be seen in the opinions of Justice O’Connor, whose majority opinion in New York, and dissenting opinion in Dole, showed her to be the Justice most concerned about federal coercion of the States and abuse of the Spending authority. As noted above, her opinion for the Court in New York explained why an otherwise impermissible federal mandate to the states can be salvaged by making it a condition on receipt of federal funds. In Mergens, her opinion for the Court explained that a spending condition that local school boards regulate their students was permissible even in cases where opting out of the spending program “may be an unrealistic option.” And even where she would have rejected Congress’s exercise of its Spending authority, in her Dole dissent, she went out of her way to emphasize that Congress would be acting entirely within its constitutional prerogatives were it to “specif[y] in some way how the money should be spent, so that Congress’ intent in making the grant will be effectuated.” 483 U.S. at 216.

The same distinction is fundamental in the related context of conditions placed on benefits to private parties rather than to states. In such cases, the Court imposes a much more robust “unconstitutional conditions” doctrine than in cases of funding offered to states, preventing the government from using the “carrot” of benefits in order to coerce individuals to sacrifice their constitutional rights outside the benefit program. The most familiar examples involve cases (e.g., Perry v. Sindermann, Spieser v. Randall, Wieman v. Updegraff, FCC v. LWV), in which the Court has forbidden the state from conditioning benefits, such as public employment, grants, or tax credits, on an abandonment of the recipients’ right to freedom of speech or association, “thus effectively prohibiting the recipient from engaging in the protected conduct outside the scope of the federally funded program.” Rust v. Sullivan, 500 U.S. at 197. As the Court in Rust explained, however, id. at 196-99, the unconstitutional conditions doctrine does not restrict the government from “insisting that public funds be spent for the purposes for which they were authorized. . . . The condition that federal funds will be used only to further the purposes of a grant does not violate constitutional rights.”

If that is so in the case of aid to private parties, it is true a fortiori when the federal government offers money to states, since (as Dole, New York, et al., demonstrate) in that latter context, Congress can generally induce the states to act outside the federally funded program in a way that it could not require directly.

The State plaintiffs are thus fundamentally mistaken when they insist (on page 46 of their brief) that for Spending Clause purposes “[c]oercion is measured by how much a State stands to lose if it rejects Congress’ terms, not by how much it stands to lose if it accepts them.” If there is to be an “undue coercion” test in this context (and again, the Court has never accepted that notion), its contours would necessary depend both on what the state would lose if it accepts Congress’s terms and, more significantly, on what, if anything, the state is being asked to sacrifice as a condition of the federal government’s offer. And, as the superlative amicus brief for former Surgeon General David Satcher and 78 child welfare and other organizations explains, “[f]or the financial inducement offered by Congress to become unconstitutionally coercive, that inducement must, at a minimum, deprive the state of something to which the state is otherwise entitled.” Since the state is not entitled to the federal funds at all, a condition that prescribes how the state must spend those funds cannot be constitutionally problematic, no matter how seductive the allure of federal dollars might be.

In its Spending Clause decisions, the Court has allowed Congress to require state to “accept the bitter with the sweet.” But this isn’t such a case: Here, Congress is insisting that States use federal funds to aid new categories of beneficiaries, at little or no expense to the states themselves. It is asking, in other words, that states take the savory with the sweet. No constitutional principle prevents the national legislature from offering the states such a both-or-neither choice as a condition of their receipt of billions of dollars to be used for the benefit of citizens living in those states. The fact that some states might wish the federal aid to be used only to assist some of their constituents, but not others, is hardly the basis for any constitutional right of their officials to carve the federal offer into constituent parts and to then pick and choose which parts of the program to implement.

* * * *

Two other aspects of the States’ arguments warrant brief attention:

1. Implications and Limiting Principles

From all that appears, the logic of the States’ argument is that a state may freely choose which conditions on the use of federal funds it will honor whenever the spending program is sufficiently attractive that the citizens of the state would insist that state officials take the deal. This would have profound implications for a huge range of important, well-entrenched federal spending statutes, in areas ranging from education to transportation to civil rights, and beyond. (The Satcher amicus brief, among others, canvasses some of the implications.) Moreover, under Medicaid itself, it would mean that for the past forty years or so, each state has been constitutionally entitled to provide a menu of benefits of its choosing, and only to those subsets of beneficiaries who it deems worthy of aid, on terms the state itself would determine, rather than according to the prescriptions of the Medicaid Act itself.

Indeed, because of the sheer scope and attractiveness of every facet of the Medicaid program as it currently exists, the States’ constitutional objection would be the same even if the statute were brand new, and the states had not previously become “dependent” on the federal dollars—an extraordinary implication that the States freely acknowledge at page 17 of their reply brief: “If an entirely new program forced States to make the same untenable non-choice between forfeiting billions of federal tax dollars each year or regulating health insurance for the needy according to Congress’ dictates, it would pose largely the same constitutional problem.”

That reply brief endeavors to assure the Court that accepting the States’ claim would not mean that all conditions attached to attractive federal spending statutes are unconstitutional, because, after all, Congress can insist upon those spending conditions that it could impose directly on the states under its other article I authorities. Such a “limitation,” however, would invert the modern understanding of the Spending Clause: Ever since the Court’s 1936 decision in United States v. Butler, it has been established that Congress can impose conditions on the states’ receipt of federal funds that it could not impose directly. That is the linchpin of Dole, New York, and countless other modern cases, and of the entire edifice of federal spending on education and numerous other functions.

2. Fair Notice and Conditions on “Pre-Existing” Funds

Throughout their briefs, the plaintiff States suggest that the challenged conditions here affect the terms on which the States may use “existing,” or “pre-existing,” federal funds. See, e.g., Opening Brief at 40 (“when Congress seeks to condition not just newly available funds but pre-existing funding on a State’s agreement to expand a program, the need for close scrutiny is heightened”); id. at 41 (“the ACA exploits each State’s dependence on existing Medicaid funding . . . to force States to continue participating in Medicaid under significantly altered terms”); id. at 48 (referring to the “threatened loss of billions in existing funding”); Reply Brief at 1 (“Nor does the federal government even try to explain how a State could possibly reject new terms attached to billions of dollars of pre-existing funds”); id. at 2 (“the ACA leverage[s] existing funds to coerce compliance with new conditions”); id. at 8 (“Congress may not “couple th[e] offer” of expanded coverage “with the threat to withhold all existing funds from States that disagree”); id. at 22 (ACA leverages “the existing funds . . . to ensure compliance with its new conditions”).

Similarly, the brief of States’ amicus Professor James Blumstein argues that the ACA's Medicaid amendments are a modification of the previous agreements between the States and federal government, rather than setting the terms of a new contract, and that therefore the amendments effectively result in a surprise change of contract terms, without the clear, pre-contract notice to the states that the Court requires under Dole and Pennhurst State School v. Halderman.

These arguments fundamentally mischaracterize the Medicaid program and its ACA amendment. As long as states have been accepting Medicaid funds, they have been on clear notice that Congress expressly reserved the “right to alter, amend, or repeal any provision” of the Act. 42 U.S.C. 1304. More importantly, the ACA’s expansion of Medicaid is purely prospective. It applies not to “existing” funds, i.e., those the states accepted under the terms of earlier versions of Medicaid, but only to the funds the states receive after January 1, 2014. 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII). There is therefore no “clear notice” or contract modification problem here.