By Tony Mauro

EDITOR’S NOTE: The U.S. Supreme Court has agreed to consider four key issues — jurisdiction, individual mandate, severability and Medicaid expansion — as it reviews the constitutionality of the Affordable Care Act. In Part IV of our focus on these issues, we examine arguments for and against Medicaid expansion.

The Medicaid argument is last, but not least.

Late on the morning of March 28, in the final segment of the Court’s three-day examination of the Affordable Care Act, the justices will consider what many call the “sleeper” issue of the entire litigation: whether the statute, with its promise of large subsidies for the states, unduly coerces them into accepting a massive expansion of Medicaid coverage tailored to fit new federal requirements.

The law would extend Medicaid benefits over time to an estimated 16 million nonelderly, nondisabled people who have no health insurance now and whose incomes are less than 133 percent of the federal poverty level. “It is an incredibly important part of the law for the people we serve,” said Jane Perkins, legal director of the National Health Law Program, which advocates for health coverage for the poor.

But by promising to underwrite 100 percent of the states’ added costs for the expansion, at least through 2016, challengers say the law amounts to a “take it or else” offer that states cannot refuse — rendering it so coercive that it subverts the power of states and oversteps the spending power of Congress.

“A spending power without limits would be tantamount to a federal government without limits,” wrote Paul Clement of the Bancroft firm in Wash­ington in his brief on the Medicaid issue on behalf of 26 states. He will argue against Solicitor General Donald Verrilli Jr. on the issue Wednesday.

The inclusion of the Medicaid issue on the Supreme Court’s docket has triggered speculation on both sides about the Court’s intentions, and more than a little nervousness among supporters of the statute.

Only one appeals court, the U.S. Court of Appeals for the 11th Circuit, ruled on the Medicaid issue — upholding the law — so there was no circuit split crying out to be resolved.

The Court’s decision to take up the Medicaid issue was an “unsettling surprise,” said Doug Kendall, president of the Constitutional Accountability Center, which filed a brief in favor of the Medicaid expansion for a group of legislators from all 50 states. If the Court accepts Clement’s invitation to throw out the Medicaid part of the law, the entire statute could be threatened, Kendall said, making the March 28 argument possibly the one that “matters the most.”

‘WIDESPREAD CONCERN’

Some supporters of the law worry that the Court took on the Medicaid issue to protect its flank. One theory has it that if the Court is aiming to strike down the individual mandate, the linchpin of the law, it could have decided to review the Medicaid segment in order to uphold it, preserving a semblance of compromise. On the other hand, the Court could uphold the individual mandate and yet cripple the law by striking down the Medicaid expansion, leaving millions of intended beneficiaries out in the cold.

“There is very widespread concern” about what would happen if the Medicaid segment of the law is struck down, said University of Michigan Law School professor Samuel Bagenstos, who filed a brief that spells out the range of federal aid programs that would be in jeopardy if the Medicaid expansion is struck down. “It would be a very radical decision that would really put at risk the entire edifice of cooperative federal-state programs.”

O’Melveny & Myers partner Walter Dellinger, a supporter of the law, said a decision striking down the Medicaid expansion would “fundamentally alter judicial review,” injecting the Court into policy decisions that should be left to Congress.

If the Medicaid provisions fall, Dellin­ger said at a recent Center for American Progress briefing, “You might as well send the keys across the street [from the Capitol] to the Supreme Court and say, ‘The policy judgments are yours.’ “

In the view of the Obama administration, the Medicaid expansion is not qualitatively different from changes the government has made many times since the federal-state program launched in 1965.

“From the outset, Congress specifically reserved the right to alter, amend or repeal any provision” of the law, Verrilli asserts in his brief.

States know that strings are attached to the federal money provided to fund Medicaid programs at the state level, and also know that they can walk away from the program if they want to, the law’s supporters say.

Kendall added that there is nothing wrong or surprising about Congress making its offer to the states so generous that states will find it hard not to participate.

AN IGNORED QUESTION

So far, the Supreme Court has never found a condition on federal funding to be excessively coercive of the states. It has largely ignored the question, ruling on it only twice: in 1937 and then again in 1987, 50 years later.

In both cases, the Court upheld strings attached to federal funding, though both times justices also said there could be an undefined point at which federal pressure could turn into unconstitutional compulsion.

That point was reached and exceeded with passage of the Affordable Care Act, its critics say. “If the ACA’s expansion of Medicaid does not surpass that limit, then no act of Congress ever will,” Clement asserts in his brief.

Unlike previous changes to Medicaid, he said, the new law threatens states with the loss of all federal Medicaid funding if they don’t go along with the expanded coverage mandated by the new law. The law offers no alternative for needy residents of states that refuse the federal government’s offer, Clement said, because “Congress knew that no state could or would opt out.”

According to a brief by the Center for Constitutional Jurisprudence, if Califor­nia, for example, does not go along with the Medicaid expansion, it would stand to lose more than $25 billion in federal funding — one-quarter of its general revenue budget.

In the 1987 South Dakota v. Dole ruling, by contrast, only 5 percent of federal highway funding was at stake if states refused to set their legal drinking age at 21.

There is something “deeply troubling,” the brief asserts, about a federal program that can take over entire segments of state power.

Not all states buy into the coercion argument advanced by Clement. “Con­gress has not overstepped its ­authority or strong-armed the states,” argues a brief filed by 13 states that support the Medicaid expansion. Medicaid remains a “cooperative federalist program that is functioning just as it should,” the brief claims, adding that, under the new law, states that don’t go along with the Medicaid expansion won’t automatically lose all their federal funding. Instead, the secretary of the Department of Health and Human Services has the discretion to withhold some or all of the Medicaid funding for holdout states.

Meanwhile, several groups are telling the Supreme Court that real people will be affected by how the justices deal with the lofty federalism principles at issue in the Medicaid dispute.

A brief filed by the National Minority AIDS Council and other HIV advocacy groups asserts that most uninsured low-income people with HIV are not eligible for Medicaid. Upholding the Medicaid expansion, the brief says, would make “critical treatment available” to those individuals for the first time.

Tony Mauro can be contacted at tmauro@alm.com.