State Powers Remain Vital After the ACA Decision

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State governments still have great power to negotiate favorable outcomes.

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Last summer, the Supreme Court put its money where its mouth was in terms of federalism doctrine in its landmark decision about the Affordable Care Act (ACA), in NFIB v. Sebelius.

Too often in the past 22 years the Court has in other opinions cast the states as the splendid baubles of our constitutional order, possessed of inherent “dignity” but generally powerless – without the Justices’ timely intervention – to resist the hegemonic power of the national government.

This vision of state passivity and powerlessness, and a corresponding judicial effort to police the outer frontiers of national power, ignores the reality of American federalism – where state and federal jurisdiction is usually overlapping rather than exclusive, and where states remain crucial, and motivated, strategic actors very much capable of taking care of themselves.

As Chief Justice John Roberts presciently noted in his NIFB majority:  “The States are separate and independent sovereigns.  Sometimes they have to act like it.”

The implementation battles over the ACA in the past 14 months have vividly illustrated the manner in which state power remains vital because of, not in spite of, federal statutory intervention.

The ACA is typical of the devolutionary manner the United States has addressed social problems over the past century:  like Social Security in the 1930s and the original Medicaid enactment in 1965, it delegates substantial implementation discretion to individual states.

Like Medicare’s basic design, it also leaves responsibility for actual therapeutic decision-making and health system reform largely with private physicians, hospitals and health systems.

The large role for states that Congress built into the Affordable Care Act’s terms has been made larger by other federal actors.

How the Court Gave States More Options

The Supreme Court’s NFIB decision substantially broadened the degree of meaningful choice states retain in deciding whether to accept or decline federal funds to expand their Medicaid programs, and the Department of Health and Human Services (HHS) has through rulemaking in the past two years emphasized that it will permit states “maximum flexibility” in deciding how to implement many of the Act’s provisions on insurance regulation and health exchange design.

All of this set the stage for the roiling exercise in state political debate that we have witnessed across the nation in the past year, one that proves that states are very much capable of advancing their interests within the capacious framework of a large federal super-statute.

A larger number of states than foreseen – over 30 states in all – have declined to establish state health insurance clearinghouses called exchanges – instead ceding authority and responsibility to the federal government to do so.

Other states, like Utah, have chosen to press ahead with their own exchanges but under a much more explicitly market-based paradigm than the baseline contemplated by HHS.

On the Medicaid expansion question the debate has been even more heated, with over half of the states still undecided about whether to accept generous federal funds to expand the scope of their programs.

The Complex State of American Federalism

The debates in various state capitols over Medicaid and related questions reveal a number of complexities about the actual operation of American federalism in an area of concurrent authority, many of which differ profoundly from the operation and characterization of federalism questions as propounded by the U.S. Supreme Court.

First, the tension between national and state authority in health care and many other areas is ongoing rather than cyclical:  more typically resolved through a series of extrajudicial skirmishes than a single declarative Court ruling.

As of this writing it is impossible to say how many states will ultimately end up expanding their Medicaid programs under the ACA – many states are actively negotiating better program terms with HHS before taking a final position, and even those states that have provisionally indicated they will expand Medicaid have opted for arrangements that make for an easier exit should they choose to do so.

Governor Chris Christie in New Jersey, for instance, has agreed to accept the Medicaid expansion through executive order rather than state statute (he vetoed one such bill) thus keeping the leverage to rescind or modify New Jersey’s acceptance firmly in his own hands rather than state legislative control.

Second, as suggested by the New Jersey story above, the ACA shows us that states in these federalism debates are not hegemonic actors themselves.

The Constitution reminds us that states are republican governments, too, replete with all of the interbranch wrangling that we see at the national level – a reality too often ignored in theoretical literature on federalism that focuses more closely on vertical allocations of power.

The ACA’s implementation has cast a light on this dynamic, as even within the same party various state Governors and legislators have fractured over the choices raised by the ACA.

In Florida, for example, Republican Governor Rick Scott earlier this year successfully cut a sweetheart deal for the state’s Medicaid expansion with the federal HHS (that would have permitted substantial variation from baseline requirements, and potentially saved the state additional money) only to see his own Republican legislature refuse to sign on.

We can expect these state interbranch conflicts to intensify among states not yet endorsing the Medicaid expansion once tax dollars begin to flow to states that have opted into the expansion in 2014.

Republican governors, with greater responsibility for bottom-line budgets, will continue to be even more desirous of negotiating a solution to receive the generous federal funding that accompanies expansion; wheras state legislators may hold fast to a more ideological stance.

How Federalism Works

Third, the ACA implementation story underscores the degree to which the actual operation of American federalism is negotiated rather than litigated, and is often cooperative rather than purely conflictual.

As I have written elsewhere, the Obama administration has a strong interest in entrenching the ACA at a general level and a correspondingly reduced interest in enforcing strict program compliance on adopting states in the short term.

This disposition toward policy leniency for implementing agents in the early years of transformative social programs is a recurring pattern: in the early years of Medicare the federal government obviated substantial physician opposition by tacitly agreeing to exercise almost no control over the actual practice of medicine by physicians paid by the new system.

An even more vivid example comes from the British National Health Service, which in its original iteration failed to get a single Conservative party vote in Parliament and faced potentially crippling physician opposition.

Health Minister Aneurin Bevan’s colorful solution to silence the doctors was to “stuff their mouths with gold” – raising reimbursement rates enough to quiet opposition and eventually entrench the NHS as part of Britain’s basic constitutional compact.

The current administration has displayed a similar strategy with various states that are on the fence about Medicaid expansion.

Most individual states are currently in sophisticated negotiations today with HHS about a host of programmatic nuances of the ACA; some have already managed to bargain for deals with release the state from regulatory requirements, or garner a larger share of federal taxpayer funds, or both.

Arkansas Governor Mike Beebe captured this dynamic in February when he proclaimed that HHS “basically agreed to give us about everything we’ve asked for” in terms of an innovative structure for Medicaid expansion.

Negotiations Will Be On-Going

In the short term, we can expect the Obama administration to continue its leniency with states in this negotiation process in service of longer-term entrenchment.

No one now remembers that in the late 1930s some states took almost two years longer to be operational with the new Social Security programs than other, and if even more substantial state variation over the next several years in the rollout of the ACA, the administration would view this as a small price to pay for long term acceptance.

Of course, given national and state level opposition to the ACA, such permanent entrenchment that the President craves is far from assured.

Much more certain is the fact that the active, strategic, and nuanced engagement of state actors in this constitutional process will continue throughout the life of the statute.


This essay originally appeared in the Constitution Daily, the blog of the National Constitution Center.

Theodore Ruger

Theodore Ruger, Professor of Law at the University of Pennsylvania Law School, teaches food and drug regulation and is a contributing author to Regulatory Breakdown: The Crisis of Confidence in U.S. Regulation