ContractsProf Blog

Editor: Jeremy Telman
Valparaiso University Law School

Friday, June 29, 2012

Heidi Anderson, Neal Katyal and the Contracts Angle in the Obamacare Decision

HAndersonYesterday, our co-blogger, Heidi Anderson (pictured left), was ahead of the curve, writing about Katyal the Court's decision on the Medicaid provision of the Affordable Care Act (Obamacare) when everyone else was writing about the individual mandante.  Heidi noted that Chief Justice Roberts, joined by Justices Breyer and Kagan, voted to strike the provision of Obamacare that would deprive states of all Medicaid funding if they rejected Obamacare's Medicaid expansion.  The four dissenters rejected Medicaid expansion in its entirety.  In so doing, both sides relied on contracts law concepts, which they understood in terms of undue influence but which Heidi described as more akin to an argument based in economic duress.  Given Chief Justice Roberts' characterization of the financial inducement in the Medicaid Provision as "a gun to the head" (Slip Op. at 51), we do seem to be in the realm of duress.

Today's New York Times contains an op-ed by Neal Katyal (pictured right), that continues Heidi's line of reasoning and illustrates the uncomfortable fit of contracts concepts in the constitutional context. As Katyal puts it:

The health care decision also contains the seeds for a potential restructuring of federal-state relations. For example, until now, it had been understood that when the federal government gave money to a state in exchange for the state’s doing something, the federal government was free to do so as long as a reasonable relationship existed between the federal funds and the act the federal government wanted the state to perform.

In potentially ominous language, the decision says, for the first time, that such a threat is coercive and that the states cannot be penalized for not expanding their Medicaid coverage after receiving funds. And it does so in the context of Medicaid, which Congress created and can alter, amend or abolish at any time. The states knew the terms of the deal when they joined — and those terms continue to be enshrined in the federal code.

Katyal proceeds to identify other landmark federal legislation that could also be found unconstitutional based on the reasoning applied to the Medicaid expansion.  

In any case, Katyal makes clear that traditional contracts law concepts do not apply here. If they did, it would constitute duress or undue influence every time Google or other such internet service providers included provisions in their Terms of Service that permit them to "add or remove functionalities or features," "suspend or stop a Service altogether" or "stop providing Services to you, or add or create new limits to our Services at any time."  

Chief Justice Roberts' opinion is premised on the notion that the Federal Government knows that the states have grown dependent on Medicaid funding and that the threat to eliminate all such funding if the states do not accept Medicaid expansion is thus coercive.  As a matter of constitutional law, that may be right, but since one could not positively enjoin Google from changing its services based on the (highly plausible) argument that one had come to depend on those services, contracts law is not particularly helpful here.  


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