ContractsProf Blog

Editor: Jeremy Telman
Valparaiso University Law School

Thursday, June 28, 2012

How the Supreme Court's Decision on the Affordable Care Act Was All About Contracts After All

RobertsOther blogs will tell you that the Supreme Court's healthcare decision was all about the commerce clause, Congress's taxing authority, and John Roberts's identity.  But we here at ContractsProf Blog look past all of that and dig deeper.  We dig all the way to page 46.  Yes, I'm talking about the Medicaid expansion, the part of the Affordable Care Act ("ACA") that says, "it's my turn now, people!" when everyone already has walked away.  Buried there is a discussion of an oft-covered Contract law defense to formation known as undue influence.  

In case you never heard of are not as familiar with the Medicaid expansion as you are with the individual mandate (or, as I like to call it, the "anti-freeloader provision"), allow me to refresh your memory. (Or, allow me to point you to a great podcast.) Before the ACA, one qualified for Medicaid in most states only if she was a "needy individual" (Roberts's words, not mine), such as a pregnant woman, a child, a member of a needy family, or a blind, elderly, or disabled person.  In the ACA, Congress required states to expand Medicaid to cover many allegedly "less needy" people, i.e., childless, non-disabled adults with incomes below a certain level.  Actually, Congress didn't require such an expansion.  It just said (and I'm paraphrasing), "You, state, can choose not to expand coverage to these other people.  But, if you don't cover them, we're taking away ALL of your Medicaid funding, even if that federal money is ten percent of your state's entire revenue stream."  In his opinion (which may or may not be the "majority" on this issue, depending on whom you ask), Chief Justice Roberts analyzed whether this directive from the federal government was a proper exercise of its Spending Clause powers. And that's where Contract law takes center stage (or, at least center-left).  

The excerpt begins as follows (citations omitted):

"At the same time, our cases have recognized limits on Congress's power under the Spending Clause to secure state compliance with federal objectives. 'We have repeatedly characterized...Spending Clause legislation as "much in the nature of a contract."'  The legitimacy of Congress's exercise of the spending power 'thus rests on whether the State voluntarily and knowingly accepts the terms of the "contract."'

And how would one allege that the State did not voluntarily accept the terms of the contract?  Undue influence, that's how!  The next portion of the opinion continues:

"[This insight regarding contracts] has led us to scrutinize Spending Clause legislation to ensure that Congress is not using financial inducements to exert a 'power akin to undue influence.'  Congress may use its spending power to create incentives for States to act in accordance with federal policies.  But when 'pressure turns into compulsion,' the legislation runs contrary to our system of federalism.'"

Roberts ultimately agrees with the states that the federal government's "take it or leave it" offer rose to the level of coercion.  I have not read the rest of the opinion or the other opinions to determine how many votes there were for this holding.  It looks like only Breyer and Kagan agreed with Roberts on this point.*  However, even if I can't give you certainty, I hope I've at least given you enough ammunition to use in your debates with Con Law professors who think today's decision is all about them.

[Heidi R. Anderson]

* Update: There were 7 votes to toss the Medicaid expansion--Roberts, Breyer and Kagan via the Roberts opinion and Scalia, Thomas, Kennedy and Alito via Scalia's dissent.  Scalia's dissent discusses the Spending Clause issue using the same coercion-based Contracts rationale that Roberts used.  The dissent's Contract-based discussion begins in earnest on page 33.  The most direct excerpt states:

"When federal legislation gives the States a real choice whether to accept or decline a federal aid package, the federal-state relationship is in the nature of a contractual relationship.  And just as a contract is voidable if coerced, 'the legitimacy of Congress' power to legislate under the spending power...rests on whether the state voluntarily and knowingly accepts the terms of the "contract."' If a federal spending program coerces participation the States have not 'exercised their choice'--let alone made an 'informed choice.'" 

Based on this excerpt and the points that follow, it appears that the anti-expansion argument is better characterized as economic duress than as undue influence.

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