Will Kennedy Save Obamacare?

If he does, it will be in deference to a conservative principle that could reshape American jurisprudence and lawmaking.

Anthony Kennedy, federalist warrior?

Photo by Chip Somodevilla/Getty Images

Something rather amazing happened during Wednesday’s Supreme Court oral arguments over King v. Burwell. The basics of the case are pretty straightforward. The challengers maintain that the law limits federal subsidies to health care exchanges “established by the State,” which is to say exchanges operated by state governments, not those operated by the federal government. The Obama administration maintains that this interpretation is absurd, as the context of the law makes it clear that federal subsidies were meant to flow to every eligible person buying insurance on an exchange, whether that exchange is operated by a state government or the feds. This is important because only 13 states and the District of Columbia have actually set up their own exchanges. If the Supreme Court sides with the challengers, every other state will either have to set up its own exchange or Congress will have to pass legislation to keep the subsidies flowing or, well, a lot of people who were banking on subsidies will discover that they can no longer afford their insurance. Plenty of people much smarter than I am have weighed in on which of these arguments makes more sense. In the spirit of full disclosure, I will say that I find the challengers’ arguments more convincing. But that’s not really what I’m here to discuss. I’m here to discuss that aforementioned amazing thing.

Before Wednesday’s oral arguments, most observers expected Justice Anthony Kennedy, a moderate conservative who occasionally sides with the liberal justices, particularly on social issues, to join his fellow right-wingers in cheering on the challengers. Instead, he threw a curveball. He suggested that if the challengers are right, Congress passed a law that said to states, in effect: If you don’t set up an exchange, we will force your citizens to buy expensive insurance without giving them the financial assistance they’d need to afford it. As Kennedy explained in an exchange with Michael Carvin, the plaintiffs’ lawyer, “if your argument is accepted, the states are being told either create your own exchange, or we’ll send your insurance market into a death spiral.” To put his point more colorfully, if the plaintiffs are right, the deal on offer would be the equivalent of the federal government putting a gun to a state’s head and saying, Either you establish an exchange or I’ll shoot. So it seems Kennedy, the wishy-washy quasi-conservative, might side with the liberals for a very conservative reason: because to not do so would be to endorse federal bullying of state governments.

I can’t say where Kennedy will come down on King v. Burwell. Justice Antonin Scalia, a leading light among the conservative justices, seemed to suggest that Kennedy’s concerns weren’t really relevant, as the challengers could be right and Congress may have passed a law that is unconstitutionally coercive; to accept the challengers’ argument isn’t necessarily to embrace this brand of coercion. Perhaps Kennedy will wind up following Scalia’s lead on this point. What I can say is that if Kennedy’s view becomes widely accepted, if the court begins to consistently define federal coercion of state governments as constitutionally suspect, well, we’re going to have to rethink the entire way the federal government has been doing business since the Great Society.

The reason Kennedy brought up this issue of federal coercion is that in the 2012 case of National Federation of Independent Business v. Sebelius, the Supreme Court found that Congress overstepped its bounds when it required that states that wanted to keep their existing Medicaid programs intact would have to agree to the new Medicaid expansion. The Supreme Court didn’t do away with the Medicaid expansion, however—it just said that the federal government couldn’t threaten states that refused to expand the program with the withdrawal of all existing federal Medicaid funds. Yet this seemingly small tweak had a huge effect. Many states, particularly Republican-led states, have refused to accept the Medicaid expansion. Had they faced a choice between accepting the expansion and losing all of their federal Medicaid funds, it’s a safe bet that there would be far fewer holdouts. Making the Medicaid expansion truly (not just theoretically) optional is no doubt a big part of why Obamacare has failed to expand coverage as much as its backers had hoped.

But wait a second. If threatening states with the withdrawal of all of their federal Medicaid funds if they refuse to expand Medicaid is impermissible, what kinds of federal coercion are permissible? In 1984, for example, President Reagan signed into law the National Minimum Drinking Age Act, which held that states either raise their drinking age to 21 or have a tenth of their federal highway construction dollars stripped from them. Back in February, Jeff Guo of the Washington Post explored whether or not the federal government’s coercion on the drinking age could be rolled back for the same reasons the original terms of the Medicaid expansion were softened. The law professors he consulted, including Samuel R. Bagenstos of the University of Michigan Law School, an influential liberal legal scholar, dismissed the idea on the grounds that the ruling in NFIB v. Sebelius was about the unprecedented nature of stripping Medicaid funds. The Supreme Court has had no problem in the past with denying states a small chunk of federal highway money, which represents a fairly small share of state budgets. Federal Medicaid funds, by contrast, represent a huge and growing share of total state budgets. Once you take those dollars away, states will find themselves in a serious bind. So Bagenstos’ point that the Medicaid expansion is different, which he makes at greater length in a 2012 paper on what he calls the Supreme Court’s new “anti-leveraging principle,” is certainly not crazy. Yet as he acknowledges, it’s not the only way to interpret NFIB v. Sebelius either.

What if a future Supreme Court did find the National Minimum Drinking Age Act excessively coercive, or if it found that the No Child Left Behind Act couldn’t strip state governments of federal education dollars if they refused to play ball with various federal requirements? Forget the Supreme Court—what if a new generation of conservative lawmakers took the threat of federal coercion seriously? We might return to an older model of federalism, in which the federal government stuck to its own lane while leaving states to stick to theirs. No more would the federal government bully (or bribe) state governments into doing its bidding. This wouldn’t necessarily mean that the federal government would get out of the business of making health care more accessible. But instead of coercing state governments to run their Medicaid programs in line with federal wishes, it could simply make Medicaid a completely federal program, leaving states to focus on other matters, like education and transportation, where the feds could get completely out of the way. The same President Reagan who signed the National Minimum Drinking Age Act once floated the idea of a “Great Swap” in which the federal government would take sole responsibility for Medicaid while the states took over various other programs, a deal that state governments that now find themselves overwhelmed by Medicaid spending would kill for. A deal along these lines would bring us much closer to the original founding vision, in which the federal government was limited in its powers while states were limited primarily by the threat of competition from other, better-governed states.

Conservatives will be furious if Kennedy sides with the Obama administration in King v. Burwell. Yet he just might have given them the playbook for restoring constitutional government and competitive federalism.