Two cases before the Supreme Court have the potential to transform Medicaid. SCOTUS holds the fate of Medicaid

Two cases before the Supreme Court have the potential to effectively do what Republican lawmakers have tried and failed: transform Medicaid into a block grant program for states with few enforceable federal rules about how they provide health coverage for the poor.

That outcome may not be the most likely scenario. But legal experts say no one can predict what the high court will do — particularly because many were surprised that the Supreme Court agreed to consider the Medicaid portion of the big multistate challenge to President Barack Obama’s health reform law in the first place.


Should the courts rule against the Obama administration and back the states’ contention that Medicaid expansion under the health reform law is unconstitutional, it would severely limit Washington’s ability to tell the states: If you want the federal Medicaid funds, you have to follow the federal Medicaid rules.

And that outcome — federal money but few federal strings attached — would be much like the block grant approach that Republicans have periodically attempted, most recently in last year’s House budget.

The second Supreme Court case, arising from a dispute over California Medicaid payment rates to health care providers, could give states even more latitude to run their programs by limiting individuals’ right to argue in court that a state Medicaid policy violates federal law.

The federal health reform case has gotten more attention than the California pay dispute, but the Medicaid aspect has been overshadowed by the fight over the individual health insurance mandate. But last week, the 26 states challenging the law filed a brief arguing that Congress exceeded constitutional limits by telling states how to run their Medicaid programs. The health law requires expansion of Medicaid to populations not previously covered starting in 2014, although the feds are picking up the tab in the first years and most of the cost for several years thereafter.

The other case, Douglas v. Independent Living Center of Southern California, was argued in October. The court will decide whether individual Medicaid beneficiaries and providers can sue California for cutting payment rates to the point that they say violates federal rules.

Should the court make sweeping rulings in both cases, legal experts say federal law will no longer have much power to bind state decisions on Medicaid, including who’s eligible, what benefits are covered and how much to pay providers. In short, it would become a lot like a block grant.

Under that scenario, “the program is fried,” said Washington and Lee law professor Tim Jost, who argued for upholding the health reform law’s Medicaid provision in a recent New England Journal of Medicine essay. “It ceases to be Medicaid as we know it.”

“Medicaid could go the way of the dodo,” agreed Harvard Law School’s I. Glenn Cohen, author of another NEJM piece that argued the opposite — that the court should block Medicaid expansion.

Jost, Cohen and other experts pointed out that the Supreme Court has ample reason to avoid such an outcome. The court has never before struck down anything like the Medicaid expansion and doing so could cause a legal earthquake that could extend well beyond health care, upending the legal foundation of laws like the Clean Air Act and No Child Left Behind.

Yet most court observers were surprised that the justices agreed to hear the states’ Medicaid claim. No lower court had agreed with the states’ argument, and the relevant legal questions seemed settled. So another surprise next June can’t be ruled out.

That could have dramatic repercussions.

The states’ argument rests on the claim that the Medicaid expansion is “coercive.” From its start in the 1960s, Medicaid has been voluntary. If states participate — and since the early 1980s all have — the federal government pays more than half the cost of Medicaid. But there are rules about whom they have to cover and what benefits they must provide.

The states concede that in theory they could avoid the new requirements — opening Medicaid to everyone under 133 percent of the poverty level — by dropping out. But they argue that the cost of quitting a program that has been in place for 50 years and losing such a large pot of money means it’s not really an “option.” In their view, new federal requirements attached to the money are “coercive.”

“The question is, can the federal government force this type of choice on the states,” said Vanderbilt’s James Blumstein, who filed an amicus brief in support of the states.

Families USA Executive Director Ron Pollack worries that the states’ argument could erode virtually all federal oversight. “In effect, what [the states are] asking for is [that] when there’s such a huge amount of money at stake, there should be no conditions attached. It should be like a block grant.”

The Douglas case could also give the states greater discretion over their programs by restricting the individual right to sue. How that case turns out is more of a toss-up, given that lower courts have split on individuals’ standing in such disputes.

It’s not just the courts that have been divided. The Obama administration also split on the case.

The Obama administration shocked advocates for Medicaid beneficiaries and Democrats on Capitol Hill by filing an amicus brief backing California’s claim that patients and doctors have no right to sue over its pay rates. Only the federal government, not individuals, has the power to enforce key provisions of the law, it argued. The president ultimately endorsed that position despite a lobbying campaign by Health and Human Services Secretary Kathleen Sebelius, according to Capitol Hill and advocates involved in the effort.

Beneficiary advocates are concerned that if the court rules for California, enforcing key Medicaid provisions will become difficult. Individuals would have to get federal regulators to step up — and their enforcement resources are limited. If HHS did want to act, it would have only a blunt instrument to force compliance: withholding federal funds. And even that lever could disappear if the Supreme Court sides with the states in the health reform case.

If both the Medicaid rulings end up favoring state power, beneficiary advocates worry that a state would be able to set its own rules — which could be more restrictive than Washington’s, particularly during times of austerity.