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The Impact of the Supreme Court’s Decision on Health Care: States Cannot be Penalized for Declining to Participate in Medicaid Expansion under the ACA

In a landmark decision, the Supreme Court upheld the constitutionality of the individual mandate of the Affordable Care Act (“ACA”), which requires nearly all Americans to purchase and maintain health insurance.  However, an important component of the ACA was struck […]


In a landmark decision, the Supreme Court upheld the constitutionality of the individual mandate of the Affordable Care Act (“ACA”), which requires nearly all Americans to purchase and maintain health insurance.  However, an important component of the ACA was struck down as unconstitutional.  Specifically, the Court determined that the federal government cannot penalize the States for declining to participate in the expansion of the Medicaid program.

Before the ACA, Medicaid provided coverage to seven categories of needy individuals: pregnant women, children, needy families, the blind, the elderly and the disabled.  The ACA was designed, in part, to provide affordable health care to all Americans.  As part of that goal, the ACA included an expansion of the Medicaid program to include all individuals under the age of 65 with incomes below 133% of the federal poverty level.  Under the ACA, new Medicaid recipients would receive an essential health benefits package equivalent to the recipient’s obligations under the individual mandate, through 2016.

The ACA required that the States comply with the expansion of the Medicaid program or risk losing their Medicaid federal funding.  This funding typically represents a sizable portion of a State’s overall budget.  Although the Court acknowledged that Congress has the ability to attach appropriate conditions to federal taxing and spending programs, the Court believed that the ACA crossed the line between encouragement and coercion.  The Court determined that the States could not have anticipated that Congress would transform the program so dramatically.  As such, the Court believed that the financial inducement for the States’ compliance with Medicaid expansion under ACA was akin to “a gun to the head”.  In essence, the States had no choice but to acquiesce to the expansion of the Medicaid program.  Accordingly, the Court determined that incentivizing the States to comply with the Medicaid expansion by threatening to terminate their existing Medicaid funding was unconstitutional.

Ultimately, the Court ruled that Congress may offer funds under the ACA to expand the availability of health care and require that States accepting such funds comply with the conditions of their use.  However, Congress is not free to penalize States that choose not to participate in the expansion of Medicaid by taking away their existing Medicaid funding.  Based on the Court’s ruling, the States are free to decide whether or not to participate in the expansion of the Medicaid program.  It is unknown how many States will elect to opt out of the expanded program.  In light of the Court’s ruling, it is also unclear what action Congress may take to either modify the Medicaid expansion or offer the States options to phase in their participation.

Fraser Trebilcock’s Health Care Practice Group will actively monitor state and federal legislative activity related to the Court’s ruling and provide up-to-date coverage and analysis of any initiatives related to the Medicaid program.  For more information visit http://www.fraserlawfirm.com/or contact Health Care Attorney Michael James at mjames@fraserlawfirm.com or 517.377.0823.