While much of the discussion and analysis of the oral arguments at the Supreme Court over Obamacare have centered on whether the individual mandate to purchase health insurance is constitutional, the law's Medicaid expansion raises serious legal questions as well. The Affordable Care Act includes provisions that opens up the nation's health care program for the poor to many more people starting in 2014 - about 16 million more.

While the feds fund the majority of the program, states are responsible for a good share, too and Medicaid spending is the single-largest item in most (if not all) states. While states are technically free to opt out of Medicaid, it's virtually impossible to do so under Obamacare. Any state that withdraws from the program to avoid the expansion would also lose all of the feds' contribution to Medicaid. One of the challenges to Obamacare is that such a rule violates the states' rights to govern thenselves and to access their residents' tax dollars. The major precedent here is a 1987 ruling that allowed the federal government to withhold 5 percent of federal transporation dollars from states that didn't "volutarily" raise the drinking age from 18 years of age to 21 years (thanks, Ronald Reagan!). The court said that 5 percent was a small enough figure not to be an issue, but it did raise some questions about the feds' supremacy over the states that are back in play now. 

Here's Forbes' Avik Roy's summary of the issues at stake:

Most importantly from the standpoint of the Obamacare litigation, the Supreme Court [in 1987] said that these spending conditions could not be “coercive,” noting that “in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which ‘pressure turns into compulsion.’”...

Roy points out that lower courts have so far said the Medicaid provisions are OK, but not without voicing big-time reservations. For instance:

The Eleventh [Circuit Court] determined, “not without serious thought and some hesitation,” that Obamacare’s Medicaid expansions weren’t coercive. They gave four reasons: (1) Medicaid-participating states were “warned from the beginning…that Congress reserved the right to make changes to the program”; (2) “the federal government will bear nearly all of the costs associated with the expansion,” capping at 10 percent in 2020; (3) “the states have plenty of notice—nearly four years from the date the bill was signed into law—to decide whether they will continue to participate in Medicaid by adopting the expansions or not”; and (4) it’s not a “foregone conclusion” that states will lose their Medicaid funding if they don’t comply with the law. “Indeed, the Medicaid Act provides HHS with the discretion to withhold all or merely a portion of funding from a noncompliant state.”

Roy thinks this Supreme Court is too timid to make a big statement over this but...

If the High Court decides that Obamacare’s Medicaid expansion is coercive to the states, this would be a huge victory for the supporters of a federalist system, and would do much to recast the balance of power between Washington and the states.

However, this group of Supreme Court justices doesn’t seem especially taken to bold action. The most likely scenario is that they uphold Obamacare’s Medicaid expansion, for the same reasons that the Eleventh Circuit did, but use the opportunity to articulate a multi-factor test for prohibiting Congressional coercion in the future. Either way, the Supreme Court’s decision on this aspect of the case will be as momentous as its decision on the individual mandate.

More here.

By the way, in case you're wondering whether Medicaid is a good thing in reality, think on this:

Numerous studies show that, on an array of specific maladies, Medicaid’s health outcomes are dismal—and in some cases worse or no better than the outcomes for individuals who lack health insurance entirely. A University of Pennsylvania study, for example, reported that colon cancer patients in Medicaid have a 2.8 percent mortality rate, compared with 2.2 percent for the uninsured. A study of Florida’s Medicaid patients found they were more likely to have late-stages of prostate cancer, breast cancer, and melanoma at diagnosis than the uninsured.

More in that jugular vein here, courtesy of Reason Senior Editor Peter Suderman.

Medicaid is not a good program despite (because of?) its huge and always-growing expense. If we really want to help the poor get better medical care, scrapping this program, as inefficient and fraud-ridden as it is, would be a good first step.