Does the House Build Back Better Bill Violate the Limits on Conditional Spending?

The bill cuts health care funding in states that refused to accept the ACA's Medicaid expansion in ways that might violate NFIB v. Sebelius.

Among the provisions of the House-passed "Build Back Better" spending bill are provisions that cut federal health care funding in states that have refused to expand Medicaid under the Affordable Care Act. In the Wall Street Journal, Chris Jacobs argues that this violates conditional spending holding of NFIB v. Sebelius.

Here's how Jacobs describes the relevant provisions:

Seven states, including expansion and nonexpansion states, still use uncompensated-care pools to reimburse providers for charity treatment. Section 30608 of the Build Back Better bill contains two separate provisions that would apply solely to nonexpansion states. The first would reduce by 12.5% their Medicaid disproportionate-share hospital payments, which offset the costs of hospitals that treat high numbers of uninsured patients.

Some states have availed themselves of Section 1115 Medicaid waivers, which allow them to pay hospitals for uncompensated care using federal dollars. The Build Back Better bill would ban nonexpansion states from reimbursing hospitals for uncompensated care provided to patients who would be eligible for Medicaid if the state expanded.

So, as Jacobs explains, the BBB bill cuts funding in states that refused to expand Medicaid. While the bill also expands health insurance subsidies for those potentially affected by these limits, Jacobs notes, these subsidies sunset, while the cuts in funding are permanent.

On the one hand, just because the federal government has funded something in the past does not mean it has to fund something in the future. Congress must have the ability to change its spending priorities over time. On the other hand, the Court held in NFIB that Congress may not use prior state acceptance of federal funding as leverage to induce state cooperation with new programs, and on this basis held that Congress could not condition continued receipt of pre-existing Medicaid funds on acceptance of the Medicaid expansion. Wrote Chief Justice Roberts: "What Congress is not free to do is to penalize States that choose not to participate in that new program" by "taking away their existing Medicaid funding."

The question here is on which side of the line do these BBB provisions fall, Jacobs notes that states have relied on the threatened funding for some time, per-dating the Medicaid expansion. Yet there is nothing that says Congress can't decide it would rather subsidize private insurance than provide broader Medicaid funding as the "second-best" alternative to Medicaid expansion. Further, given the context of the reforms, it's not clear to me that objecting states would be able to characterize these reforms as a "coercive" effort to induce states to accept the Medicaid expansion now when they refused to before.

In any event, the Jacobs op-ed flags an interesting issue that I am sure some Red States will litigate if these provisions are enacted into law.