Federalism and the End of Obamacare

Federalism has become a watchword in the acrimonious debate over a possible replacement for the Affordable Care Act (ACA). Missing from that debate, however, is a theoretically grounded and empirically informed understanding of how best to allocate power between the federal government and the states. For health reform, the conventional arguments in favor of a national solution have little resonance: federal intervention will not avoid a race to the bottom, prevent externalities, or protect minority groups from state discrimination. Instead, federal action is necessary to overcome the states’ fiscal limitations: their inability to deficit-spend and the constraints that federal law places on their taxing authority. A more refined understanding of the functional justifications for federal action enables a crisp evaluation of the ACA—and of replacements that claim to return authority to the states. The election of Donald Trump and an ascendant Republican majority in Congress may mean the end of the Affordable Care Act (ACA), better known as Obamacare. As of this writing, Republican efforts to repeal and replace the ACA have become mired in an intraparty fight between hardliners who favor outright repeal and moderates concerned about ripping insurance away from millions of people. But talks among Republicans continue, and the political situation remains fluid. Only time will tell. As the debate over health reform continues to rage, one question that is likely to emerge—indeed, it has already emerged—is why national reform was ever thought necessary in the first place. At the core of our federal system is the principle that the states should take the lead unless there is a need for national 1. Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010) (codified as amended in scattered section of 26 and 42 U.S.C.), amended by Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010). For ease of reference, and unless otherwise noted, citations will be to the scattered provisions of the U.S. Code codifying the ACA. the yale law journal forum April 24, 2017 2 action. Federalism is said to foster political participation, to enable experimentation, and, especially, to allow states to tailor their laws to better suit the preferences of their citizens. Yet the progressive push for universal health coverage has had a doggedly national focus. Even Republican repeal-and-replace proposals stop well short of a total devolution to the states. Why? Purely as a strategic matter, the emphasis on federal law needs some defense. By way of comparison, consider same-sex marriage. When Massachusetts eliminated its prohibition on same-sex marriage in 2003, advocates did not turn immediately to the Supreme Court. They built the groundwork for a national strategy by winning in state courts and state ballot boxes. By the time the Supreme Court decided Obergefell v. Hodges, thirty-seven states allowed same-sex marriage, most through judicial decisions but eleven through referendums or legislation. Contrast that to universal health care coverage, where the score was a lopsided forty-eight to two, with only the deep-blue states of Massachusetts and Hawaii offering near-universal coverage. Perhaps the states’ collective failure to achieve near-universal coverage indicated the shallowness of public support for health reform. Perhaps the progressive commitment to a national solution was premature. This federalism narrative has taken hold among health reform’s opponents. It was the cornerstone of the two constitutional challenges in National Federation of Independent Business v. Sebelius: petitioners argued both that the federal government lacked the power to adopt an individual mandate and that the states were being unconstitutionally coerced into expanding their Medicaid programs. It underwrites much of the hostility to the “federal takeover” of the 2. Herbert Wechsler, The Political Safeguards of Federalism: The Role of the States in the Composition and Selection of the National Government, 54 COLUM. L. REV. 543, 544-45 (1954) (“National action has . . . always been regarded as exceptional in our polity, an intrusion to be justified by some necessity, the special rather than the ordinary case . . . . National power may be quite unquestioned in a given situation; those who would advocate its exercise must none the less answer the preliminary question why the matter should not be le� to the states.”). 3. See Gregory v. Ashcro�, 501 U.S. 452, 458 (1991). 4. 135 S. Ct. 2584 (2015). 5. See Julia Zorthian, These Are the States Where SCOTUS Just Legalized Same-Sex Marriage, TIME (June 26, 2015), http://time.com/3937662/gay-marriage-supreme-court-states-legal [http://perma.cc/5LKH-3GBG]; see also State-by-State History of Banning and Legalizing Gay Marriage, 1994-2015, PROCON.ORG (Feb. 16, 2016), http://gaymarriage.procon.org /view.resource.php?resourceID=004857 [http://perma.cc/7Y5L-KQSX]. 6. Pam Belluck, Massachusetts Set To Offer Universal Health Insurance, N.Y. TIMES (Apr. 4, 2006), http://www.nytimes.com/2006/04/04/us/04cnd-mass.html [http://perma.cc /2GVB-NKK5]. 7. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012). federalism and the end of obamacare 3 health-care system. And it lends force to Republican proposals to return power over health reform to the states. As Speaker of the House Paul Ryan explains in his blueprint for replacing the ACA, the states “should be empowered to make the right tradeoffs between consumer protections and individual choice, not regulators in Washington. The federal role should be minimal and set a few broadly shared goals, while state governments determine how best to implement those goals in their own markets.” As with so many paeans to federalism, political opportunism explains much of this state-centric rhetoric. But there is much to be said for the argument that the states should take the lead on health reform. Jerry Mashaw and Ted Marmor argued as much back in 1996, fresh off the defeat of President Clinton’s health reform bill. “There is unlikely to be any single system that either is or appears ‘best’ for the whole of these United States,” they argued. “Regions, states, even localities, differ in their demographic characteristics, political cultures, existing styles of medical practice, and appetites for medical services. What is both practical and desirable varies enough to make federalist variation both normatively attractive and politically wise as an alternative to national stalemate.” Why not let the states make the hard calls about whether and how they want to tax their residents to finance insurance for those who lack coverage by dint of poverty, misfortune, or irresponsibility? For those who believe in the functional virtues of devolution, that’s a challenging question—more challenging than the ACA’s supporters generally admit. As I explain in Part I, the traditional arguments in favor of a national solution have little resonance for health reform. Federal action is not needed to forestall a race to the bottom; states that decline to expand coverage impose no costs on other states; and states are not afflicted with political pathologies that might justify national intervention. Yet for all that, a national solution was appropriate—even necessary. As discussed in Part II, two features of the health system make it difficult or impossible for those states that support universal coverage to achieve it on their own. First, the states do not have the same fiscal capacity as the federal government. Because they are prohibited by law from deficit spending, they are understandably leery of adopting countercyclical obligations that would force tax increases or spending cuts in the middle of the next recession. Second, a federal law—the Employee Retirement Income Security Act of 1974 (ERISA)—bars states from adopting the most expedient laws to expand coverage. Taken together, these 8. Paul Ryan, A Better Way: Our Vision for a Confident America 12 (2016), http://www.washingtonpost.com/news/powerpost/wp-content/uploads/sites/47/2016/06 /ABetterWay-HealthCare-PolicyPaper.pdf [http://perma.cc/F4QL-NJ9Q]. 9. Jerry L. Mashaw & Theodore R. Marmor, The Case for Federalism and Health Care Reform, 28 CONN. L. REV. 115, 117 (1995). the yale law journal forum April 24, 2017 4 legal obstacles will frustrate state efforts to achieve near-universal coverage. For health reform, the federal government really is the only game in town. Part III draws on this more nuanced understanding of the need for national health reform to examine critically how such reform ought to allocate responsibilities between the states and the federal government. Roughly, the states should retain control over regulation while passing to the federal government responsibility for money—the taxes and spending necessary to finance reform. In so doing, the argument exploits the distinction, emphasized most powerfully by David Super, between fiscal and regulatory federalism. Evaluated against that baseline, the ACA is a mixed bag: it properly assumes control over money but also wrests more regulatory authority from states than necessary. At the same time, the leading Republican replacement plans are insufficiently sensitive to the states’ fiscal constraints and to their circumscribed taxing power. Unless the plans are revised, we may see the elimination of a federal solution combined with the retention of substantial obstacles to state action—or even the creation of new obstacles. In that event, the federalism narrative should be seen for what it is: constitutional rhetoric that masks a refusal to allow any level of government to achieve near-universal coverage. i . the traditional justifications Federal legislation is o�en considered necessary, first, to avoid a collectiveaction problem; second, to prevent states from imposing externalities on other states; or third, to correct for a political pathology at the state level. None of these justifications is adequate to support national health reform. A. Collective-Action Problem To the extent that the states cannot be excluded from the enjoyment of collective goods, they will be tempted to contribute little or nothing to the production of those goods. They will prefer, instead, to free ride on the contributions of other states. Since every state has the same incentives, contributions toward that collective good will fall short of what the states, acting in concert, would prefer. Federal action may be necessary to avoid a race to the bottom. 10. See David Super, Rethinking Fiscal Federalism, 118 HARV. L. REV. 2544 (2005). 11. See Abbe R. Gluck, Federalism from Federal Statutes: Health Reform, Medicaid, and the OldFashioned Federalists’ Gamble, 81 FORDHAM L. REV. 1749, 1752 (2013) (noting the ACA’s “structural schizophrenia” on the allocation of federal and state responsibilities). federalism and the end of obamacare 5 When it comes to health reform, a race to the bottom might develop if a state’s adoption of a coverage expansion led sick people to flock to the state. To avoid becoming a “welfare magnet,” individual states might decline to expand coverage, even if they would happily expand coverage if they could confine that coverage to their own residents. But the welfare magnet story justifies federal intervention only if lots of sick people move to get health insurance. The evidence suggests they do not. In a 2014 study, Aaron Schwartz and Benjamin Sommers examined migration patterns in response to Medicaid expansions in four states. They found “no evidence of significant migration effects” and could “rule out net migration effects of larger than 1,600 people a year in an expansion state.” A similar 2016 study by Lucas Goodman used a broader sample and estimated that “the migration effect of Medicaid is very close to zero.” These findings, which accord with other research on interstate mobility, make intuitive sense. People don’t lightly move and they rarely do so for health reasons. Lower-income people in particular may not have the resources or the job flexibility to pull up stakes. If people don’t move to get insurance, there is no race to the bottom for federal action to forestall. 12. See Randall R. Bovbjerg, Joshua M. Wiener & Michael Housman, State and Federal Roles in Health Care: Rationales for Allocating Responsibilities, in FEDERALISM AND HEALTH POLICY 39 (John Holahan et al. eds., 2003). 13. Aaron L. Schwartz & Benjamin D. Sommers, Moving for Medicaid? Recent Eligibility Expansions Did Not Induce Migration from Other States, 33 HEALTH AFF. 88 (2014).