The little-known issue in the Supreme Court’s Obamacare case

In 1819, Senator Daniel Webster famously said that the power to “tax, without limit or control, is . . . a power to destroy.”[1] This logic persuaded the Supreme Court that the states, as “co-equal” “sovereignties” with the federal government,[2] could not impose taxes on federal institutions. On Thursday, as 26 states sue the Obama Administration, the Supreme Court will decide a similar issue. The question before the Supreme Court is whether the Obama Administration can refuse all Medicaid funds to states that do not implement Obamacare’s massive expansion of Medicaid. The states say no. Americans for Limited Government agrees.

Congress is free, of course, to direct how states can use federal funds.[3] Congress can even use federal funds as a “carrot” to encourage states to adopt federally favored programs.[4] But at some point, that carrot becomes a coercive stick. For instance, in South Dakota v. Dole, the Supreme Court made it clear 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.’”[5] Both sides—the Obama Administration and the 26 states—agree that direct federal compulsion of the states is clearly unconstitutional. The Supreme Court has held that “state legislatures are not subject to federal direction,”[6] and that “the Federal Government may not compel the States to implement . . . federal regulatory programs.”[7] But can Congress use federal funds as an indirect method of compulsion? That is where the two sides disagree.

The major precedent for the upcoming decision is South Dakota v. Dole. In that case, the Supreme Court held that Congress was not being coercive when Congress held out 5% of federal highway funds to encourage the states to adopt laws that encouraged sober driving.[8] The Court was persuaded by the fact that 5% of highway funding was a “relatively small percentage.”[9] But the Supreme Court also held that there is a point where Congress would cross the line and funding-hooks would become unconstitutionally coercive. Five percent of highway funding was just not enough.

But under the Affordable Care Act (ACA), popularly known as Obamacare, Congress will deprive a state of 100% of all Medicaid funding unless the state adopts a new minimum coverage requirement extending Medicaid, not just to the traditional group needy Americans, but to everyone under age 65 living at 133% of the poverty level. This is something that many states simply cannot afford to fund; but neither can they afford to lose 100% of their federal Medicaid funding. Medicaid makes up the largest grant program that the federal government offers the states.[10] It accounts for more than 40% of all federal funds dispersed to States and approximately 7% of all federal spending.[11] But Medicaid is what will enable America’s poorest citizens to comply with the ACA’s heavy-handed individual mandate, which requires all Americans to buy insurance. If a state refuses to help implement Obamacare, then not only will the state lose all federal Medicaid funds, but its poorest citizens will be forced to violate the law requiring them to get health insurance. Essentially, then, Congress is offering every state a choice: either help implement Obamacare, or force your poorest citizens to violate Obamacare by leaving them without the mandated insurance.

The power to tax is, indeed, the power to destroy. If Congress can tax you but deprive your whole state of federal funds because your state doesn’t fall in line with the Administration, then Congress has unlimited leverage against the states. That makes federalism nothing but a dead letter.

Can Congress wield its spending power to force the states to support Obamacare? That is what the Supreme Court will decide on Thursday.

[1] M’Culloch v. State, 17 U.S. 316, 391 (1819) (Webster, counsel for the plaintiff in error).
[2] Id. at 370.
[3] South Dakota v. Dole, 483 U.S. 203 (1987).
[4] Id. at 206.
[5] Id. at 211 (internal quotation marks omitted).
[6] Printz v. United States, 521 U.S. 898, 912 (1997) (emphasis original).
[7] Id. at 925.
[8] Id. at 211.
[9] Id.
[10] Florida v. U.S. Dep’t of Health & Human Servs. (2012), Petr.’s Br. 14, available at
[11] Id.