Transcript: SCOTUS Affordable Care Act oral argument of Donald Verrilli on day 3 – session #2

Florida v. Department of Health and Human Services

Transcript of the oral argument of Donal Verrilli before the U.S. Supreme Court on March 28, 2012: 

ORAL ARGUMENT OF GENERAL DONALD B. VERRILLI, JR. ON BEHALF OF THE RESPONDENTS


GENERAL VERRILLI: Mr. Chief Justice, and may it please the Court:

The Affordable Care Act’s Medicaid expansion provisions will provide millions of Americans with the opportunity to have access to essential health care that they cannot now afford. It is an exercise of the Spending Clause power that complies with all of the limits set forth in this Court’s decision in Dole, and the States do not contend otherwise. The States are asking this Court to do something unprecedented, which is to declare this an impermissibly coercive exercise of power -­

JUSTICE SCALIA: What do you think we meant in those dicta in several prior cases, where we’ve said that the Federal Government cannot be coercive through the Spending Clause? What — what do you think we were — give us a hypothetical.

GENERAL VERRILLI: Yes. First, if I could just try to be a little more precise about it, Justice Scalia. I think what the Court said in Steward Machine and in Dole is that it’s possible that you might envision a situation in which there’s coercion.

JUSTICE SCALIA: Okay.

GENERAL VERRILLI: And the courts didn’t say much more, but I can think of something.

One example I could think of that might serve as a limit would be a Coyle-type situation, in which the condition attached was — worked a fundamental transformation in the structure of State government in a situation in which the State didn’t have a choice but to accept it. But — and so -­

JUSTICE SCALIA: Anything else, so long as you -­

GENERAL VERRILLI: Well, but -­

JUSTICE SCALIA: You are talking about situations where they have to locate their State house in some other city -­

GENERAL VERRILLI: Or you may have no legislature or something like that.

JUSTICE SCALIA: — and they have no choice. But, short of that, they can make the State do anything at all?

GENERAL VERRILLI: Well, no. Dole — the Dole conditions are real. The germaneness condition in Dole is real, for example. And so those -­

CHIEF JUSTICE ROBERTS: But none of those have addressed the coercion question.

GENERAL VERRILLI: Right.


CHIEF JUSTICE ROBERTS: So do you think it would be all right for the Federal Government to say, same program: States, you can take this, or you can leave it; but, if you don’t take it, you lose every last dollar of Federal funding for every program?

GENERAL VERRILLI: I think that would raise a germaneness issue, Mr. Chief Justice, but it’s not what we have here.

CHIEF JUSTICE ROBERTS: But there’s no coercion question at all?

GENERAL VERRILLI: Well, but I think — I think they are related. I think that the germaneness inquiry in Dole really gets at coercion in some circumstances, and that’s why I think they are related; but, we don’t have that here.

And if I could, I would like to address -­

CHIEF JUSTICE ROBERTS: No, I know we don’t have that here. How does germaneness get — get to coercion?

GENERAL VERRILLI: Well, because it gets to be harder to see what -­

CHIEF JUSTICE ROBERTS: That’s germaneness; there’s no -­

GENERAL VERRILLI: — what the connection is between getting you to do A and the money you are getting for -­

CHIEF JUSTICE ROBERTS: So it fails because it is not germane; but, you are saying it would not fail because it was coercive?

GENERAL VERRILLI: Well, I think that — as I said, I think they are really trying to get at the same thing. And I — but I do think it’s quite different here, and I would like to, if I could, take up each of the -­

CHIEF JUSTICE ROBERTS: No, no. I know it’s — I know it’s different here. I’m just trying to understand if you accept the fact or regard it as true that there is a coercion limit; or, that once the Federal Government — once you are taking Federal Government money, the Federal Government money — can take it back, and that doesn’t affect the voluntariness of your choice?

Because it does seem like a serious problem. We are assuming, under the Spending Clause the Federal Government cannot do this, under the Constitution it cannot do this; but, if it gets the State to agree to it, well, then it can. And the concern is, if you can say, if you don’t agree to this you lose all your money, whether that’s really saying the limitation in the Constitution is — is largely meaningless.

GENERAL VERRILLI: Well, but I don’t think that this is a case that presents that question, Mr. Chief Justice.

CHIEF JUSTICE ROBERTS: No, no, I know. I’m just — I know this — I don’t know if I will grant it to you or not, but let’s assume it’s not this case. Do you recognize any limitation on that concern?

GENERAL VERRILLI: I think the Court has said, in Steward Machine and Dole, that this is something that needs to be considered in an appropriate case, and we acknowledge that; but, I do think it’s so dependent on the circumstances that it’s very hard to say in the abstract with respect to a particular program that there is a -­

JUSTICE SCALIA: You can’t imagine a case in which it is both germane and yet coercive, is what you are saying. There is no such case as far as you know.

GENERAL VERRILLI: Well, I am not prepared to — to say right here that I can — that -­

JUSTICE SCALIA: I wouldn’t think that is a surprise question. I mean, you know -­

GENERAL VERRILLI: I mean, you know, Congress has authority to act and -­

JUSTICE SCALIA: Hey, I can’t think of one. I’m not blaming you for not thinking of one.

(Laughter.)

GENERAL VERRILLI: But I do think — but I do think — I really do think that it’s important to look at this, an issue like this, if you are going to consider it, it has got to be considered in the factual context in which it arises.

JUSTICE ALITO: Well, let me give you a factual context. Let’s say Congress says this to the States: We have got great news for you. We know that your expenditures on education are a huge financial burden, so we are going to take that completely off your shoulders. We are going to impose a special Federal education tax which will raise exactly the same amount of money as all of the States now spend on education, and then we are going to give you a grant that is equal to what you spent on education last year.

Now, this is a great offer and we think you will take it, but, of course, if you take it, it’s going to have some conditions because we’re going to set rules on teacher tenure, on collective bargaining, on curriculum, on textbooks, class size, school calendar, and many other things. So, take it or leave it.

If you take it, you have to follow our rules on all of these things. If you leave it, well, then you’re going to have to fine — you are going to have to tax your citizens, they’re going to have to pay the Federal education tax; but on top of that, you’re going to have to tax them for all of the money that you’re now spending on education, plus all of the Federal funds that you were previously given.

Would that be — would that reach the point — would that be the point where financial inducement turns into coercion?

GENERAL VERRILLI: No, I don’t think so -­

JUSTICE ALITO: No?

GENERAL VERRILLI: — because they do, the States do have a choice there, especially as a — as a going-in proposition. The argument the States are making here is not that they’re — that — this is not a going-in proposition. Their argument is that they’re -­ they are in a position where they don’t have a choice because of everything that has happened before. But -­

JUSTICE ALITO: You might be right. But if that’s the case, then there’s nothing left -­

GENERAL VERRILLI: Well, but as a -­

JUSTICE ALITO: — of federalism.

GENERAL VERRILLI: As a practical matter, I disagree with that, Justice Alito. First of all, as a practical matter, there’s a pretty serious political constraint on that situation ever arising, because it’s not like the Federal Government is going to have an easy time of raising the kinds of tax revenues that need to be — needed to raised to work that kind of fundamental transformation, and that’s real. And political constraints do operate to protect federalism in this area.

JUSTICE SCALIA: I would have thought there was a serious political strain — constraint on the individual mandate, too, but that didn’t work. What you call serious political constraints sometimes don’t work.

GENERAL VERRILLI: But — but with respect to a situation like that one, Justice Scalia, the — the States have their education system, and they can decide whether they’re going to go in or not. But here, of course, I think it’s important to trace through the history of Medicaid. It is not a case, as my friend from the other side suggested, that the norm here is that the Federal Government has offered to the States the opportunity either to stay where they are or add the new piece.

We can debate that proposition with respect to 1972 one way or another. The States have one view about that; we have a different one. But starting in the 1984 expansion, with respect to pregnant women and infants, it was an expansion of the entire program; States were given the choice to stay in the entire program or not. 1989 when the program was expanded to children under 6 years of age, under 133 percent of poverty, same thing. 1990, kids 6 to 18 and 100 percent of poverty, same thing. In fact, every major expansion, same thing.

And so, I just think the history of the program, and particularly when you read that in context of 42 U.S.C. 1304, which reserves the right of the Federal Government to amend the program going forward, shows you that this is something that the States have understood all along. This has been the evolution of it, and with respect to -­

CHIEF JUSTICE ROBERTS: Could you give me some assurance? We heard the question about whether or not the Secretary would use this authority to the extent available. Is there circumstances where you are willing to say that that would not be permissible? I’m thinking of the Arizona letter, for example. I mean, if I had the authority and I was in that position, I would use it all the time. You might — you want some little change made? Well, guess what; I can take away all your money if you don’t make it. I win. Every time.

It seems that that would be the case. So, why shouldn’t we be concerned about the extent of authority that the government is exercising, simply because they could do something less? We have to analyze the case on the assumption that that power will be exercised, don’t we?

GENERAL VERRILLI: Well, Mr. Chief Justice, it would not be responsible of me to stand here in advance of any particular situation becoming — coming before the Secretary of Health and Human Services and commit to how that would be resolved one way or another. But that -­

CHIEF JUSTICE ROBERTS: No, I appreciate that. I appreciate that, but I guess -­

GENERAL VERRILLI: That discretion is there in the statute, and I think there’s every reason to think it’s real, but I do think, getting back to the circumstances here -­

JUSTICE KAGAN: Well, General, what’s the -­ been the history of its use? Has the Secretary in fact ever made use of that authority?

GENERAL VERRILLI: That’s correct, Justice Kagan. It’s never been used -­

CHIEF JUSTICE ROBERTS: What about the Arizona letter we just heard about today?

GENERAL VERRILLI: It has never been used to cut off -­

CHIEF JUSTICE ROBERTS: It’s been used to threaten -­

JUSTICE SCALIA: Of course not.

CHIEF JUSTICE ROBERTS: Of course no State is going say, okay, go ahead, make my day, take it away. They’re — they’re going to give in.

GENERAL VERRILLI: If we could go to the situation we have here, Mr. Chief Justice, this — with respect to the Medicaid expansion, the States’ argument is, as they’ve said in their briefs — they articulated a little bit different this morning — this afternoon. But as they said it in their briefs was it’s not what you stand to gain, but what you stand to lose.

But I think an important thing in evaluating that argument in this context is fully 60 percent of Medicaid expenditures in this country are based on optional choices. And I don’t mean by that the optional choices of the States to stay in the program in ’84 or ’88 or ’89. But — but States are given choices to expand the beneficiaries beyond the Federal minimum and to expand services beyond the Federal minimum.

JUSTICE KENNEDY: And just a small point, and please correct me if I am wrong. It — does this Act not require States to keep at the present level their existing Medicaid expenditure? So some States may have been more generous than others in Medicaid, but this Act freezes that so the States can’t go back. Or am I incorrect?

GENERAL VERRILLI: It’s much more nuanced than that, Justice Kennedy. There is something called a maintenance of effort provision which lasts until 2014, until such time as the Medicaid expansion takes place and the exchanges are in place. That applies to the population. It says, with respect to the population, you can’t take anybody out. It does not apply to the optional benefits where the States still have flexibility. They can still reduce optional benefits that they’re now providing if they — if they want to control costs. They can also work on provider rates. There’s also — with respect to demonstration projects by which some States have expanded their populations beyond the required eligibility levels, they don’t have to keep them in. And then there’s also, if the State has a budgetary crisis, it can get a waiver of that, as Wisconsin did. So, that is a — that’s a provision I think that does a significant degree less than my friends on the other side have suggested in terms of -­in terms of its effect, and its effect beyond that is just temporary.

But I do think with respect to the — the first of their three arguments for coercion, the sheer size argument, that it’s very difficult to see how that is going to work, because if the question is about what you stand to lose rather than what you stand to gain, then it seems to me that it doesn’t matter whether the Medicaid expansion is substantial or whether it’s modest, or whether there’s any expansion at all. The States, for example — the Federal Government, for example, could decide that under — under the current system too much money has ended up flowing to nursing home care and that money would be better serving the general welfare if it were directed at infants and children. But if the Federal Government said we’re going to redirect the spending priorities of the Federal money that we’re offering to you, the States could say, well, geez, we don’t like that; we’d like to keep spending the money the way we were, and we have no choice, because this has gotten too big for us to exit. And so — and in fact, it seems to me, standing here today before these expansions take place, under their theory, the provision is coercive.

JUSTICE SCALIA: The smaller it, is the bigger the coercion.

GENERAL VERRILLI: Well -­

JUSTICE SCALIA: The smaller what you’re demanding of them, the bigger the coercion to go along.

GENERAL VERRILLI: The more they stand to lose. And — and so — and then it — I’m sorry,

Justice Breyer.

JUSTICE BREYER: I — just before you leave that, I’d — I’d appreciate it if you would expand a little bit on the answer to Justice Kagan’s question for the reason, when I read the cutoff statute, which as I said has been there since 1965 unchanged, it does refer to the Secretary’s discretion to keep the funding, insofar as the funding has no relationship to the failure to comply with the condition.

And as I read that, that gives the Secretary the authority to cut off all the money, but the States’ refusal to accept the condition means they shouldn’t have. But nothing there says they can go beyond that and cut off unrelated money. Now, there is a sentence says maybe they could do that. I thought they had to exercise that within reason.

GENERAL VERRILLI: Right. Well -­

JUSTICE BREYER: I don’t know when it be reasonable. So, you’ve looked into it, and that’s what I want to know.

GENERAL VERRILLI: Right.

JUSTICE BREYER: Is there — I could find no instance where they went beyond the funds that were related to the thing that the State refused to do or things affected by that. I would like you to tell me, when you looked into it, that what I thought of in this isolation chamber here is actually true. Or whether they have gone around threatening people that we will cut off totally unrelated funds.

What is the situation?

GENERAL VERRILLI: I think the situation is generally as you’ve described it, but I do want to be careful in saying I don’t think it would be responsible of me to commit now that the Secretary would exercise the discretion uniformly in one way or another.

CHIEF JUSTICE ROBERTS: Well, but that’s just saying that when, you know, the analogy that has been used, the gun to your head, “your money or your life,” you say, well, there’s no evidence that anyone has ever been shot.

GENERAL VERRILLI: But -­

CHIEF JUSTICE ROBERTS: Well, it’s because you have to give up your wallet. You don’t have a choice.

GENERAL VERRILLI: But that -­

CHIEF JUSTICE ROBERTS: And you cannot -­ you cannot represent that the Secretary has never said: And if you don’t do it, we are going to take away all the funds.

They cite the Arizona example; I suspect there are others, because that is the leverage.

GENERAL VERRILLI: But it -­

CHIEF JUSTICE ROBERTS: I’m not saying there’s anything wrong with it.

GENERAL VERRILLI: It’s not coercion, Mr. Chief Justice.

CHIEF JUSTICE ROBERTS: Wait a second. It’s not — it’s not coercion — well, I guess that’s what the case is. It’s not coercion -­

GENERAL VERRILLI: It’s not coercion.

CHIEF JUSTICE ROBERTS: — to say I’m going to take away all your funds, no matter how minor the infringement?

GENERAL VERRILLI: But, of course -­

JUSTICE BREYER: I don’t know if that’s so. And all I asked in my question was I didn’t ask you to commit the Secretary to anything. I wanted to know what the facts are.

GENERAL VERRILLI: I -­

JUSTICE BREYER: I wanted to know what you found in researching this case. I wanted you, in other words, to answer the question the Chief Justice has: Is it a common thing, that that happens, that this unrelated threat is made? Or isn’t it?

GENERAL VERRILLI: It’s — my understanding is that these situations are usually worked out back and forth between the States and the Federal Government. And I think that most -­

JUSTICE BREYER: And you are not privy to what those are.

GENERAL VERRILLI: And I’m not. But -­

JUSTICE SCALIA: And who wins?

GENERAL VERRILLI: Well, I think — that’s what I think is the problem here, Justice Scalia, is it seems to me we are operating under a conception that isn’t right.

The reason we have had all these Medicaid expansions, and the reason, it seems to me, why we are were where we are now, and why 60 percent of what’s being spent on Medicaid is based on voluntary decisions by the States to expand beyond what Federal law requires, is because this is a good program and it works. And the States generally like what it accomplishes -­

JUSTICE KAGAN: And, General Verrilli -­

JUSTICE ALITO: General Verrilli, is this discussion realistic? The objective of the Affordable Care Act is to provide near universal health care.

Now, suppose that all of the 26 States that are parties to this case were to say, well, we’re not going to — we’re not going to abide by the new conditions. Then, there would be a huge portion — a big portion of the population that would not have healthcare.

And it’s a realistic possibility the Secretary is going to say, well, okay, fine, you know. We are going to cut off your new funds, but we are not going to cut off your old funds, and just let that condition sit there?

GENERAL VERRILLI: Well, just as I can’t make a commitment that the authority wouldn’t be exercised, I’m not going to make a commitment that it would be exercised. But I do think that that — to try and move away from the first of their arguments, the sheer size argument, to the second one, which is that it’s coercive by virtue of its relationship to the

Affordable Care Act, I really think that that’s a misconception, and I would like to be able to take a minute and walk through and explain why that is.

JUSTICE KAGAN: General Verrilli, before you do that, I’m sorry, but in response to the Chief Justice’s question, I mean, the money or your life, has consequence because we are worried that that person is actually going to shoot. So I think that this question about are we — what do we think the Secretary is going to do is an important one.

And as I understand it, I mean, when the Secretary withdraws funds, what the Secretary is doing is withdrawing funds from poor people’s health care, and that the Secretary is reluctant and loathed to take money away from poor people’s health care. And that that’s why these things are always worked out. It’s that the Secretary really doesn’t want to use this power, and so the Secretary sits down with the State and figures out a way for the Secretary not to use the power.

GENERAL VERRILLI: That’s correct, Justice Kagan. That is no -­

CHIEF JUSTICE ROBERTS: No, what the -­

GENERAL VERRILLI: I’m sorry -­

CHIEF JUSTICE ROBERTS: Go ahead.

GENERAL VERRILLI: That’s another way of trying to say what I was trying to say to Justice Scalia earlier, is that the States and the Federal Government share a common objective here, which is to get health care to the needy. And, in the vast majority of instances, they work together to make that happen.

CHIEF JUSTICE ROBERTS: But the question is not — obviously, the States are interested in the same objective, and they have a disagreement, or they have budget realities that they have to deal with. And States say, well, we are going to cut by 10 percent what we reimburse this for or that for, and the Federal Government says, well, you can’t.

And no one is suggesting that people want to cut health care, but they have different views about how to implement policy in this area.

And the concern is that the Secretary has the total and complete say because the Secretary has the authority under this provision to say, you lose everything. No one’s suggested in the normal course that will happen; but, so long as the Federal government has that power, it seems to be a significant intrusion on the sovereign interests of the State.

Now, I’m not — it may be something they gave up many decades ago when they decided to live off of Federal funds, but I don’t think you can deny that it’s a significant authority that we are giving the Federal Government to say, you can take away everything if the States don’t buy into the next program.

GENERAL VERRILLI: Well, but what I would say about that, Mr. Chief Justice, is that we recognize that these decisions aren’t going to be easy decisions in some circumstances. As a practical matter, there may be circumstances in which they are very difficult decisions. But that’s different from saying that they are coercive, and that’s different from saying that it’s an unconstitutional -­

JUSTICE BREYER: Why is it different? Why is it different? I mean, I thought it might be very unlikely that a State would ever say — the government — Federal Government would say, here’s a condition that you have to have a certain kind of eyeglasses for people who don’t see. And, by the way, if you don’t do that, we’ll take away $42 billion of funding, okay? I thought such a thing would not happen.

And I thought if it tried to happen, that it’s governed by the APA, and the person with the eyeglasses would say it’s arbitrary, capricious abuse of discretion. And that’s so, even though the statute says it’s in the discretion of the Secretary.

But Mr. — your colleague and brother says no, I’m wrong about the law there, and, moreover, they would do it. That’s what I’m hearing now, that they would do it, and they do do it, and — and, etc. So I would like a little clarification.

GENERAL VERRILLI: In the situation described in your hypothetical, Justice Breyer, I think it’s — the Secretary of Health and Human Services would never do it.

But what I’m saying is, with respect to the Medicaid expansion in this case -­

JUSTICE SCALIA: Could never do it or would

GENERAL VERRILLI: Would never do it.

JUSTICE SCALIA: It’s your prediction, okay.

GENERAL VERRILLI: Well, and I think that it would have to satisfy the administrative procedure. I think that’s a real constraint. What I’m not — what I don’t feel able to do here is to say with respect to this Medicaid expansion -­

JUSTICE SCALIA: Are you willing to acknowledge that the Administrative Procedure Act is a limitation on the Secretary’s ability to cut off all the funds; she can’t do it if it — if that would be unreasonable? Are you willing to accept that? I wouldn’t if I were you.

(Laughter.)

GENERAL VERRILLI: So -­

GENERAL VERRILLI: What I’m trying to do here is to — is to suggest that the Secretary does have discretion under the statute, and that that — and that

JUSTICE SCALIA: Indeed, part of the discretion is to cut off all of the funds. That’s what the statute says.

GENERAL VERRILLI: And it is possible, and I’m not willing to give that away. But that doesn’t make this -­

JUSTICE KAGAN: But, General Verrilli, you’re not willing to give away whether the APA would bar that, but the APA surely has to apply to a discretionary act of the Secretary.

GENERAL VERRILLI: I agree with that, Justice Kagan, but -­

JUSTICE BREYER: What’s making you reluctant?

GENERAL VERRILLI: I’m not trying to be -­ I’m not trying to be reluctant. I understand how this works. I’m trying to be careful about the authority of the Secretary of Health and Human Services and how it will apply in the future.

JUSTICE SCALIA: I wouldn’t worry a lot if I were you. I don’t know of any case that, where the Secretary’s discretion explicitly includes a certain act, we have held that, nevertheless, that act cannot be performed unless we think it reasonable. I don’t know any case like that.

Yes, when there’s just a general grant of discretion, it has to be exercised reasonably. But maybe Justice Breyer knows such a case.

JUSTICE BREYER: Yes, I do.

JUSTICE SCALIA: All right. Give it to me.

(Laughter.)

GENERAL VERRILLI: If I could go back to the sheer size idea, there’s, I think, another couple of points that are important in thinking about whether that’s a principle courts could ever apply.

Once you get into that business — in addition to the problem I identified earlier, that it basically means that Congress is frozen in place — now, based on the size of the program, you’ve got this additional issue of having to make a judgment about in what circumstances will — will the loss of the Federal funding be so significant that you would count it as being coercive.

JUSTICE KENNEDY: I suppose one test could be — I just don’t see that it would be very workable -­ is whether or not it’s so big that accountability is lost, that it is not clear to the citizens that the State or the Federal Government is administering the program, even though it’s a State administrator.

GENERAL VERRILLI: Well, but I think this going to come from a -­

JUSTICE KENNEDY: And I think that’s unworkable.

GENERAL VERRILLI: This is going to come from a withdrawal situation. Their argument’s about it’s what you stand to lose and with respect to withdrawal.

I mean — so, does it depend on — is it an absolute or a relative number with respect to how much of the State budget? Is it a situation where you have to make a calculation about how hard would it be for that State to make up in State tax revenues the Federal revenue they would lose? Does that depend on whether it’s a high tax State or a low tax State? It just seems to me — and then, what is the political climate in that State? It seems to me like -­

JUSTICE KENNEDY: In your view — in your view, does federalism require that there be a relatively clear line of accountability for political acts?

GENERAL VERRILLI: Yes, of course, it does, Justice Kennedy. But, here -­

JUSTICE KENNEDY: Is that subsumed in the coercion test, or is that an independent one?

GENERAL VERRILLI: You know, here, the coercion test, as it’s been discussed, I think, for example, in Justice O’Connor’s dissent in Dole and in some of the other literature, does address federalism concerns in the sense of the Federal Government using Federal funding in one area to try to get states to act in an area where the Federal Government may not have Article I authority.

JUSTICE KENNEDY: Yes.

GENERAL VERRILLI: But, as Your Honor suggested earlier, this is a situation in which, while it is certainly true that the Federal Government couldn’t require the States, as the Chief Justice indicated, to carry out this program, the Federal Government could, as Your Honor suggested, expand Medicare and do it itself.

JUSTICE KENNEDY: But do you agree that there still is inherent and implicit in the idea of federalism, necessary for the idea of federalism, that there be a clear line of accountability so the citizen knows that it’s the Federal or the State government who should be held responsible for their program?

GENERAL VERRILLI: Certainly, but I think the problem here is -­

JUSTICE KENNEDY: And does coercion relate to that, or is that a separate -­

GENERAL VERRILLI: Yes, but I think -­

JUSTICE KENNEDY: — is that a separate doctrine?

GENERAL VERRILLI: Well, I think it relates to it in the opposite way that my friends on the other side would like it to, in that I think their argument is that it would subject us to such a high degree of political accountability at the State level to withdraw ourselves from the program, that it’s an unpalatable choice for us, and that’s where the coercive effect comes from. And that’s why I think -­

JUSTICE KENNEDY: Well, but I think the answer would be that the State wants to preserve its integrity, its identity, its responsibility in the Federal system.

GENERAL VERRILLI: And it may — and, of course, it may do so, and it can make -­

JUSTICE SCALIA: May it do so?

Doesn’t the question come down to this -­ maybe you can answer this yes. But — but isn’t the question simply: Is it conceivable to you, as it was evidently not to Congress, that any State would turn down this offer, that they can’t refuse? Is it conceivable to you that any State would have said no to this program? Congress didn’t think that, because some of its other provisions are based on the assumption that every single State will be in this thing.

GENERAL VERRILLI: I think -­

JUSTICE SCALIA: Now, do you — can you conceive of a State saying no? And — and if you can’t, that sounds like coercion to me.

GENERAL VERRILLI: I think — I think Congress predicted that States would stay in this program, but the — prediction is not coercion. And the reason Congress predicted it, I think, Justice Scalia, is because the Federal government is paying 90-plus percent of the costs. It increases State costs -­

JUSTICE SCALIA: So what do you predict? If you predict the same, that 100 percent of the States will accept it, that sounds like coercion.

GENERAL VERRILLI: Prediction is not coercion. I disagree, Justice Scalia. That’s just an assumption, and if it proves to be wrong, then Congress has time to recalibrate. And beyond that, I do think if — I just want to go back to the — the other part of Your Honor’s point — that with respect to the relationship between Medicaid and the — the Act, and particularly the minimum coverage provision, my — my friend Mr. Clement has suggested that you can infer coercion because, with respect to the population to which the provision applies, if there’s no Medicaid, there’s no other way for them to satisfy the requirement.

I want to work through that for a minute if I may, because it’s just incorrect.

First of all, with respect to anybody at 100 percent of the poverty line or above, there is an alternative in the statute. It’s the exchanges with tax credits and with subsidies to insurance companies. So with respect to that, the part of the population at 100 percent of poverty to 133 percent of poverty, the -­ the statute actually has an alternative for them.

For people below 100 percent of poverty, it — it is true that there is no insurance alternative. But by the same token, there is no penalty that is going to be imposed on anybody in that group.

To begin with, right now, the — the level of 100 percent of poverty is $10,800. The — the requirement for filing a Federal income tax return is $9,500. So anybody below $9,500, no penalty, because they don’t have to file an income tax return. The sliver of people between $9,500 and $10,800, the question there is are they going to be able to find health insurance that will cost them less than 8 percent of their income.

JUSTICE ALITO: Well, I’m not — in selling this argument — take the poorest of the poor. If there is no Medicaid program, then they’re not going to get health care. Isn’t that right?

GENERAL VERRILLI: Yes, that’s true. But this -­

JUSTICE ALITO: So Congress obviously assumed — it thought it was inconceivable that any State would reject this offer, because the objective of the Affordable Care Act is to provide near-universal care. And Medicaid is the way to provide care for at least the poorest of the poor. So it — it just didn’t occur to them that this was a possibility.

GENERAL VERRILLI: Well -­

JUSTICE ALITO: And when — when that’s the case, how can that not be coercion?

GENERAL VERRILLI: Well -­

JUSTICE ALITO: Unless it’s just a gift. Unless it’s just purely a gift.

Then it comes back to the question of whether you think it makes a difference that the money — a lot of the money to pay for this — is going to come out of the same taxpayers that the States have to tax to get their money.

GENERAL VERRILLI: This is — this is a -­ this is — these are Federal dollars that Congress has offered to the States and said, we’re going to make this offer to you, but here’s how these dollars need to be spent. This is the essence of Congress’s Article I authority under the General Welfare Clause and the Appropriations Clause. This is not some remote contingency, or an effort to leverage in that regard. This is how Congress is going to have the Federal government’s money be used if States choose to accept it.

Yes, it was reasonable for Congress to predict in this circumstance that the States were going to — to take this money, because — because it is an extremely generous offer of funds: 90-plus percent of the funding. States can — can expand their Medicaid coverage to more than 20 percent of their population for an increase of only 1 percent -­

CHIEF JUSTICE ROBERTS: If it’s such a good deal -­

GENERAL VERRILLI: — of their funding.

CHIEF JUSTICE ROBERTS: — why do you care? If it’s such a good deal, why do you need the club?

GENERAL VERRILLI: Well, the — the -­

CHIEF JUSTICE ROBERTS: If it’s a good deal, take it. We’re not going to — if you don’t take it, you’re just hurting yourself. We’re not going to -­

GENERAL VERRILLI: That’s — that’s a judgment for Congress to make about how the Federal -­ how Federal funds are going to be used if States choose to accept them, and Congress has made that judgment. That’s Congress’s judgment to make, and it’s — it doesn’t mean that it’s coercive.

CHIEF JUSTICE ROBERTS: You have another 15 minutes.

GENERAL VERRILLI: Lucky me. Lucky me.

(Laughter.)

JUSTICE KENNEDY: But the — but the point is — but the — the point is, there’s — there’s no real -­

JUSTICE SOTOMAYOR: Can we go back -­

JUSTICE KENNEDY: There’s no real — there’s no realistic choice. There’s no real choice. And Congress does not in effect allow for an out — opt out. We just know that. And it’s -­

GENERAL VERRILLI: Well, I guess I -­

JUSTICE KENNEDY: — it’s substantial.

GENERAL VERRILLI: I would go back, Justice Kennedy, to the -­

JUSTICE KENNEDY: I recognize the problem with that test.

GENERAL VERRILLI: I would go back to the fact that 60 percent of the Medicaid spending is now optional. It’s — it’s a result of choices that States have made that — it’s expanded the -­

JUSTICE KENNEDY: Even though they’re now frozen in, per our earlier discussions, to a large extent.

GENERAL VERRILLI: Well, but — well, no -­ to a more — much more modest extent was my point, Justice Kennedy. For example, optional services where a huge amount of money is spent — more than $100 billion annually — the largest component of that is nursing home services. That remains optional. It’s — right now, once the minimum — once the maintenance provision remains in place, States have the flexibility to that -­ reduce those numbers.

States have considerable flexibility now and going forward with respect to the way that money is spent. And I do think in terms of evaluating whether this expansion should be considered coercive, it has got to be evaluated against the backdrop of the fact that the States are generally taking — are generally taking advantage of the opportunities of this statute to greatly expand the amount of money that the Federal government spends and the amount of money that they spend to try to make the — the lives of their citizens better. I think -­

JUSTICE KENNEDY: Of course, they have to do so by hiring a very substantial number of more employees. There will be State employees. There’ll be substantial State administrative expenses that are not reimbursed.

GENERAL VERRILLI: Well, but — I would take issue with that, Justice Kennedy. Part of the Affordable Care Act is that it — it provides for new streamlined eligibility processes to get people into the system at a — at a much faster and cheaper rate. There are going to be costs to set that up. But under the statute, the Federal government is going to pay 90 percent of those costs, the short-term set-up costs.

And then all of the projections that we have seen suggest that the medium- to long-term costs once these changes are in place are going to be dramatically lower for the states -­

CHIEF JUSTICE ROBERTS: Well, what -­

GENERAL VERRILLI: — on the administrative side.

CHIEF JUSTICE ROBERTS: Obviously, the Federal government isn’t bound to that. And what if, after the 90 percent, they say well, now — from now on, we’re going to pay 70 percent? What happens then? Where does that extra money come from?

GENERAL VERRILLI: Well, I think — then -­ then the States would have a choice at that — at that point whether they were going to stay in the program or not. But that isn’t what we have here, and -­

CHIEF JUSTICE ROBERTS: There’s no — they can just bail out — whenever the government reduces the amount of the percentage that it’s going to pay, the States can say, that’s — that’s -­

GENERAL VERRILLI: Well, I’m not saying it would be an easy choice, Mr. Chief Justice -­

JUSTICE SCALIA: They’d have to bail out of Medicaid, you’re talking about, not just there.

GENERAL VERRILLI: Right. That that would be -­

JUSTICE SCALIA: Oh.

GENERAL VERRILLI: Right. That that would be the option. They can leave Medicaid if they decide that that isn’t working for them. I’m not saying this is an easy choice. I’m also not saying it would happen, because the Secretary does have this discretion -­

CHIEF JUSTICE ROBERTS: Well, the Secretary has the discretion. We’re talking about something else. We’re talking about fiscal realities, and whether or not the Federal government is going to say we need to lower our contribution to Medicaid and leave it up to the States because we want the people to be mad at the States when they have to have all these budget cuts to keep it up, and not at the Federal government.

GENERAL VERRILLI: But that would be true, Mr. Chief Justice, whether this Medicaid expansion occurred or not and -­

CHIEF JUSTICE ROBERTS: I know, but you’ve been emphasizing that the Federal government is going to pay 90 percent of this, 90 percent of this, and it’s -­ it’s not something they can take to the bank, because the next day or the next fiscal year, they can decide, we’re going to pay a lot less. And you, States, are still on the hook, because you — you don’t — you say it’s not an easy choice. We can say — ask whether it’s coercion. You’re not going to be able to bail out of Medicaid. You just have to pay more because we’re going to pay less.

GENERAL VERRILLI: Well, like I said, I — I agree that it would be a difficult choice in some circumstances. But that is not to say it’s coercion as a legal matter or even as a practical matter. And I think it would depend on what the circumstances were on how — and I — I think, trying to think about how a court would ever answer the question of whether it was coercive, it was too difficult as a practical matter for States -­

JUSTICE SOTOMAYOR: General, I’m trying to -­

GENERAL VERRILLI: — to withdraw.

JUSTICE SOTOMAYOR: — go back to that because Justice Kennedy asked you whether there is — I think he said it’s — it’s coercion if no one can be politically accountable. I’m not sure how that could be practically politically accountable because almost every gift — if the terms are attractive, it would be an un — unattractive political alternative to turn it down.

Dole itself was one of those cases. I think every State raised the drinking age to 21; correct?

GENERAL VERRILLI: Yes, Justice Sotomayor, and this argument was raised in Dole, and the Court rejected it as a -­

JUSTICE SOTOMAYOR: I guess my point is that political accountability has two components: What can I do if I like something, and what can I do if I don’t like something? And if people really like something like Medicaid, they’re not going to let you drop it, correct.

GENERAL VERRILLI: Well, the citizens of the State, but that’s the citizen of the State acting -­

JUSTICE SOTOMAYOR: Exactly. That’s the whole point; that’s their choice, right?

GENERAL VERRILLI: — in the capacity of the citizens of the State. And I think that’s why I get -­ try to get back to the point, that’s why I think this is wrong to think about this as coercion, because this is a program that works effectively for the citizens of the State, and States’ governments — and State governments think that, and that’s why it has expanded the way it has expanded, because it’s providing an essential service for millions of needy citizens in these States. It’s providing access to health care that they would not otherwise have.

CHIEF JUSTICE ROBERTS: You mentioned the -­ the Dole case. Now, what was the threat in that case, raise your drinking age to 21 or what?

GENERAL VERRILLI: Or lose a percentage of your highway funds.

CHIEF JUSTICE ROBERTS: Do you remember the percentage?

GENERAL VERRILLI: Seven percent, yes.

CHIEF JUSTICE ROBERTS: Yes. It’s a pretty small amount. That’s really apples and oranges when you’re talking about lose all of your Medicaid funds or lose — I thought it was 5, but 7 — 7 percent of your highway funds.

GENERAL VERRILLI: It’s — I think I agree with Your Honor, that it — that it’s different, but I don’t think that that makes coercion as a legal matter.

As I said, I think that this is a situation in which the — if the States — is it — I’m not saying it would be an easy choice, but the States made the choice, they’ve made the choice. And -­

JUSTICE SOTOMAYOR: Well, they made a choice with the stimulus bill, didn’t they? Some governors rejected the stimulus bill -­

GENERAL VERRILLI: That’s — that’s correct, Justice Sotomayor. And -­

JUSTICE SOTOMAYOR: — and some of — some of their congressional or legislative processes overturned that.

GENERAL VERRILLI: That’s right.

JUSTICE SOTOMAYOR: In others, they supported it. The percentages were smaller, but it’s always the preference of the voters as to what they want, isn’t it?

GENERAL VERRILLI: That is correct.

CHIEF JUSTICE ROBERTS: What was the threat in the stimulus bill? What would the State lose?

GENERAL VERRILLI: That answer I don’t know, Mr. Chief Justice.

CHIEF JUSTICE ROBERTS: Would anything be taken away, or would it just lose the opportunity to get the money?

GENERAL VERRILLI: I don’t know the answer to that. I don’t know the answer to that.

But if I may just say in conclusion that -­ I’d like to take half a step back here, that this provision, the Medicaid expansion that we’re talking about this afternoon and the provisions we talked about yesterday, we’ve been talking about them in terms of their effect as measures that solve problems, problems in the economic marketplace, that have resulted in millions of people not having health care because they can’t afford insurance.

There is an important connection, a profound connection, between that problem and liberty. And I do think it’s important that we not lose sight of that. That in this population of Medicaid eligible people who will receive health care that they cannot now afford under this Medicaid expansion, there will be millions of people with chronic conditions like diabetes and heart disease, and as a result of the health care that they will get, they will be unshackled from the disabilities that those diseases put on them and have the opportunity to enjoy the blessings of liberty.

And the same thing will be true for — for a husband whose wife is diagnosed with breast cancer and who won’t face the prospect of being forced into bankruptcy to try to get care for his wife and face the risk of having to raise his children alone. And I could multiply example after example after example.

In a very fundamental way, this Medicaid expansion, as well as the provisions we discussed yesterday, secure of the blessings of liberty. And I think that that is important as the Court is considering these issues that that be kept in mind. The — the Congress struggled with the issue of how to deal with this profound problem of 40 million people without health care for many years, and it made a judgment, and its judgment is one that is, I think, in conformity with lots of experts thought, was the best complex of options to handle this problem. Maybe they were right; maybe they weren’t.

But this is something about which the people of the United States can deliberate and they can vote, and if they think it needs to be changed, they can change it.

And I would suggest to the Court, with profound respect for the Court’s obligation to ensure that the Federal Government remains a government of enumerated powers, that this is not a case in any of its aspects that calls that into question. That this was a judgment of policy, that democratically accountable branches of this government made by their best lights.

And I would urge this Court to respect that judgment and ask that the Affordable Care Act, in its entirety, be upheld. Thank you.

CHIEF JUSTICE ROBERTS: Thank you, General.

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