>> [inaudible] >> there you go. >> gentleman from texas? >> [inaudible] >> mr. fitzpatrick? >> thank you, chairman. i also want to thank the panel for your testimony this morning. professor bullard, in if a recent op-ed opinion piece, you wrote that the department of labor's fiduciary duty proposal as it related to 401(k)s and pension plans missed the mark. i think that was your word. can you elaborate how labor's rule is flawed, and discuss for us how you would proceed or what action we should take. >> the, the proposal, i think, is right on the mark in the sense that the use of the term, "fiduciary," has been unnaturally estimate limited by the department for decades. beyond that, however, the way that the department approached

the problem was to put the cart before the horse and expand a fiduciary definition that very many people in the industry would not be able to conform to in a reasonable period of time. and like the investment company act, actually, erisa -- which is the statute they're interpreting -- has a kind of shadow exemptions. ..

at the same time they put the cart before the horse, created an exception to the prohibited transaction deceptions of prohibitions that completely swallow the rule and creates but no as a seller exception to say because i am a seller i don't owe you a fiduciary duty. indeed a while has a prohibited transaction exemption. i think it's pte 71 that covers exactly the transaction and proposal that it created so is the exemption, greatly expanding the category without real thought as to whether it's appropriate, especially as to retail investors appeared to give an example, it would mean the mom-and-pop goes by municipal security would not be good. that is religious the beginning of the problems that a short op-ed can deal with. there are problems in the drafting of the rule. there's a fundamental problem of

the department's consideration extended to individual retirement accounts, which are fundamentally not a significant problem that is really caught my interest is that the deal a proposal now interfering with what i think should be a primary agenda and that is the fiduciary duty when providing retail personalized investment advice. >> how how would you suggest we deal with the recommendations? >> i think the committee should go ahead in the early focus on sec's role and move as much persuasive power as possible to get the a while, but essentially put its process on hold until this event unfold. the fiduciary will overlap precisely with a large percentage of the brokers who will become a meeting of fiduciary standard estes the road. that double whammy is not an

appropriate way to go out extending regulation, especially when the way they structure, it is much more appropriate for the sec to go first to see how the system works before you attack the industry, which has far many more restrictions and is far more difficult to comply with. >> and if you wish to comment on that? >> i would say we have, you know, paid a lot of attention to this rule and one one of the concerns of the fiduciary standard is proposed is that it has the unintended effect of interfering with key services that may be provided to participants or holders of iras. i think it is something that you could address by thoughts on the proposal of the provision. so we're hoping they could address that. it would be a pity to cut off some of the types of services just because there are technical

problems with the definition of fiduciary. >> my district is bucks county, montgomery county. as a significant under besides this fiduciary issue, what you think the congress should be focusing on? >> one of the things we said in her a written testimonies mutual funds have fared quite well. when we think about what is important to us going forward, we really think about the strength and the efficient the transparency of the market and that's why we are in the financial market every day on behalf of our clients. we expect the markets to be strong and transparent and we would spend our time looking to make sure that those conditions continue to exist. it is when we care deeply about the derivatives market and the strong regulation of those markets. that's what we care about transparent the municipal market. it's frankly why we traded regulatory and dvds of the

various regulatory agencies are consistent and not duplicate a so we can deliver efficient effect he returns to our client. >> thank you for your testimony. >> thank you, mr. chairman and thank you for being here. first mit think the mutual fund industry for what you do. the products to provide for middle income americans allows them to save sufficiently and invest in a portentous last lifetime objectives that we all have like retirement and saving for our children's education. i wouldn't be possible without a variety products at the mutual funds industry offers. i appreciate what you do in that regard. i want to change gears a little bit and some of the questions that have been asked to a different subject, but i know you're all very involved in this area. along with one of my colleagues, john campbell, we've introduced legislation to reform the

housing finance market, gac is an online freddie and fannie may. there are a number of proposals floating around here in washington right now to deal with that. but as an industry coming to invest hundreds of billions of dollars in gics with your products. i want to get a sense of some of their principal concerns that you have is an industry as congress is looking at reforming the gics. i'd open up that white discussion, which is curious to senator principal can learn we need to be focused on as we refund the gics. the congressman can answer. i think one important realization is there a lot of legacy securities out there that are held very widely in the marketplace. and while we very much support the congress says direction of unwinding are significantly limiting the gics and moving to

guarantee limit it in some faction is very important that we not do anything that disturbs the outstanding securities. that is something we have been seriously concerned about. i know there's been interest in the committee and development in a covered bonds market and the dealer firms have expressed very serious interest in that. that is a conversation we're having with their membership and look forward to acquainting the subcommittee with our findings. but i do apply dio and your colleagues for looking at alternatives that would remove what is perhaps the largest of the more risks we experience as a result of the recent crisis. >> i guess i would add that i really asking the question but that alone towards answering our concern, which is we think this is obviously very important for us and we are sensitive to whatever the changes are that come about that they are

transparent and we can make appropriate decisions. we also made aye mr. stephen's comments as a great deal of legacy out there with the valuations made of the securities based on the terms as they exist today and at the time. so we're very interested in making sure the rhythm it to disruptions to god and understand going for two of the changes will look like and how the half and so we can minimize any impact on our shareholders. >> anybody else? along the lines as far as concerns about the legacy and the guarantees that iran is, questioning going forward as to whether there is any role going forward, to propose bipartisan legislation with mr. campbell has a government role with considerable private capital, but the idea is some sort of governing guarantees necessary to attract investigators,

particularly long-term securities. do you share that view as an industry? >> the types of investors in decisions about what portfolios of securities are appropriate depends on the existence of the guarantee. so whether there is another marketer different types of investors were raised that may be required to invest in purchasers, the answer is it depends on what that looks like. >> the other point that i think bears repeating and i've heard it over and over again today is that the turnabout net asset values. i spent my private-sector career, 27 years in the investment business don't private clients and make an issue they all want a 1 dollar nav and 70% of people will not invest here it is probably close to 100% of clients have said that the product they want to make sure they have the $1 value. it is very important we preserve that old to work with you

because it is a necessary part as you mentioned the government short-term municipalities, but also we've got chrysler and auto companies that went for short-term financing and paper in particular. if someone could elaborate for us, if money is pulled out of money market funds come the attacks, mr. stephen's about municipalities and how difficult it will be defined. what about corporations for the short-term money? if there is an adequate place, what kind of consequence he says that have? the nav is more than investors not wanting to invest. the nav break in the dollar will have an impact on the economy and on jobsite%. is that accurate? >> there's no question in my mind about that, congressman. a commercial paper market represents spending for payroll, represents spending for inventories, represents spending that is essential to maintain

employment. if corporations -- about market constricts greatly, corporations cost of financing does that. ability to tap the short-term markets is compromised. it's going to have a real impact on operations. so it is an example of how embedded money market funds have become in the broader economy. but we've said over and over again in meeting after meeting as let's address whatever reforms are needed here, but let's not throw the baby out with the bathwater. >> if i could just interject two things. one is that i think many of the institutional investors and money market funds may themselves to one of two things, which is the third two pulled money out of the money market funds if that's their selection and a major likely going to commercial paper market, which is what they attempted team, 20 years ago.

alternatively an something i think would not be a very good result for anyone if they can go into unregulated pools, whether there's no transparency, no 287, number you try regime around that. and it has obtained many of the same benefit, but actually that is the worst dancer. >> thank you. ms. dickert. >> thank you, mr. chairman. i think mr. fitzpatrick asked the questions i had the most concerned what because many of your companies representatives have come in to me and raised the concerns about the department of labor's proposed rule changing about fiduciary -- advising particularly retirement plans. so i have asked the question about the sec and the department of labor at various hearings that we party hard, whether they were working together so they

wouldn't be a difference as far as what these agencies would come up with. both of them had said that they were working together, but it doesn't appear to be that is really the case. i think that the sec has only come out with a study and gives us an idea of what their role will be in the department of labor has now come up with a rule -- proposed rule also we have a release and it. and i don't think they are the same. so i wondered, how are we going to solve that problem is there are different rules? i think we could have hit it off, that i would as soon the department of labor wants to get the rule right and what can we do tend to further bring those back together? maybe mr. bullard, you seem to

be the most knowledgeable. >> would certainly say the most knowledgeable, you know, i was actually in the office under mr. donohue's predecessor at the communication at tol. issue the communication was going on, but there is undoubtedly disagreement between the two. there's also limitation to the extent it can work together because the effects of being fiduciary under arrays are so different that much more onerous than under federal securities laws. another reason is to a greater extent broker-dealers conduct is in many contexts already subject to a fiduciary duty. the sec's proposal goes primarily to the public enforcement mechanism whereas telos proposal is very much a private liability issue and predominantly a private liability issue.

those are just two examples of the way in which there simply aren't processes that necessarily can be quite made it, but that doesn't mean you shouldn't see the outcome of the sec more fundamental ground-level approach before you go ahead and said jacked a reset to the same people that dvds under the sec standard may solve invited telos can earn. >> i would agree. it seems to me who's going to get it out first? that will cause problems. i yield back. >> the generally peeled back. generally defending your. >> thank you, mr. chairman. of course we talked a bit about the safety sec designation in fairbanks of course, sifi carries advantages as to how

creditors might record the guarantee and of course they were sifi designation and i am skeptical of the designation in its entirety. but in terms of the proposal but perhaps can designation should be applied to mutual funds, could any of our panelists elaborate. could any of our panelists elaborate on the implications more specifically on the mutual funds. >> if it were designated as systemically financial institution under.frank there would be two consequences. it would be targeted for heightened financial supervision by the federal reserve and other kinds of requirements. supervision is an alien concept

in the world. while professor bullard is talking about the sec becoming a bit more prudential, the fact of the matter is the regulatory model has never been of the nature that is omnipresent in our businesses are telling us how to operate in the way the federal reserve and other bank regulators do with respect to depository institutions. the implications of that are unknown, perhaps unknowable and i've heard federal reserve officials say they are puzzled by it, too if they had to move in that direction. the capital issue is even more murky because to a very large degree, advisers to know what they need capital to assure they have sufficient robustness for ongoing operations, thomas capital requirement of the sort that banking institutions to an mutual funds come you can either look at having zero capital were 100% capital.

so it is a question i think that i'm not exactly sure but the answer answers to. i would tell you, congresswoman, i hope we don't have to find out. >> i can answer that. >> interestingly enough, the reason why there was substantial institutions are the typos issues that occurred in 2008. if you think about mutual fund structure and regulation, the panic so to all of those concerns you don't have the leverage, you don't have the lack of transparent sea and the length of the questions that were raised that caused the attention to the unregulated or uncovered segment of the industry. i think we all agree on this panel to mutual funds, but it's important to understand their set of entities and there is no bleeding over between the funds

and the advisory. difficulties with an advisor have not added impact of mutual fund. the other thing is that it's important to note that size is indicated as a fact are to be considered, but in the mutual contact or complex, the fact issue have assets under management is really relevant because mutual fund structure that oversees those assets and they are individually powered by individual investors and the visor has no ownership. so we are hoping it will prevail and designations are made. >> i just want to expand. we had over 400 mutual funds. the designation would be required on a sunday fund basis. some of them organizers stress

you could designate an advisor, are you designated the appraiser and the capital and the funds. it's got a particular balance sheet that looks different because it does not do the assets to the sign. it is just not designed for how we operate. >> the sifi question has two parts. the second has two we have a regulatory regime dealing with that. as to both wanted to come in the non-money market funds is clearly they should not be sifi. any question as to if someone asked her presents risk, but i strongly disagree as to money

market funds. it is not prudential regulation come i don't want to dispute the answer for funds is the first question is clearly that it is systemically important in some respects. i think the second question now is when we really need to deal with, whether the current regime in regulators thread went to do it. mr. stevens point about not prudential regulator because that deeply into its structure can't do the job for money market funds. we need to rethink whether it's a good idea to have a free market regulator also been a prudential regulator cared but we cannot lose sight of the fact that money market funds are prudential regulation in the regulator needs to act like one. >> this a definitional squabbles more than anything else. but from where i sit, and makes no sense to designate 642 money market mutual funds are systemically important financial institution and saddle them with federal reserve oversight and

capital requirement. if there is a deficiency year, there are reforms needed, they shouldn't be rocket to the designation process. that is my key point. >> thank you all. it sounds as if that designation would take a lot of energy out of our money market fund sector when we desperately need or energy in the marketplace. ideal but the time. thank you, chairman. >> the gentlelady goes back for time. to the gentlelady of colorado. he indicated at the most salient and poignant question of the day. [laughter] so before i dismiss the panel, we have without objection several letters with regard to the hearing to be entered into the record. that is from the new jersey state chamber from the new jersey business association, from the new jersey state feed

of municipalities, from the chamber of commerce and the united states of america, from the greater boston chamber, from the association of financial professionals, from the dallas regional chamber, from the association of commerce and industry and from the fort worth chamber as well. for the national association of corporate treasures, from davenport company and from the american public powers association and among others, council of government financial agencies and infrastructure financing authorities to the government financed doctors international association in the national association of counties, national association of finance agencies, national association of auditors and national association of treasures the national league cities and conference of mayors.

without objection, those letters with regard will all become part the record. speaking of the record to record will remain open for additional 30 days for additional questions for members who are here or there celia pointed questions from the gentleman from colorado, which should make those as home in your response will also be part of the record as well. and on that point, think there was only one question, which i didn't use additional time for her, which was professor trance takes and he said you had comments to make. the point before racing about his first defining a criteria for systemically important institutions like that. so if you'd like to submit that in writing, that would be most beneficial. and to the. and to the rest of the panel, very much appreciate the interesting and informative panel and where we go from here, will begin to digest every end we've had. they do thank you very much.

this meeting is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> at the political level, where more divided if you look at polarization in the civil war and reconstruction. >> the dalai lama talks about religion, violence and the death

penalty >> several days before mckinley arrived he was going to kill him. he had gone out and bought a pistol and followed mckinley's whereabouts in the newspapers and reported when the president was going to be. he began tracking in iraq affair. >> can you help airlock, a

pre-judge at the 11th circuit court of appeals in atlanta heard oral arguments in florida versus the department of health and human services. its latest challenge to the love is brought by 26 different states who banded together in opposition to the new law. the state's argument is that congress has exceeded its authority and is infringing on states rights. alar district court judge agreed that the states argument, avoiding the entire health care lot after ruling that individual insurance mandate are and can't do to shell. this is two and a half hours. >> we are here this morning on the case of the state of florida at albertson's united health and human services. before we put jewelers on the clock, i want to make a couple of remarks about this case intended to write you to where i

think you need to go with your>, arguments.he clearly, we believe the most difficult issue in the case of the individual mandate, but equally difficult is the medicaid expansion issue on the cross-appeal. so we would ask you to direct your arguments there. i would ask the counsel for the appellants when you first get t up, i think for you to speak to us briefly about standing.is i know what one point in this case, you challenge standing as well as some that the miki chale standing. it seems to us that there is clearly standing in the case as to the individuals as far as the individual mandate issue and there's clearly standing as to the states in regard to the issue of medicaid expansion. with that, we will hear from you first.

>> thank you. if i could, how the two frannie marriage issues first and then get to your questions about standing. congress made specific findings in the act, including first that the minimum coverage provision "have economic and financial decisions about where medicare is paid for." and second that "is an essential part. and third, "it would reduce the federal dove said." those three findings, three different independent constitutional bases for the act, when viewed alongside the

standard rolled out has shrunk resumption of constitutionality. the three arguments are first, that the minimum coverage provision regulates how people finance commercial transactions, namely the obtaining of health care, an area that congress found substantially affects interstate commerce. there is no dispute that the prevention of billions of dollars of cost shifting and the need to make health insurance widely available to the 50 million uninsured americans are legitimate clause ends. the question is the means to which we get there. the second argument is that the minimum coverage provision assists one part of an act that comprehensively regulates the interstate insurance markets. that part is essential to meet the overall at work. it is part of a larger regulatory scheme. third, the government's

broad powers of taxation. >> now tell us whether or not you challenge steny. >> we basically agree with what you said. we said that we do not challenge the district court standing. with respect to the states, we agree that they do have standing to challenge the medicaid provisions. so we are in agreement. >> so we do not have to reach the issues on standing because there is standing. >> the only way you have to reach for that question is if we get to the point to declare the act unconstitutional. then there's the question about several ability analysis and whether the district court judgment on that was right. with respect to that, we think that, while toyota has standing to challenge the minimum coverage provision, they do not -- while florida has standing to challenge the minimum coverage

provision, they do not have for the rest of the act. >> even accepting all that is true, if accepting the premise of your question, the mandate went down and there is plenty for this court to entertain that, we could entertain a question of sever ability only of the states have standing as to the medicaid provision. am i not correct about that? >> that is correct, judge markets. if you believe that the minimum coverage provision was unconstitutional, then he does have a standing. >> it strikes me as a wholly academic question, no matter how the court rules. have i missed something there? >> it is largely academic. in part, we just want to ensure that the court has people guidance of the united states views on standing in general because these issues come up repeatedly. we would not to be in a position where a decision in this court

were read to expand standing beyond its conference. >> while we're doing the housekeeping matters, the several ability issue, curly the sake of argument, the mandate itself is unconstitutional, finding nothing else's constitutional, it can be wholly severed? >> we believe, with respect to sever ability, that the minimum coverage provision is coupled -- this is our second argument on the merit. >> but we go back to the first question. assuming it is unconstitutional, it does not reference any other provision, doesn't it? the statutory language does not reference any other provision? >> the "minimum coverage" provision appears in other parts of the act. >> let me try it one more time. that section is

unconstitutional, the government contends the rest of the act stands. i know you have a backup argument to that, but your first argument, you can sever that holy and not touch the rest of the act. am i correct? >> no. our position is that, if you -- if they were to win a challenge, they would win to a part of 5000 a on the coverage provision. alongside that, two sides of the same: are the insurance provisions -- the same coin are the insurance provisions. we do think that -- >> which were identified by congress. i did not see in the congressional findings any indication of other provisions that were tied to the individual mandate. >> it is the finding that i just read to you a moment ago, when i

opened the argument, but that was essential. >> we understand how it operates internally. what else did congress say besides guaranteed issue? >> said nothing is anything else specifically besides that. our position is that the court does not need to reach any of these several ability issues. -- these severability issues. >> our position is that, with respect to this court, yes, that basically is the minimum coverage provision and the insurance provision that most of that the court would reach. >> when you say the insurance provision, just so that i am clear, you are referring to the mandate that congress imposed on insurance companies not to block

list people with pre-existing conditions or medical histories from being able to obtain insurance. that is the provision you are talking about. >> yes. >> is that the beginning that of that which is tiedit is those p. >> there is nothing in the sections that say that. there is no time line. is that correct? >> they were essential. >> there is no statutory language that help you. is this correct? >> that is correct. >> the only health reform that is referred to it is this. i cannot say that is where we are going. i am trying to understand it. >> that is our position. if i could persuade you not to go there. >> let's talk about the individual mandate.

let me tell you what makes this case hard for me. first of all, i have read all the supreme court cases from the very beginning that talk about commerce laws. i cannot find any case pretend that is just like this. would you agree with that? >> it depends somewhat beaming -- you mean. >> they have said in two cases -- and i agree that those cases are different that were in the criminal context -- as a broad and as expansive as the commerce clause power is, and congress is clearly given expansive power, in both of those cases they say there are limits.

i do not know what that means. there are limits out there somewhere. if we uphold the individual mandate in this case, are there any limits on congress's power of left? >> absolutely. you are absolutely right. they established blog cart --- limit. nothing but those in limit. bate said that lopez and morrison implies the non economic situation. lopez and morrison -- our position is that while there is not a case exactly like this one, this falls with in a long line of supreme court authority.

we are not saying that congress can force someone to buy something and say a failure to do so is economic activity. people are seeking this already in untold numbers. it is almost a universal feature of our existence. the failure to pay for that good is what causes that congress made a specific finding. it was occurring because of a compensated k. it decreases the family premium by $1,000 a year. that is quintessentially economics. that is a way that lopez and morrison were not. they were about a change of causation. lopez was a bomb possession --

is that gun possession would be to worse things. >> let's talk about the nature of the conduct that is being regulated. the position seems to have shifted from coverage that is health insurance to now focusing on health care. is that correct? >> i think we have always emphasize that what congress was doing was regulating the fact that there were a large number of people who were attempting to sell fincher. -- to self insured. >> the uninsured are costing $33 billion in uncompensated costs. is that correct? >> yes. >> let's follow up on that. the supreme court has drawn a strong dichotomies and over time

they have rejected them all. they came up with economic non- economics. do you believe that economic activity is a sufficient limiting principle? i know this is a debate. the government believes economic activity is a sufficient limiting principal. is that your position? it is economic activity. >> i think of it as more than that. >> how about part of your position? >> it is part. it has a substantial effect on commerce. that provides an important touch-tone limits. but cannot add up a bunch of economic content -- you cannot add up a bunch of economic

content. we are talking about $43 billion in cost shifting. >> let's cost about this. all of health care is $2.50 trillion. is that correct? >> yes. >> we are costing cost shifting of 1.7% out of $2.50 trillion. we are also talking about 50 million uninsured. let's put aside the individual mandate. the health care act will take care of that least 10 million of those 50 million by virtue of the medicaid expansion. is that correct? >> yes. >> we also pick up a the other 5 million by a 26. we will get a lot of healthy young people by virtue of the extension of age of 26. small employers will have to

offer coverage or pay a penalty. is that correct? >> yes. >> you will have no discrimination based on the help data. -- health data. palm they are voluntarily trying to do it. -- they are voluntarily trying to do it. it'll take care of that. out of 58 million, at the end of the day the major reform will reduce that 50 million to probably around 10 million without the individual mandate. i am not saying it is not important. i am just trying to understand how it relate. >> i'm not sure about the numbers. i think it would reduce it by something like 16 million. i cannot remember exactly. >> over a 75% of the uninsured

will now hold coverage by virtue of the major healthcare reform and the public health section of the code without even looking to the end of it. >> i disagree with that. congress thought of this as a comprehensive package. >> we understand your sever ability argument. when you look at the terms of the act, the reality is that it will occur. >> i do not think that is right. what congress found is that you cannot ban pre-existing condition information with out a minimum coverage probation. they have eight states that try to do this and banned this. >> that is because the insurer's left that state. >> exactly. >> there are lots of studies from the cbo and other experts with regard to what will happen under the act. you are familiar with those.

i did not see in anybody's brief any objections to the other parties and citations or reliance upon the studies. am i correct? >> that is correct. >> we should consider them as part of this case. >> it is under a rational basis standard. >> i want to make sure we consider these studies. >> i suggest they stay with that the individual mandate. these people will get in shirt and get coverage anywhere. whether insurers will leap -- will get insurance and get coverage. whether insurers will leave the market remains in question. i try to find out how anybody that tries to analyze the national market based on these reforms, whether insurers will lead the market. there did not seem to be a steady on that. is that correct? >> there are several studies.

when the seven states were formed to without a minimum coverage provision, the insurers did leave the state. congress made a specific finding saying that the massachusetts experiments works because a couple the insurance reforms to the minimum coverage provision. i think it would be a deep mistake for this court to read the lines from a cbo report that says you can do some of it through the other mechanisms. congress found specifically you could not. you cannot solve the bulk of the pre-existing discrimination without coupling it into the minimum coverage provision. >> that is the congressional signing. >> it is. even if it is only 1.75%. the only thing we talking about is whether this is economic or not.

a small percentage of goldman sachs still is economic. it is fundamentally economic. this is substantial. >> is it fair to call it an economic mandate? that is to purchase as a mechanism for paying for health care? >> it is all about financing. >> it is the purchase of health insurance in order to pay for a health care that the government says you either are consuming were certainly will in the future. will that claim with the activity is from the government expected? >> i would add one more thing. every single person cannot guarantee that they will not need help care. some can walk out of this courtroom and get hit by a bus or get struck by cancer. just like in maxwell 2, there is the potential that any of us

will enter the market. >> is it fair to say it is an economic mandate? >> this is exactly what the word means. i use the word that congress uses. the reason is that it may be similar to economic standings. it is about financing. it is about whether they were paying credit. this is not unusual. >> that is true. i would like to go back to where the judge began. is there any case out there that you can cite two main, i cannot find any, -- site to me, i cannot find any, that involves a

court of the supreme court having sustained a mandate telling any private person to purchase any product? i framed that narrowly. i know you have challenged the framing of a question. if it is framed in that way, is there any case out there that has sustained the power to compel the purchase of a project on the open market? >> that is not the power we are asserting. >> i understand. your answer to me is that it is irrelevant because it frames the question so narrowly as to mistake what congress was trying to do. i accept that. i want to know, going back to the first principles, is there

anything out there that actually suggests that congress can compel a private party to buy a private project on the open market if they are not disposed to do so? >> i will answer your question. i want to talk about the framed markets. suppose there was a president calling obama and bush vs. florida saying the government cannot compel someone to buy it under the commerce clause, we think that would be irrelevant to the question you had before you. the question you have before you is not the government saying by this. we are saying everyone is invariably consuming the good. it is a question of who will pay for it. it is about the failure to pay and not the failure to buy. one should look at the solution. look at the problem. >> i would still would like you can give me an answer to my question as i framed it. i take it the answer is no.

>> it is that, specifically in those terms. -- it is not specifically in those terms. it is not one in which congress is forcing people to enter the market. >> they have entered the stream of commerce to offer this. it'll offer rooms to people. and they can sell hamburgers. no one is compelling them to enter the stream of commerce as a burger flipper. >> i do not think that matters. i understand your making a liberty mark. >> the trouble is that while at the exact point congress does compel that, they only do it

once you have entered the stream of commerce to sell a room or hamburger. >> that is a crucial point. my friends in this court and page 31 of the brief and in the district court conceded that if the congress legislated that the point of sale that is with the moment a person sought medical service, that to be constitutional. what i understand that. -- that would be constitutional. >> i understand that. those cases involve acts. it may be closer because wicker argued in substance by limiting how much i grow up force me to buy a product i would not otherwise want to buy at a time and a place i would not have to.

even there, you start with the practice in which they have chosen to enter the stream of commerce to produce wheat. it to be closer if the government had said you go by in so many predict it would be close to the government -- it would be closer if the government said you go by a certain amount on the open market. >> you cannot find this in the commerce clause. our point is that this is similar. if i could go back to what i was saying about point of sale. if you ask congress to pass a lot to say hospitals will only to people if they have lined up insurance ahead of time, they think that this constitution. did they think that is constitutional.

-- ahead of time, and they think that is constitutional. they are asking the congress to do what they did. this is about timing. they want timing down the road. >> does this case boils down to eight temporal question? -- to a temporal question? they compelled the consumer to have insurance and otherwise penalize him in one form or another if he doesn't and therefore congress has jumped back earlier in time. >> absolutely. it is about timing. >> accepting that. i want to come back to the essential question. this seems to pervade this whole thing. what could be liable -- >> what

limits are there if the courts could say this passes constitutional muster? >> they limited the text to the constitution. they established the following. they developed factors that when the activity is non-commercial, they can take no jurors additional requirements. congress has made no requirements. the statues resumption of constitutional is likely to overcome. -- the statutes of constitutionality is likely to overcome. there are a number of limits.

this has to solve a national problem. cannot solve a local problem. there is not a barrier to national solutions. >> you are basically saying that if it is with in the very broad national economy, which almost everything is, and they can as long as it part of a national of economy. the limits to not have to be anything other than the national economy. >> those set out very strong limits. >> i'm trying to understand your argument. those are the limits.

>> we do not need an additional limits. part of this is submission from the government's point of view. >> it cannot contribute to another clause. >> we are not talking about due process. we are not telling someone to in just something. >> let's test the limits. to ingest something. >> let's test the limits. the nature of the case compels you to do this. let me ask the question this way. would congress have the commerce power to regulate the following in the area of insurance? suppose congress were to find the fact that one in three americans will have to consume

long-term care of some kind or fashion, maybe institutional or in the form of a nursing home. it were to find that the cost associated with doing that are extraordinarily high. we know it consumes a huge part of the budget. third, congress would observe that the number of americans who actually hold long term care insurance is very small. it is less than one in 15 or one in 20. one in three will consume the service. could congress under its power to compel all americans to purchase long-term care

insurance? >> i think the answer is probably no. is the end -- is congress legitimate? you have to show some sort of cost shifting and can to the cost shifting that occurs here. -- akin to the cost shifting that occurs here. >> therefore they could not do it? the cost is borne by the thannal government rather by those who actually have insurance. why is that not enough? >> the power that the congress is asserting is one they were dealing with. money comes out of one person's pocket to pay for another. whether it may qualify might be a bit more a chain of causation.

>> some have rejected it as a requirement. >> not at all. i do not think they did. that was about this. >> i realize they said it was there. at the end of the day they rejected its as shown. >> because it was attenuated. they accepted cost shifting. i am having difficulty understanding why this is different. >> it will depend on the findings congress enacted with respect to the end. then we have a question about the means. you have said that congress is entitled to a substantial difference. i do think that the congress picks something --

>> part of my question to make it as parallel as i can make it to this case, if congress chooses to mandate the purchase of care and imposes some form of penalty financially for the billiard to do so. >> -- for the failure to do so, what findings would be pivotal in deciding whether it passes? >> there would have to be cost shifting shown from one person to another. >> it would have to be cost shifting of the kind that goes to other private people. >> that is right. the second and that there has to be some sort of barrier to state-by-state solutions akin to those here. the solution congress chose is one that is necessary and proper. that is a very different standard. congress is inventing something

that other people are not doing. it is the dominant way people pay for health care. there may be an argument that this is not necessary and proper. >> he mentioned necessary improper. when we come to the substantial effects, the supreme court has invented a case for 50 years. aubrey yardy in the territory of the necessary and proper cause ariosto purely in the commerce clause? -- are we in the territory of the necessary and proper clause as its purely is in the commerce clause? >> i do not think it matters. >> my question is, the substantial effects, is it

derived in part from the commerce clause? is it derived in part because of the necessary individual interest rate activity? >> it is correct to say that school tse's it as a necessary and proper. predate that judges scalia -- to say that judge scalia saw it as necessary and proper. the safest course of action will be to follow the majority and see them as two separate things. i would like to turn -- >> one last question. the government's position is you do not need to look to the necessary and proper cause. you can sustain this regulation of purely interest-rate activity under the commerce clause? is that the government's position?

>> we dio not think it matters. >> you can sustain it under the commerce clause. >> yes. >> you are running out of time. why do not you go to the tax incentive issue. >> ok. >> tell us why this is a tax. >> i want to get out the second argument for the commerce clause. this is an overall comprehensive regulation. even if you do not see the menem coverage as economic, it is still constitutional. -- the amendment coverage as economic, it is still constitutional. it functions like an act. -- asa tax. cbo found it would reduce the deficit.

>> the problem you have is when you look at the text. that is not what congress said. congress said they were imposing a penalty. they did not use the word " penalty" only once. they use the term "penalty" repeatedly. they did not use the term "tax ." when they wanted to tax and they knew how to do it and used the term repeatedly. beyond that, they pegged the power to craft the mandate precisely to their commerce power. q l.i. been to ignore the repeated sexual references -- who am i to then ignore the repeated textual references? you really were opposing it.

>> i think it refers to tax alone about 34 times. penalty has been meant to mean tax. there are other provisions in the affordable care act that use it. they often use them interchangeably with the word "penalty>" ." does it function like a tax? hear it and natalie functions like a tax. -- hear it absolutely functions like a tax. if you have not met the requirements, you have to pay. call me with one thing. you have to check off a box on

your 1040 income tax return reporting whether or not you have insurance, right? if you do not have insurance, then the penalty kicks in. >> correct. >> is there any enforcement mechanism in the statement? where would i find it? >> it details it in a supplemental briefing. it is two things. the secretary of the treasury would be able to offset future credit against any unpaid taxes. united states could bring a suit against the person for the collection of the taxes. >> it to be clear that the irs could not do under this statute could not do under this statute what it here to fore can do if i have a problem with my taxes. they came garnish.

they can do all kinds of things. it is that she says they cannot do any of it. -- this statute says they cannot do any of it. >> that is correct. they said they do not want this part to be there. the rest was. findings.may find hint i think he answered that. you had findings of the commerce clause. they said it doesn't matter if congress goes there so long as it is justified by the copyright powers. here it is undoubtedly justified. this raises billions of dollars a year. it is about taxes just as the overall structure is. wasan we stiltell whether it the intention to generate

revenue as opposed to compelling compliance? >> i do not think anyone can tell their intent. i think the practical up? congress knew very well. that is the relevant text. >> is the primary purpose to propel conduct or to raise revenue? >> i do not think that the statue says anything about a primary purpose. i agree with that. he said they did not say anything either way what is the primary purpose? >> i do not think it specifies what it is. that is my answer. the question is the practical effects. >> there are exceptions in the penalty. is that correct? >> there are three exemptions.

they do not have to subscribe to the mandate. you have five exceptions to the penalty. there have been some suggestion that a large percentage of those persons cause problems by the same people who are exempted from the penalty. what did the government say about that? >> and may not matter. let's take it under the ball. isn't correct that a lot of these people are the larger share of the problem? >> many are exempt. this is going to what i was saying. >> it is because of low income. what congress was doing was there. >> i do not have a percentage. do you know what the data tells

us? >> i do not think congress testified. here is the reason why. congress was legislated comprehensively. it was a deep mistake for them to isolate out the minimum coverage provision. they were trying to reduce the percentages. is this economic or not? they say when they were regulated, and they are entitled to it. >> i have a question about essential coverage. this was used in the health care reform. are you with me? >> i think so. >> it has nothing to do with the level of coverage. is that correct? use a minimum essential coverage.

this term is not defined in this way. is that correct? >> it is defined separately. it includes the goal. >> it can be satisfied by a deductible. >> that is correct for the people under the age of 30. you can purchase virtually any plant that is sponsored by an employer no matter what the coverages. >> i do not believe that is the case. >> large employers placed it on them. then we go to the mandate. the mandate says he can satisfy minimum coverage by virtue of any plan from an employer sponsorship. >> it includes goals. it restricts them.

i will give back to you. -- get back to you. >> all of the government breeds, no one has outlined or summarize the contents of that. it might be helpful if it would go through the act and tell us what is in the pages. i have. the large group employers have very few requirement as to what has to be in their plan. individual markets are totally different. you can satisfy this mandate by purchasing very little coverage. it makes it up. it makes it not affected.

do you understand my point? >> i do. >> does the government agreed that you can satisfy it by purchasing very little coverage? >> it is under page 30. i agree with this. >> how about a large group of employers? are you familiar with what you have to buy it there? -- to buy their? >> i will give back to you on that. congress is entitled to the difference in which it deals with the problem. it is undoubtedly economic. >> we are going to give you your full time. i want to ask you to questions. as you know, this law was struck

down in the district court. the to make the argument in the district court that without an individual mandate the whole bill goes down? was that your argument? >> it was not. >> the second question is, i read somewhere that at one point time this law did have eight clause in it and it was taken out. is that correct? >> there was one in a version of the bill. it became the affordable care act. the supreme court has said that it cannot defer anything. >> we do not grow in the entrance. >> the housing dropped. >> thank you very much. >> we gave you your full amount of time. of time. >> there is a great deal about

this place that is complicated. i think the constitutional issue with respect to the individual mandate is quite simple. it boils down to the question of whether or not the federal government can compel an individual to engage in commerce to better regulate the individuals. we do not have a case that is directly on point. it is odd. we do not have this case. the reason we do not is that for 220 years, congress never saw fit to use this particular power. it is a rather astonishing fact. a.q. think about the federal code which is littered with -- if you think about the federal code which is littered with provisions, how much more of fission can the federal

government be to compel people to regulate them? to regulate them? i would suggest that this is the dog that did not bark. >> there are a lot of people that do not have insurance already engaged in commerce. at some point in time in their lives, unknown to any of us, they will need health care services. >> they are not engaged in congress. beer city in their livings. they are not doing anything. -- they are sitting in their living rooms. they are not doing anything. right now, and they are not. >> so we have clear undisputed

facts that as we sit here right now, i am not talking about next week or next month, i mean right now, the uninsured make up approximately 20 each year. they have routine checkups. 50% have one in the past, too. if you accept this, as we sit here, and of this group of uninsured, a there are bound 20 million to the emergency room each year. if that is true, why would that not be in every classic sense activity? >> that is activity.

this is something they can regulate. >> i want to be sure there is no dispute. dispute. it was disputed on all sides. >> there is no dispute of material facts. there are uninsured people. >> there are large numbers of uninsured americans each year. the study says 20 million a year if you actually go down to the emergency room to consume services -- who actually go down services -- who actually go down to the emergency room to consume services. tell me why that does not

constitute an every meaningful sense activity? it has in the aggregate a it has in the aggregate a substantial effect on commerce. >> that is not the market that this statute regulates. if congress wants to pass is that you -- a statute that says if you pay for your health care in cash it will cost twice as much. that would incentivize them to buy health insurance. it is not sure that that is the market being regulated. the market being regulated is the market for health insurance. the mandate is clear. we must by qualifying health insurance. that is why the question i submit is whether the federal government has the power to compel you to engage in congress. >> we are regulating how and

when you pay for health care. i understand the mandate only says coverage. this is to regulate how and when you pay for health care. >> why is that not part of the equation here? >> as saying it does not make it so. if you look at this statue -- >> u.s.a. in the air not regulating the conception of healthcare. >> the first finding says the mandate will have an effect on congress. this is not what they tell you to look at. but there answering this in the first sentence. >> it is the same mistake. the mandate has an effect on how people pay for health care. because of the mandate people will be more likely to pay with

it for insurance. i do not deny it. that is not what they are regulating. maybe they do not do what they are saying. what they seem to be saying are two things. two things. they seem to me to be saying "we have a problem with 50 million uninsured people." what the problem yields, because many of them get sick at unpredictable times and are forced to go to the emergency room and will not be turned away. that six powerful cost to other people who do buy -- that shifts powerful cost to other people who do jack up the premium for everyone else. they are concerned about how and

when we pay for it the service that they can stand. it is from the finding. they purport to regulate activities that is commercial and economic in nature. their words are economic and financing decisions about how and when health care is paid for. i goes to the consumption of the service itself. they seem to be saying "we are regulating into regulated in sure she is -- into regulated insurance is." this is what they say they are doing. do you agree they will have the power to regulate in both areas?

but not if it involves compulsion. one in the markets fear regulating is the health care insurance market. they have a lot of authority to regulate health insurers. they have a lot to regulate people that voluntarily purchase health insurance. they do not have the authority to compel people. >> this is very important. i thought they conceded that congress could regulate under the price of payment at the time of consumption. it can compel an individual who does not have helped insurance

to pay a penalty at that time. it coerces the mandate. can they do it? >> in the health-care market at the time of consumption, yes. it is coercing someone that is already engaged in activity. it feels coercive if you are an innkeeper and to yardy set up the in. >> i just want to be clear that i understand the position. at the time of consumption, the government would have to read power the state of an individual with the conditioning this service upon obtaining

insurance without which we can penalize you in one way or another. >> i'm with you entirely. that is not what they do. that is not what they do. under this, all the things u to not have requirements. you are forced to buy it. they assume everybody will use it. it. there are lots of different ways congress can incentivize people. they can pass a tax and give people a tax credit for paying for qualifying insurance. that is the way the federal government usually operates. >> that is another way of saying they could have done what they did better.

it was more directly. it. regulated in if it is rational, doesn't my job stop at the end? they can make these kind of calculations and determinations. >> absolutely not. they could have done the same thing constitutionally. instead, they took the easy way out. this is chock full of incentives. what you do not see is when congress goes the last mile and say we are not going to rely on incentives to get you to do what we want you to do. we are going to force you to do it. the only provision out there is the individual mandate. >> i think this is fair.

>> the government points out that both of the cases where criminal conduct cases. criminal conduct cases. >> regulating generally speaking was traditional police power areas. those cases are different. they may give it some principles. >> i do not think there is a single case just like it. >> it seems to me one of the keys that we see is that economic activity can be a very important limiting principle. would you agree with that? >> i would agree with that. it is one of the more important imitating -- important limiting

principles. this case comes down somewhat to whether or not the decision -- because if you are making a decision, and let me put aside activity. do not call this inactivity. i consider it activity. it does not h >> now i want to focus on economics. and so isn't it accurate that when i decide how i send my money, i would rather do -- take this trip or buy this product than buy health insurance. that is an economic decision. i'm not saying what the outcome is based on that, but how can that be anything other than an economic decision that i am making. it maybe unreachable by the federal government, they may not be able to coerce me, how can you say that's not an economic decision. >> i won't -- your honor, i

won't resist the other characterization that that is an economic mandate. i think the problem is the mandate word. >> i think you can distill is down to an economic decision. i don't know if it's an health care, or the health insurance, actually, it maybe a little bit of both. i'm deciding to pay for my health care, because i'm not going to go there, i'm going to buy insurance and be covered. okay? >> i don't disagree. >> the inactivity business doesn't get me very far. >> fair enough. i think mandates should get you very far. >> okay. let me go to the economic mandate. i actually think you must. that this has an economic activity. and it's an economic decision what have you. we go to the economic mandate. you are going to tell me how to make that economic decision. all right. as i understand your answers, judge marcus, you would agree that congress could say if i went to the hospital and didn't pay last year, we now require

you to buy insurance and it's going to be deducted from your pay. just like you deduct social security, congress could do that. i did health care, if any americans consume health care within the last year without paying for it, we require you to buy insurance. would that be constitutional? >> that's one is hard. >> that's why i asked the question. because it's hard. >> i'm not sure congress can impose a condition based on past conduct. then there's no choice. if you tell me because i did something last year -- >> okay. let's just focus to follow the threat of judge hall's question. let's focus on the moment of consumption. the uninsured walks into the hospital bleeding from a gunshot wound has no insurance, never had insurance, doesn't have a dime. does congress have the power to compel, coerce as a condition of

being seen and service that is medical malady that you buy insurance and can they penalize you for not doing it? >> i think they can. i think they can do that. >> can they go so far as to say mandate that hospitals shall not treat those without insurance at the time of consuming the service? >> i mean putting aside that might violate somebody's constitutional rights, you know, to have their treatment refused as a matter of commerce clause -- yes. >> yes. i appreciate the point that you are making. i'm just asking a commerce clause kind of case. >> no government ever would do that. but they could as a matter of commerce clause power. and the fact that there are alternatives out there to me strengthens our case, it doesn't weaken it. we're not just talking about a

choice for national means for the same end. we're talking about one choice that the government took, the congress took, that tripped a trip wire that we're thrown 220 years without any commerce tripping the trip wire. that's to say in order to accomplish what we think is good economic policy, we can compel you to do something that will help us regulate this market. >> and that strikes me when i read the briefs and i hear the argument and i think this really is a very powerful argument that this is really all about individual liberty when you are talking about the mandate. that's really where you are going. but what i find so interesting is that you argue that in the district court, you said among other things, you certainly made the commerce clause argument too. but you argued queerly -- squarely that one the things

wrong made someone buy at a time they didn't want to buy it at a party they didn't want to enter into business with. you pegged that the 10th amendment residual power to the people clause and substantive due process in the 5th amendment. you made that argument before judge vinson. the district court rejected it. am i right the argument has been abandoned here? >> substantive due process argument has certainly been -- >> individual liberty. the problem that i have is seems to be an individual liberty issue but it's lurking behind the words of commerce clause analysis. and i'm just trying to the extent that we can to analytically distinguish between the two and address them both plainly and honestly. >> but judge marcus, here's why i think that you can't. i have two reasons. one is you look at the supreme court on the separation of powers, whether horizontal or

vertical. the whole reason we do it is to protect the individual liberty. it's hard to provide the substantive. i think the argument that we are making as a home in the text of the commerce clause. it's the word regulate. compelling somebody is not regulating. regulating is providing the rule for people who are already engaged in activity. it's not forcing them. the last thing i could say, judge marcus, i think we all accept that substantive due process, sort of like the necessary improper clause is the last refuge. and i think that is almost a clue here. because if you mention the thought experiment which is that the framers had understood the breath of the modern commerce clause and also understand the commerce clause to conclude the power to compel, do you really think there wouldn't be a vision

of the rights that contextually limited the commerce clause? i bet my bottom dollar -- >> the only point that i was trying to get at is that when you try to ground that individual liberty in something what you have to ground it in the 10th amendment due process if you don't ground it in that, you are addressed. as the problem that you faced in lopez where you have a clear collision between the power on the one hand and the undenial state police power of the state on the other. you don't have at least directly on the individual mandate as opposed to the medicaid provision, which i hope you will get to. you don't have that kind of tension here directly. rather the tension is between the national on the one hand and

the compulsion to the individual on the other. >> and the other thing that i would say, i tried to distinguish in answering your question between substantive and the 10th amendment. because the 10th amendment is in this case. as you know, the 10th amendment is in most respects a reflection of the limits on the e -- enumerated powers. i think the fact they only give the federal power to regulate, not compel, and the 10th amendment reinforces that by the power granted to the government, not the state. it's the answer why this is an individual rights and commerce clause enumerated rights. >> does the power that congress has over the commerce clause include the power to stimulate commerce? >> it does. >> you understand why i ask. >> there's a different between

stimulation and compulsion. what was the government doing screwing around with the incentive for wheat production. they were trying to stimulate the price of wheat. what a much more direct way to do that to go in and mandate people buying wheat. >> interestingly enough, roscoe philburn making that argument to the supreme court. he walks in and says, look, if you penalize me and say i can't grow more weed. all i want to do is grow it in my backyard to consume it for myself, my own family, cows, pigs. if you don't let me know that, you are forcing me to buy the product on the open market. you are compelling me to do it. i don't want to do it. because i don't have to do it. the supreme court says in one word that's tough. we can make you do it because they have the power to regulate price. >> and roscoe philburn was

taking activity in an economic market. that's what the supreme court reinforced in raasch and they said there's no difference between the supply side and the command side here. i will bet, you know, my bottom dollar that justice jackson would have been had a very different reaction in that case if they forced individuals to buy wheat as opposed to put limits on how much roscoe philburn could produce. i think those are very different regulations. i think they maybe able to get you to the same end point. that doesn't mean the means isn't critically important. >> let's talk about raasch, since you brought it up. they said the homegrown marijuana, personal use consumption was just an instant away from the interstate market. and following up with judge marcus and saying this is really a temporal problem here. we are all just an instant away from needing serious health

care. why isn't this comparison -- comparable to raasch. even though you are not currently consuming health care like the homegrown marijuana is only an instant away from the interstate commerce under the csa, the control of substances act, why we we -- why are we not else? why is everybody else just an instant away that allows you to reach the conduct? >> there's a fundamental difference in being an instant away in raasch, and your economic t. is an instant away. my problem is in every market i this think of, we are all an instant away if the government can tell you you have to participate in the market. >> we are not an instant away

from making an economic decision not to buy insurance. the uninsured have already made the economic decision. they are operating under no insurance. they are living under no insurance. so it's not a matter of something in the future. it's going on right now. >> your honor, the idea that most of the uninsured have made that decision, as opposed to find themselves in the uninsured state because it defaults. >> the congress said. >> and the congress said we're going to force you to make a different decision. >> i need to switch. there seems to be tension in the plaintiff's argument. which way? one hand for the purpose of the commerce clause argument. this is not an essential part of the larger regulation. i believe that argument is safe.

is that correct? >> well -- i think -- i want to be -- >> it's not an essential part of this larger regulation for purposes of the necessary and proper cause? >> i want to be careful how i answer you. which will show why i don't think there's an inconsistency. >> before you answer it, the other part is if you strike the mandate, it's not servable because it's an essential part of the entire regulation. so it seems like you've got to kick one or the other. >> i'm going to try not to by telling you it is an essential part of the regulatory regime in the way that congress used that term in raasch and cases like darby. because they are trying to make this argument that you can put anything, even if it would otherwise be unconstitutional on it's own as part of the broader regulatory regime and that escapes the limit. if the gun free schools act was somehow the part of bigger regulatory, somehow that might be okay. we don't think that's the law. so for their purposes, we think

it's distinct. you have to analyze the mandate as the mandate. we will take the position, and i think it's true, when you look at this act, you can't -- it's not the simple matter of saying there's the mandate. we'll cut that out. look at the way the mandate -- the mandate is the driving force behind all of the health insurance reforms. because congress says everybody needs to have health insurance. how are they going to do that? then you look at the various people. there's part of the statute that responds to every group. for the people who are already qualified for medicaid, those people even if they haven't enrolled, if they are eligible, they assume medicaid will take care of that and they force them to enroll. as for the people between the current and 133%, medicaid will take care of those people. for people between 133% of the poverty level and 400%, there are subsidies and there is the

health insurance mark the statute creates. at the people love that level, it's the small insurance and larger employ mandate that take care of them. it's hard to say. if you take away the driver -- >> there's still tension in the argument. there may not be a direct argument, but it's tension in the argument. you must say there's some tension there. >> it's some tension there. there's tension in both side. i think in some ways judge vincent's reaction was largely driven by the number of times he read in the government's brief how essential it was to the rest of the statute. >> okay. your position is if the mandate fails, it all fails. okay? suppose the government says no, if the mandate fails then the only thing that needs to fail is the preexisting and the guarantee issue? okay. and that you could limit it --

that's not what they want. but they would limit it. would you take the position if you were going to find the mandate, you could do that. i know that's not your first position. there is no other provision that must fail is a matter of constitutional law if the mandate fails. >> judge hull, we take the position that the whole things fails. we take it as a secondary matter. the government got itself pregnant, so to speak, on the health care reforms. i think they are right that you can't separate the individual mandate from the guarantee issue. but i don't think it's any different for the other provisions, medicaid, employer mandates and the health exchanges. i think all of those are equally tied. i think the health insurance -- >> you don't think the guarantees issue is more tied than a number of the other health. >> i really don't, your honor. they are all tied together. they are all health insurance reforms. >> you are about to run out of time. i want you to speak about the

medication expansion just a moment. the supreme court of the united states created the coercion doctrine. as far as i can tell, it's still viable law. it's still out there on the books. everybody circuit has one, i believe the 4th circuit is the only one that has recognized it. the rest simply ignore the coercion doctrine. which to me is a pretty powerful argument that you have on this medicaid expansion. what do you say about that? >> well, a couple of things. i think it's true. there are a lot of noncoercion. they aren't persuasive. if you want to look at the cases and the pathology of how the cases and the circuits got to the wrong answer, i think it's because a lot of them started with a d.c. circuit case that was decided before dole. and then courts picked up the

language and then the 9th circuit and opinion by judge reinhart picked up on that, even though it was after dole and referred to the garcia case and said, well, you know, of course, there's no limits on the spending power. under garcia, there's no limits on the commerce clause either. >> just cut to the chase. accepting with you that the doctrine of coercion is alive and well. whatever it means and speaking for myself, it is clear and the supreme court couldn't make it clearer. there is holding that applies and rejects the doctrine in that case. what you can help me with is it's application to the circumstances of this case. the supreme court teaches us that there's a difference between inducement on the one hand and coercion on the other.

why is this provision coercive? >> particularly when you couple with that that every single state can opt out when they choose to opt out. >> in theory, but not in fact, mr. chief judge. it is telling that the 26 states that don't like the mandate don't like the conditions are here, but none of them have pulled out yet. because it's really unthinkable and there's two reasons, judge marcus, i think, why this is the case that crosses the line. one the sheer volume of the federal money at stake combined with the fact that the money is tied to the various conditions is not limited to the new money or the new conditions. the best elevation -- best illustration is the maintenance of efforts. that tells the states anything they voluntarily did before they can't change to limit benefits until a point in the future. now that is clearly tieing them

into what they did in the past. it should be focused on the money. but they conditioned it on the whole thing. the government, the biggest problem is the lack of limiting principal. they switch horses and now they complain we don't have a limiting principal. i think there is a limiting principal. i think you can strike it down as undually coercive in that way that wouldn't imperil any other statute. the key is the relationship between the medicaid conditional program and the individual mandate. no other spending condition i'm aware of is tied as this is to a mandate. here's the key thing. we make this point in the brief. i want to be clear about it. there's no plan b in the statute, no at -- alternative for how the individual mandate is going to be satisfied for

individuals 133% of the poverty level and below other than medicaid. as to those individuals, we know congress wants to force a mandate on the command side. but on the supply side the only way the statute supplies anything to those people is a conditional medicaid program. i will tell you the only reason the congress can have an oversight is to have an oversight and they knew the states didn't have any choice. >> let me ask the question differently. as i understand the trust of the state's argument, and it's a real one, uncle sam pays between 50 and 83% of all of the medicaid expenses that all of the states in the union consume. the difference being the nature of the service provided in the particular state. and what government has said is

if you don't comply with the expansion, up to 133%, you are out. we're not going to give you a dime. even from zero to 100%. that's coercive, because the amount of money is large, larger than any other coercion case. the question that i have though is congress did something else here too. it's interesting. it seems to have removed factually some of the argument. what they did is they said we are mandating that you cover everybody up to 133%. but we're going to pay for it ourselves for the first three years. '14, '15, '16, we will bare 100% of the cost. in '17, 95%, and '18 90% and in

2020, we'll bare 90% of all of the costs forever so that the actual cost tends not to be quite so great given that the federal government has assumed all of the cost or virtually all of the cost when you look at it. doesn't that remove some of the e -- coercionive bite? >> no. we think they have limited the new money. all that congress did was say that you have to cover people between 100% of the poverty level, we wouldn't be here saying that was coercive. the problem is really the people who were already eligible and what happens to those people? because right now there are a

lot of people who are eligible for medicaid benefits, but currently unel -- unenrolled. those people are going to be forced into the medicaid rolls by the mandate. that is by the way the reason that state had individual standing to object. because the individual mandate makes the maintenance of the medicaid program for people currently eligible but unenrolled more expansive. to give you the familiar, this is record exert, page 523. the state of florida alone estimates that by the year 2019 that interval of people, people already eligible but not enrolled will cost the state of florida $574 million. that's an impact to where

there's no new money. i think the effort is so pernicious and critical here because the natural reaction of any state might be to say whoa, because of the individual mandate, we're going to get all of the any people. let's modify the program and reduce the cost of servicing the new people. that's what the maintenance of effort tells them they can't do. they can't change the level of mandate. they force these new people on to them. they become and they were eligible. but they weren't enrolled before. why are they enrolled now? because federal law tells them they must enroll. that imposes the huge cost on the state. it's enough to give them standing and create the spending clause that's unique here. >> let me ask you one final question. i know you've gone over your time. because we've asked you these questions. with respect to the question the judge hull has asked in varying

ways concerning severability, and i want to just sort of flip around the way the conventional seem has been argued. if the mandate was constitutional, not that it was wise, but it was lawful, the mandate wasn't. it went beyond the spending power. would they be tied together at the hip or severable? >> i would say severable, but i would concede the argument is not as strong. i think the individual mandate is -- you know, the center of the wheel. the hub. and i think all of the various provisions for how the individual mandate is satisfied through various groups of people are the spokes. if you got rid of one the spokes by saying the medicaid was unconstitna