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 this an ething unprecedented, inpermissibly coercive exercise -- >> what do you think we meant in those indicta in several prior cases where we've said that the federal government cannot be coercive through the spending clause? what do you think we were -- give us a hypothetical. >> yeah. first, if i could just try to be a little more precise about, it justice scalia, i think what the court said in stewart machine and in dole is that it's possible that you might envision a situation in which there's o kerti coercion. one example i can think of would be a coil 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 so -- >> but anything else doctor you're talking about a situation where they have to locate their state house in some other city or -- but short of that they can make the state do anything at all. >> the dole conditions are real. the germaneness condition is real. >> none of those have addressed the coercion question, 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. >> i think that would raise a germaneness issue, mr. chief justice -- >> but there's no coen about i related. i think the germaneness inquiry in dole gets there. we don't have that here. >> i know we don't have that here. how does germaneness get to -- >> because it gets to be harder

to see -- >> that's germaneness -- >> -- what the connection is -- >> so it fails because it's not germane, but you're saying it would not fail because it's coercive. >> as i sa really trying to get at the same thiciffnt here. >> i know it's different here. i'm trying to understand if you accept the fact or regard it as a coercion limit or that once the federal government -- once you're taking federal government money, the federal government money can take it back, and that doesn't affect the voluntariness of you problem. we're assuming 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 is largely meaningless. >> well, but i don't think that this is a case that presents that question. >> no, no, i know. i know -- i don't know if i'll grant it to you or not, but let's assume it's not this case. do you recognize any limitation on that concern? >> i think the court has said in stewart 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 -- >> you can't imagine a case in which it is both germane and yet coercive is what you're saying. there's no such case as far as you know. >> well, i'm not prepared to say right here that i can -- >> i wouldn't think that's a surprise question. i mean, you know -- >> i think congress has authority to act -- >> i can't think of one. i'm not blaming you for not thinking of one. >> but i do think -- i really do

think it's important to look at this, an issue like this, if you're going to consider it's got to be considered in a factual context. >> let me give you a factual context. congress says this to the states. we've got great news for you, we know that your expenditures on education are a huge financial burden, so we're going to take that completely off your impose federal education tax which will raex money as all of the states now spend on education and then we're 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'll take it but 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

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 fund were previously given. would that reach the point -- would that be the point where financial inducement turns into coercion? >> no, i don't think so -- >> no? >> because the states do have a choice there, especially as a going in proposition. the argument the states is not not a going in proposition. their argument is that they are in a position where they don't have a choice because of everything that's happened -- >> you might be right but if that's the case then there's nothing left -- >> as a practical matter -- i disagree with that justice alee that. 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 kind of tax revenues that need to be raised, and that's real. and political constraintings do

work -- >> i would have thought there was a serious political constraint on the individual mandate, too, but that didn't work. what you call serious political constraints sometimes don't work. >> but with respect to a situation like that one, justice scalia, 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 as my friend 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 entire

program. states were given a choice. 1989 when the program was expanded to children under 6 years of age u133% of poverty, same thing. 1990, kids 6 to 18 and 100% of poverty. same thing. 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 usc 1304 which reserves the right of the federal government to amend the program going forward, shows you this is something the states have understood all along. this has been the evolution of it -- >> 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 the arizona letter, for example. if i had the authority and i was in that position, i would use it all the time. 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 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? >> well, mr. chief justice, it would not be responsible of me to stand here in advance of any particular situation coming before the secretary of health and human services and commit to how that would be resolved one way or another. >> i appreciate that -- >> that 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 rc history of its use. has the secretary, in fact, ever made use -- >> that's correct, justice kagan -- >> what about the arizona letter we just heard about today? >> it has never been used to cut off -- >> it's been used to threaten - say, okay, go ahead, make my day, take it away. they're going to give in.

>> if we could go to the si chief justice, with respect to the medicaid expansion, the states' argument is, as i have said it in the briefs, they articulate it a little different this morning -- this afternoon, but as they said it in the briefs, it's not what you stand to gain but what you stand to lose. i think an important thing in evaluating that argument in this context is fully 60% 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 states are given choices to expand the minimum and to expand services beyond -- >> and just a small point, please correct me if i'm wrong, does this act not require states to keep at the present level their existing medicaid

expansionay have been more generous than others but this freezes that -- >> it's much more that. there's something called a maintenance of effort provision which lasts until 2014 until such time as the 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 want to to control costs. they can also work on provider rates. there's also with respect to demonstration projects by which some states had 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's a provision i think that does a significant degree less than my friends on the

other side have suggested. i do think with respect to 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'ss expansion at all. the states, for example, could decide that unthstem too much m up flowing to nursing home care and that money will 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 to keep spending the money the way we were and we have no choice because this program has gotten too big for us to exit. it seems to me standing here today before these expansions

take place under their theory, the provisions -- >> the smaller it is, the bigger the coercion. smaller what you're demanding, the bigger -- >> the more they stand to lose. i'm sorry. >> just before you leave that, i'd appreciate it if you would expand a little bit on the answer to justice kagan's question for the reason that 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 in so far 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 that 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 that says maybe they could do that. i thought they had to exercise

that within reason when it would be reasonable. so you have looked into it, and that's what i want to know. is there -- i could find no whe the funds that were related to the thing that the state refused to do or thing 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, we will cut off totally unrelated funds. what is the situation? >> i think the situation is generally as you have described it, but i do want to be careful in saying i don't think it would be responsible of me to commit new that the secretary would exercise the discretion uniformly in one way or another. >> but that's just saying that when, you know, the analogy that's been used, the gun to your head, your money or your life, you're saying there's no evidence that anyone has ever been shot. well, it's because you have to give up your wallet. you don't have a choice.

and you cannot represent that the secretary has never said, and if you don't do it, we're going to take away all the funds. they cite the arizona example. i suspect there are others because that is the leverage. i'm not saying there's anything wrong with it -- >> it's not coercion, mr. chief justice. >> wait a second it's not coercion, well, i guess that's what the case is, it's not coercion to say i'm going to take away all your funds no matterhe infrin infringement. >> 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. 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? >> my understanding is that these situations are usually worked out back and forth

between the states and the federal government, and i think -- >> you're not privy to -- >> and i'm not -- >> and who wins? >> that's what i think is the problem here, justice scalia. it seems to me we're operating under a conception that isn't right. the reason we've had all these medicaid expansions and the reason it seems to me why we are where we are now and why 60% of what's being spent on medicaid is based on voluntary decisions by the states to expand beyond what federalques is because this is a good program and it works, and the states generally like what it accomplishes. >> general, 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 abide by the new conditions. then there would be a huge portion, a big portion of the

population that would not have health care and it's a realistic possibility that the secretary is going to say, well, okay, fine, you know, we're going to cut off your new funds but we're not going to cut off your old funds and just let that condition sit there? >> i can't make a commitment that the authority wouldn't be xeshzed, i won't make a commitment that they would be exercised. trying to move to the second argue am, which is that it's coercive by virtue of its relationship to the affordable air act, i really think that that's misconception and i would like to take a minute and explain why that is. >> before you do that in response to the chief justice's question, the money or your life has consequence because we're worried that that person is actually going to shoot. so i think this question about 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 loath 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. >> that's correct, justice kagan -- >> no. >> i'm sorry, go ahead. >> it'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. >> but the question is not -- obviously the states are interested in the same objective and they have a disagreement they have budget realities they have to deal with and states say, well, we're going to cut by 10% what we reimburse this for or t federal government says, well, you can't. no one is suggesting that peopl

they have different views about how to implement a 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 has 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 federal funds, but i don't think you can deny that it's a significant authority that we're giving the federal government to say you can take away everything if the states don't buy into the next program. >> 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're very difficult decisions, but that's different from saying they're coercive and different from saying -- >> why is it different? i mean, i thought it might be very unlikely a state would ever say -- for the federal government would say here is a condition that you have to have a certain kind of eye glasses 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 aba and the person with the eyeglasses would say it's arbitrary, capricious, abuse of discretion, and that's so even so the statute says it's in the discretion of the secretary. but if you're 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. they would do it and they do do it and et cetera. so i'd like a little clarification. >> in the situation described in your hypothetical, justice breyer, i think the secretary of

health and human services would never do it. but what i'm saying is with respect to the medicaid expansion -- >> could never do it or would never -- >> would never do it. >> it's your prediction. >> i think it w satisfy the administrative procedure act and that's a real constraint. what i don't feel able to do here is to say with respect to this medicaid expansion -- >> 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 that would be unreasonable? are you willing to accept that?. >> what i'm trying to do here is to suggest that the secretary does have discretion under the statute and that that -- >> indeed, part of the discretion is to cut off all of the funds. that's what the statute says. >> it is possible and i'm not willing to give that away, 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. >> i agree with that, justice kag kagan but -- >> what's making you reluctant? >> 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. >> i wouldn't worry a lot if i were you. i don't know of any case where the secretary's discretion explicitly includes a certain act. we have held that never thethel, that act can't be performed unless it's reasonable. when there's a general grant of discretion, it has to be exercised reasonably, but maybe justice breyer knows such a case. give it to me. >> if i could go back to the sheer size idea, there's i think a another couple points that are important in thinking whether there'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 congress is frozen in place now based on the size of the program, you have this additional issue of having to make a judgment about in what circumstances will the loss of the federal funding be so significant that you would counter -- >> 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 citizen that the state or the federal government is administering the prime minister even though it's a state administrator. i think- >> this is going to come from a withdrawal situation. their argue suspect is it's what you stand to lose. does it depend on -- is it an absolute or 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 revenues the federal revenue they would lose, does that depend on whether it's a high tax state or low tax and then what's the political in that state? >> in your view does federalism require that there be a relatively clear line of accountability for political acts? >> yes, of course it does, justice kennedy. >> is that subsumed in the coercion test or -- >> here the coercion test as it's been discussed i think, for example, in justice o'connor's dissent in dole and some of the literature does agreet 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, but as your honor suggested earlier, this is a situation 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 expand

medicare and do it -- >> but you agree there still is inhere inherent, implicit in the idea of ferlism, necessary for the idea of federalism that there be a clear line of accountability so the citizen knows it's the federal or the state government who should be held responsible for their program. >> certainly, but i think the problem -- >> and does coercion relate to that or is that -- >> yes -- >> -- is that a sar tin. >> i think it relates to it in the opposite way. i think their argument is it su degree of political accountability at the state level to withdraw ourselves from the program that ths an that's where the coercive effect comes from and that's why i think -- >> but i think the answer would be that the state wants to preserve its integrity, it'sthe. >> and, of course, it may do so. >> doesn't the question come down to t

answer this yes, 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 stated 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. can you conceive of a state saying no? and that sounds like coercion. >> i think congresstes uld stay program, but that 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 cost -- >> what do you predict? if you predict the same, that 100% of the states will accept it, that sounds like coercion. >> prediction is not coercion.

i disagree, justice scalia. that's just an assumption. if it proves to be wrong then congress has timing to recalibrate and beyond that i think -- i just want to go back to the other part of your honor's point, that with respect to the relationship between medicaid and the act and particularly the minimum coverage provision, my friend mr. clemente 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% 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 part of the population, 100% of poverty to 133% of poverty, the statute

actually has an alternative for them. for people below 100% of poverty, 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 level of 100% of poverty is $10,800. the requirement for filing a federal incomes tax return is $9,500. anybody below $9,500, no penalty because they't income tax retur. the sliver of people between $9,500 and $10,800, the question there able to find health insurance that will cost them less than 8% of their income -- >> i'm not following this argument. take the poorest of the poor, if there is no medicaid program, they're not going to get health care, isn't that right? >> yes, that's true. >> and so congress obviously assumed -- it thought it was e

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 just didn't occur to them that this was a possibility. h that not be coercion unless it's just a gift, unless it's just purely a gift and 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. >> 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 is how these dollars need to be spent. this is the essence of congress's article i authority and the general welfare clause and the appropriations clause. this is not some remote contingency in an effort to lever ang 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 take this money because it is an extremely generous offer of funds, 90-plus percent of the funding. states can expand their medicaid coverage to more than 20% of their population for an increase -- >> if it's such a good deal, why do you care? if it's such a good deal, why do you need the club? >> well -- >> it's a good deal, take it. if you don't take it, you're just hurting yourself. >> that's a judgment for congress to make about how federal funds are going to be used if states choose to accept them and congress has made that judgment. that's congress' judgment to make, and it doesn't mean that it's coercive. >> you have another 15 minutes. t