saying congress mandated employers to buy something that >> no. employer coverage -- 150 million people in this country already get their insurance through -- through their employers. what congress did in seeking to augment that was to add a provision requiring employers to purchase insurance -- >> based on the assumption that the cost of those policies would be lowered by certain provisions which are, by hypothesis -- we are not sure -- by hypothesis, are in doubt. >> no, i -- i think it's -- any cost assumptions -- there is no indication that congress made any cost assumptions, but there is no reason to think that the individual -- that the individual market, which is where the minimum coverage provision is directed, would affect that. i would like to say -- i would point out why the other things would advance congress's goal. the point here is that the package of three things would be contrary -- would run contrary to congress's goal if you took

out the minimum coverage provision. is here's why -- and this reflected in the findings. if you take out minimum coverage, but leave in the guaranteed issue and community rating, you will make matters worse. rates will go up, and people will be less -- fewer people covered in the individual market. >> well, if that is true, what is the difference between guaranteed issue and community rating provisions, on the one hand, and other provisions that increase costs substantially for insurance companies? for example, the tax on high cost health plans, which the economists in the amicus brief said will cost $217 billion over

10 years? >> those are -- what congress -- congress did not think of those things as balancing insurance companies. insurance companies are participants in the market for medicaid and -- and other things. >> but you are saying we have -- we have the expertise to make the inquiry you want us to make, i.e., the guaranteed-issue, but not the expertise that justice alito's question suggests we must make. >> well -- >> i just don't understand your position. >> -- that's because -- that's because i think this court's function is to look at the text and structure and the legislative history of the law that congress enacted, not the financial -- not a financial balance sheet, which doesn't appear anywhere in the law. and just -- >> you are relying on congress's quite explicitly tying these three things together. >> we do. that's -- that's -and it's not just the text of the act, but the background of the act, the experience in the state, the testimony of the national association of insurance commissioners. that's the -- that's the problem congress was addressing. there was a -- there was -- a shifting of present actuarial risks in that market that congress wanted to correct.

and if you took the minimum coverage provision out and left the other two provisions in, there would be laid on top of the existing shifting of present actuarial risks an additional one because the uninsured would know that they would have guaranteed access to insurance whenever they became sick. it would make the -- it would make the adverse selection in that market problem even worse. and so what -- and congress, trying to come up with a market- based solution to control rates in that market, has adopted something that would -- that would work to control costs by guaranteed-issue and community- rating, but, if you -- if -- if you take out the minimum coverage, that won't work. that was congress's assumption, again, shown by the text and legislative history of this provision. and that's why we think those things rise or fall in a package because they cut against what congress was trying to do. all of the other provisions would actually increase access to affordable care and would have advantageous effects on price. again, congress was invoking

its traditional use of the tax code, which has long subsidized insurance through employers, has used that to impose a tax penalty on employers, to give tax credits. this is traditional stuff that congress has done. and the other thing congress has done, those preexisting laws had their own protections for guaranteed-issue and community- rating. effectively, within the large employer plans, they can't discriminate among people, they can't charge different rates. what congress was doing, was doing that in the other market. if it can't, that's all that should be struck from the act. >> thank you, mr. kneedler. mr. farr? >> mr. chief justice and may it please the court -- at the outset, i would just like to say, i think that the government's position in this case that the community-rating and guaranteed-issue provisions ought to be struck down is an example of the best driving out the good, because, even without the minimum coverage provision, those two provisions, guaranteed-issue and community- rating, will still open

insurance markets to millions of people that were excluded under the prior system, and for millions of people will lower prices, which were raised high under the old system because of their poor health. so even though the system is not going to work precisely as congress wanted, it would certainly serve central goals that congress had of expanding coverage for people who were unable to get coverage or unable to get it at affordable prices. so when the government - >> one of the points that mr. kneedler made is that the price won't be affordable because -- he spoke of the adverse selection problem, that there would be so fewer people in there, the insurance companies are going to have to raise the premiums.

so it's nice that congress made it possible for more people to be covered, but the reality is they won't because they won't be able to afford the premium. >> well, justice ginsburg, let me say two things about that. first of all, when we talk about premiums becoming less affordable, it's very important to keep in mind different groups of people, because it is not something that applies accurately to everybody. for people who were not able to get insurance before, obviously, their insurance beforehand was -- the price was essentially infinite. they were not able to get it at any price. they will now be able to get it at a price that they can afford. for people who are unhealthy and were able to get insurance, but perhaps not for the things that they were most concerned about, or only at very high rates, their rates will be lower under the system, even without the minimum coverage provision.

also, you have a large number of people who, under the act -- >> excuse me, why do you say -- i didn't follow that. why? >> because -- >> why would their rates be lower? >> their rates are going to be lower than they were under the prior system because they are going into a pool of people, rather than -- some of whom are healthy, rather than having their rates set according to their individual health characteristics. sot's why their rates were high. >> but the problem, mr. farr, isn't it, that they're going to a pool of people that will gradually get older and unhealthier. that's the way the thing works. once you say that the insurance companies have to cover all of the sick people and all of the old people, the rates climb. more and more young people and healthy people say, why should

we participate, we can just get it later when we get sick. so they leave the market, the rates go up further, more people leave the market, and the whole system crashes and burns, becomes unsustainable. >> well - >> and this is not >> certainly. >> -- like what i think. what do i know? it's just what's reflected in congress's findings, that it's look -- it looks at some states and says, this system crashed and burned. it looked at another state with the minimum coverage provision and said, this one seems to work. so we will package the minimum coverage provision with the nondiscrimination provisions. >> well, in a moment, i'd like to talk about the finding, but, if i could just postpone that for a second and talk about adverse selection itself. i think one of the misconceptions here, justice kagan, is that congress, having seen the experience of the states in the '90s with community-rating and guaranteed- issue, simply imposed the minimum coverage provision as a possible way of dealing with that, and, if you don't have the minimum coverage provision, then, essentially, adverse selection runs rampant.

but that's not what happened. congress included at least half a dozen other provisions to deal with adverse selection caused by bringing in people who are less healthy into the act. there are -- to begin with, the act authorizes annual enrollment periods, so people can't just show up at the hospital. if they don't show up and sign up at the right time, they at least have to wait until the time next year. that's authorized by the act. there -- with respect to the subsidies, there are three different things that make this important. first of all, the subsidies are very generous. for people below 200 percent of the federal poverty line, the subsidy will cover 80 percent, on average, of the premium which makes it attractive to them to join.

the structure of the subsidies, because their income -- they create a floor for -- based on the income of the person getting the insurance, and then the government covers everything over that. and this is important in adverse selection because if you do have a change in the mix of people, and average premiums start to rise, the government picks up the increase in the premium. the amount that the person who is getting insured contributes remains constant at a percentage of his or her income. and the third thing -- >> and there is nothing about federal support that is unsustainable, right? that is infinite. >> well, i mean, that's a fair point, justice scalia, although, one of the things that happens, if you take the mandate out, while it is true that the subsidies that the government provides to any individual will increase, and they will be less efficient -- i'm not disputing

that point -- actually, the overall amount of the subsidies that the government will provide will decline, as the government notes itself in its brief, because there will be fewer people getting them. some people will opt out of the system even though they are getting subsidies. but i would just like to go back for one more second to the point about how the subsidies are part of what congress was using, because the other thing is that for people below 250 percent of the federal poverty line, congress also picks up and subsidizes the out-of-pocket costs, raising the actuarial value. so you have all of that, and then you have congress also, unlike the states, establishing -- or i should be precisely accurate -unlike almost all the states, establishing an age differential of up to three to one. so an insurance company, for example, that is selling a 25 - year-old a policy for $4,000 can charge a 60-year-old $12,000 for exactly the same coverage. the states typically in the '90s, when they were instituting these programs, they

either had pure community rating, where everybody is charged the same premium -- everybody regardless of their age is charged the same premium. some states had a variance of 1.5 to 1. massachusetts, for example, which did have good subsidies, but their age band was two to one. so when congress is enacting this act, it's not simply looking at the states and thinking -- well, that didn't go very well, why don't we put in a minimum coverage provision, that will solve the problem. congress did a lot of different things to try to combat the adverse selection. now, if i could turn to the finding, because i think this is the crux of the government's position, and then the plaintiffs pick up on that, and then move --move from that to the rest of the act. and it seems to me, quite honestly, it's an important part because that is textual. in this whole sort of quest for what we are trying to figure

out, the finding seems to stand out as something that the court could rely on and say here's something congress has actually told us. but i think the real problem with the finding is that the context in which congress made it. it's quite clear. if the court wants to look, the finding is on page 42 -- 43a, excuse me, of the solicitor general's severability brief in the appendix. but the finding is made specifically in the context of interstate commerce. that is why the findings are in the act at all. congress wanted to indicate to the court, knowing that the minimum coverage provision was going to be challenged, wanted to indicate to the court the basis on which it believed it had the power under the commerce clause to enact this law. why does that make a difference with respect to finding i, which is the one that the government is relying on, and in

particular the last sentence, which says "this requirement is essential to creating effective health insurance markets in which guaranteed issue and preexisting illnesses can be covered." the reason is because the word "essential" in the commerce clause context doesn't have the colloquial meaning. in the commerce clause context, "essential" effectively means useful. so that when one says -- in lopez, when the court says section 922(q) is not an essential part of a larger regulatory scheme of economic activity, it goes on to say, in which the regulatory scheme would be undercut if we didn't have this provision. well, if that's all congress means, i agree with that. the system will be undercut somewhat if you don't have the minimum coverage provision. it's like the word "necessary"

in the necessary and proper clause clause. it doesn't mean, as the court has said on numerous occasions, absolutely necessary. it means conducive to, useful, advancing the objectives, advancing the aims. and it's easy to see, i think, that that's what congress -- >> is there any dictionary that gives that ->> i'm sorry, justice scalia? >> -- that definition of "essential"? it's very imaginative. just give me one dictionary. >> well, but i think my point, justice scalia, is that they are not using it in the true dictionary sense. >> how do we know that? when people speak, i assume they are speaking english. >> well, i think that there are several reasons that i would suggest that we would know that from. the first is, as i say, the findings themselves. congress says at the very beginning, the head of it, is congress makes the following findings, and they are talking

about the interstate -- you know, b is headed "effects on the national economy and interstate commerce." so we know the context that congress is talking about. it is more or less quoting from the court's commerce clause statements. but if one looks at the very preceding finding, which is finding h, which is on 42 over onto 43, congress at that point also uses the word "essential." in the second sentence, it says, "this requirement" -- and again, we're talking about the minimum coverage provision -- is an essential part of this larger regulation of economic activity, which is, by the way, an exact quote from lopez, in which "the absence of the requirement would undercut federal regulation," also an exact quote from lopez. but what it is referring to is essential -an essential part of erisa, the national health service act and the affordable care act. it can't possibly be, even the plaintiffs haven't argued, that those acts would all fall in their entirety if you took out

the minimum coverage provision. and as a second example of the same usage by congress, the statute that was before the court in raich, section 801 of title 21, the court said that the regulation of intrastate drug activity, drug traffic, was essential to the regulation of interstate drug activity. again, it is simply not conceivable that congress was saying one is so indispensable to the other, the way the united states uses the term here, so indispensable that if we can't regulate the intrastate traffic, we don't want to regulate the interstate traffic, either. the whole law criminalizing drug traffic would fall.

so i think once you look at the finding for what i believe it says, which is, we believe this is a useful part of our regulatory scheme, which the congress would think in its own approach would be sufficient -- >> counsel, the problem i have is that you are ignoring the congressional findings and all of the evidence congress had before it that community ratings and guaranteed issuance would be a death spiral -- i think that was the word that was used -- without minimum coverage. those are all of the materials that are part of the legislative record here. so even if it might not be because of the structure of the act, that's post hoc evidence. why should we be looking at that as opposed to what congress had before it and use "essential" in its plain meaning -- you can't have minimum coverage without what the sg is arguing, community ratings and guaranteed issue.

you can't have those two without minimum coverage. >> well, i think that's a fair question. but the idea that -- that all the information before congress only led to the idea that you would have death spirals seems to me to be contradicted a little bit at least by the cbo report in november of 2009, which is about 4 months before the act passed, where the cbo talks about adverse selection. now, i want to be clear. this is at a time when the minimum coverage provision was in the statute, so i'm not suggesting that this is a discussion without that in it. but nonetheless, the cbo goes through and talks about adverse selection, and points out the

different provisions in the act, the ones i have mentioned plus one other, actually, where in the first 3 years of the operation of the exchanges those insurance companies that get sort of a worse selection of consumers will be given essentially credits from insurance companies that get better selections. >> so do you want us to write an opinion saying we have concluded that there is an insignificant risk of a substantial adverse effect on the insurance companies, that's our economic conclusion, and therefore not severable? that's what you want me to say? >> it doesn't sound right the way you say it, justice kennedy. >> no, i -- >> but you don't want them to say, either, that there is a death spiral. do you want -- you don't want us to make either of those two findings, i'm assuming? >> that's correct. now, i agree that there is a risk and the significance of it people can debate. but what i think is --is lost in that question, and i didn't

mean to be whimsical about it, i think what is lost in it a little bit is what is on the other side, which is the fact that if you follow the government's suggestion, if the court follows the government's suggestion, what is going to be lost is something we know is a central part of the act. i mean, indeed, if one sort of looks at the legislative history more broadly, i think much of it is directed toward the idea that guaranteed issue and community rating were the crown jewel of the act. the minimum coverage provision wasn't something that everybody was bragging about. it was something that was meant to be part of this package. agree with that. but the -- but the point of it was to have guaranteed-issue and minimum coverage -- i mean, excuse me -- guaranteed-issue and community rating. and that's -- under the government's proposal, those would -- would disappear. we would go back to the old system.

and under what i think is the proper severability analysis, the -- the real question the court is asking, should be asking, is, would congress rather go back to the old system than to take perhaps the risk that you're talking about, justice kennedy. >> you're -- you're referring to the government's second position. their -their first, of course, is that we shouldn't address this issue at all. >> that's correct. >> i asked mr. kneedler about what procedure or process would be anticipated for people who are affected by the change in -- in the law, and change in the economic consequences. do you have a view on how that could be played out? it does seem to me that if we accept your position, something -- there have to -- there has to be a broad range of consequences, whether it's additional legislation, additional litigation. any thoughts on how that's going to play out? >> well, if the court adopts the position that i'm advocating, mr. chief justice, i think what would happen is that the court would say that the minimum coverage provision, by hypothesis of course, is unconstitutional, and the fact

of that being unconstitutional does not mean the invalidation of any other provision. so under the position i'm advocating, there would no longer be challenges to the remaining part of the act. the -- >> but if the challenge is what we're questioning today, whether -- if you're an insurance company and you don't believe that you can give the coverage in the way congress mandated it without the individual mandate, what -- what type of action do you bring in a court? >> you -- if the court follows the course that i'm advocating, you do not bring an action in court. you go to congress and you seek a change from congress to say the minimum coverage provision has been struck down by the court, here is our -- here -- here's the information that we have to show you what the risks are going to be.

here are the adjustments you need to make. one of the questions earlier pointed out that states have adjusted their systems as they've gone along, as they've seen things work or not work. you know, as i was talking earlier about the -- the different ratio for -- for ages and the insurance. the states have tended to change that because they've found that having too narrow a band worked against the effectiveness of -- of their programs. but they did -- except for in massachusetts they didn't enact mandates. so to answer -- i think to answer your question directly, mr. chief justice, the position i'm advocating would simply have those -- those pleas go to congress, not in court. now, if one -- just to discuss the issue more generally, if that's helpful, i -- i think that -that if there were situations where the court deferred -- let's say for discretionary reasons, they just said -- the court said we're -- we're not going to take up the question of severability and therefore not resolve it in these other situations, it certainly seems to me that in enforcement actions, for example, if the time comes in -- in 2014 and somebody applies to an insurance company for a policy and the insurance company says,

well, we're not going to issue a policy, we don't think your risks are ones that we're willing to cover -it seems to me that they could sue the insurance company and the insurance company could raise as a defense that this provision, the guaranteed-issue provision of the statute, is not enforceable because it was inseverable from the decision -- from the provision that the court held unconstitutional in 2012. let's farr, let's -- consider how -- how your approach, severing as little as possible, thereby increases the deference that we're showing to -- to congress. it seems to me it puts congress in -- in this position -- this act is still in full effect. there is going to be this deficit that used to be made up

by the mandatory coverage provision. all that money has to come from somewhere. you can't repeal the rest of the act because you're not going to get 60 votes in the senate to repeal the rest. it's not a matter of enacting a new act. you've got to get 60 votes to repeal it. so the rest of the act is going to be the law. so you're just put to the choice of, i guess, bankrupting insurance companies and the whole system comes tumbling down, or else enacting a federal subsidy program to the insurance companies, which is what the insurance companies would like, i'm sure. do you really think that that is somehow showing deference to congress and -- and respecting the democratic process? it seems to me it's a gross distortion of it. >> well, your honor, the -- the

difficulty is that it seems to me the other possibility is for the court to make choices particularly based on what it expects the difficulties of congress altering the legislation after a court ruling would be. i'm not aware of any severability decision that has ever looked at anything like this -- >> no, i -- that wouldn't be my approach. my approach would say if you take the heart out of the statute, the statute's gone. that enables congress to -- to do what it wants in -- in the usual fashion. and it doesn't inject us into the process of saying -- this is good, this is bad, this is good, this is bad. it seems to me it reduces our options the most and increases congress's the most. >> i guess to some extent i have to quarrel with the premise, justice scalia, because at least the -- the position that i'm advocating today, under which the court would only take out the minimum coverage

provision, i don't think would fit the description that you have given of taking out the heart of the statute. now, i do think once you take out guaranteed-issue and community rating you are getting closer to the heart of the statute. and one of the -one of the difficulties i think with the government's position is that i think it's harder to cabin that, to draw that bright line around it. it's harder than the government thinks it is. i mean, to begin with, even the government seems to acknowledge, i think, that the exchanges are going to be relatively pale relatives of -- of the exchanges as they're intended to be, where you're going to have standardized products, everybody can come and make comparisons based on products that look more or less the same. but the other thing that's going to happen is with the subsidy program. the -- the way that the subsidy program is -- is set up, the subsidy is calculated according

to essentially a benchmark plan. and this -- if one -- if the court wants to look at the provisions, they're -- they begin at page 64a of the private plaintiffs' brief, again in the appendix. the particular provision i'm talking about's at 68a. but there's a -- there's a question -- you -- you're looking essentially to calculate the premium by looking at a -at a standardized silver plan. first question, obviously, is is there going to be any such plan if you don't have guaranteed-issue and community rating, if the plans can basically be individualized? but the second problem is that, in the provision on 68a, the -- the provision that's used for calculating the subsidy, what -- what is anticipated in the provision under the -- the act as it is now, is that if you have the floor of the income, you would -- you would take this benchmark plan, and the government would pay -- pay the difference. and as we talked about earlier,

the benchmark plan can change for age, and -- and the provision says it can be adjusted only for age. so if in fact you even have such a thing as a benchmark plan anymore, if the rates of people in poor health go up because of individual insurance underwriting, the government subsidy is not going to pay for that. >> mr. farr, i understood that the answer that you gave to justice scalia was essentially that the minimum coverage provision was not the heart of the act. instead, the minimum coverage provision was a tool to make the nondiscrimination provisions, community rating, guaranteed-issue, work. so if you assume that, that all the minimum coverage is is a tool to make those provisions work, then i guess i would refocus justice scalia's question and say, if we know that something is just a tool to make other provisions work, shouldn't that be the case in

which those other provisions are severed along with the tool? >> no, i don't think so, because there are -- there are many other tools to make the same things work. that's i think the point. and if one -- the case that comes to mind is new york vs. the united states, where the court struck down the take- title provision but left other -- two other incentives essentially in place. even without the minimum coverage provision, there will be a lot of other incentives still to bring younger people into the market and to keep them in the market. and if -- if my reading of the finding is correct, and that's all that congress is saying, that this would be useful, it doesn't mean that it's impossible. >> but would you -- i would just like to hear before you leave your argument, if you want to, against what justice scalia just said. let's assume, contrary to what you want, that the government's position is accepted by the majority of this court.

and so we now are rid, quote, of the true "heart" of the bill. now, still there are a lot of other provisions here like the indian act, the black lung disease, the wellness program, that restaurants have to have a calorie count of major menus, etcetera. now, some of them cost money and some of them don't. and there are loads of them. now, what is your argument that just because the heart of the bill is gone, that has nothing to do with the validity of these other provisions, both those that cost money, or at least those that cost no money? do you want to make an argument in that respect, that destroying the heart of the bill does not blow up the entire bill, it blows up the heart of a bill? i just would like to hear what you have to say about that. >> well, justice breyer, i think what i would say is if one goes back to the, what i think is the proper severability

standard and say, would congress rather have not -- no bill as opposed to the bill with whatever is severed from it, it seems to me when you are talking about provisions that don't have anything to do with the minimum coverage provision, there is no reason to answer that question as any other way than yes, congress would have wanted these provisions. >> is that the real congress or a hypothetical congress? >> an objective congress, your honor. not the specific -- not with a vote count. >> why put -- why put congress to that false choice? >> well -- >> you only have two choices, congress. you can have the whole bill or you can have -- you can have parts of the bill or no bill at all. why that false choice? >> i think the reason is because severability is by necessity a blunt tool. the court doesn't have, even if it had the inclination, doesn't essentially have the authority to retool the statute -- >> i know. so you -- i would say stay out of politics. that's for congress, not us. >> right.

>> but the -- the question here is, you've read all these cases or dozens. have you ever found a severability case where the court ever said -- well, the heart of the thing is gone and therefore we strike down these other provisions that have nothing to do with it which could stand on their feet independently and can be funded separately or don't require money at all. >> i think the accurate answer would be, i am not aware of any modern case that says that. think there probably are cases in the 20s and 30s that would be more like that. if i could just take one second to address the economists' brief because justice alito raised it earlier. i just want to make one simple point. leaving aside the whole balancing thing, if one looks at the economists' brief, i think it's very important to note that when they are talking about one side of the balance -- may i finish? >> certainly. >> when they are talking about the balance, they are not just talking about the minimum coverage provision. they very carefully word it to

say the minimum coverage provision and the subsidy programs. and then, so when you are doing the mathematical balancing, the subsidy programs are extremely large. in the year 2020, they are expected to be over $100 billion in that 1 year alone. so if you are looking at the numbers, please consider that. thank you, your honors. >> thank you, mr. farr. mr. clement, you have 4 minutes remaining. >> -- amici's point -- he says that congress didn't go into this act to impose minimum coverage. they went into the act to have a different purpose, i.e., to get people coverage when they needed it, to increase coverage for people, but this is only a tool. but other states -- going back to my original point, that there are other tools besides minimum coverage that congress can achieve the same goals.

so if we strike just a tool, why should we strike the whole act, when congress has other tools available? >> mr. chief justice, i will make four points in rebuttal, but i will start with justice sotomayor's question, which is to simply say this isn't just a tool, it's the principal tool. congress identified it as an essential tool. it's not just a tool to make it work. it's a tool to pay for it, to make it affordable. and again, that's not my characterization, that's congress's characterization in subfinding i on page 43a of the government's brief. now, that bring me to my first point in rebuttal, which is mr. kneedler says, quite correctly tells this court don't look at the budgetary implications. well, the problem with that, though, is once it's common ground that the individual mandate is in the statute at least in part to make community rating and guaranteed-issue affordable, that really is all you have to identify. that establishes the essential link that it's there to pay for it. you don't have to figure out

exactly how much that is and which box -- i mean, it clearly is a substantial part of it, because what they were trying to do is take healthy individuals and put them into the risk pool, and this is quoting their finding, which is in order -- they put people into the market "which will lower premiums." so that's what their intent was. so you don't have to get to the -- the final number. you know that's what was going on here, and that's reason alone to sever it. now, the government -- mr. kneedler also says there is an easy dividing line between what they want to keep and what they want to dish out. the problem with that is that, you know, you -- you read their brief and you might think, oh, there is a guaranteed-issue and a community rating provision subtitle in the bill. there is not. to figure out what they are talking about you have to go to page 6 of their brief, of their opening severability brief, where they tell you what is in and what's out. and the easy dividing line they suggest is actually between 300ga-1 and 300ga-2, because on community rating they don't -- they say that a-1 goes, but then they say a-2 has to stay, because that's the way that you'll have some sort of, kind

of potemkin community rating for the exchanges. but if you actually look at those provisions, a-2 makes all these references to a-1. it just doesn't work. now, in getting back to the -- an inquiry that i think this court actually can approach, is to look at what congress was trying to do, you need look no further than look than the title of this statute -- patient protection and affordable care. i agree with mr. farr that community rating and guaranteed-issue were the crown jewels of this act. they were what was trying to provide patient protection. and what made it affordable? the individual mandate. if you strike down guaranteed-issue, community rating and the individual mandate, there is nothing left to the heart of the act. and that takes me to my last point, which is simply this court in buckley created a halfway house, and it took congress 40 years to try to deal with the situation, when contrary to any time of their intent, they had to try to figure out what are we going to do when we are stuck with this ban on contributions, but we can't get at expenditures because the court told us we couldn't. and for -- for 40 years they

worked in that halfway house. why make them do that in health care? the choice is to give congress the task of fixing this statute, the residuum of this statute after some of it is struck down, or giving them the task of simply fixing the problem on a clean slate. i don't think that is a close choice. if the individual mandate is unconstitutional, the rest of the act should fall. >> thank you, mr. clement. mr. farr, you were invited by this court to brief and argue in these cases in support of the decision below on severability. you have ably carried out that responsibility, for which we are grateful. case no. 11-393 is submitted. we will continue argument in case number 11-400 this afternoon. [captions copyright national cable satellite corp. 2012] >> in the fourth and final arguments, they looked at the expansion of the medicaid program by the federal government. this case is on appeal from the

11th circuit. that court ruled that congress overreached and the individual mandate is unconstitutional, but medicaid portion of the statute can stand. this is one hour, 25 minutes. [captioning performed by national captioning institute] >> we will continue argument this afternoon in case 11-400, florida v. department of health and human services. mr. clement. >> mr. chief justice, and may it please the court -- the constitutionality of the act's massive expansion of medicaid depends on the answer to two related questions. first, is the expansion coercive? and, second, does that coercion matter? >> mr. clement, can i ask you just a matter of clarification? would you be making the same argument if, instead of the federal government picking up 90% of the cost, the federal government picked up 100% of the cost? >> justice kagan, if everything else in the statute remained the same, i would be making the exact same argument. >> the exact same argument.

so that really reduces to the question of why is a big gift from the federal government a matter of coercion? in other words, the federal government is here saying, we are giving you a boatload of money. there are no -- there's no matching funds requirement, there are no extraneous conditions attached to it, it's just a boatload of federal money for you to take and spend on poor people's healthcare. it doesn't sound coercive to me, i have to tell you. >> well, justice kagan, let me --i mean, i eventually want to make the point where, even if you had a stand-alone program that just gave 100%, again, 100% boatload, nothing but boatload, why there would still be a problem. >> yes. i mean, you do make that argument in your brief, just a stand-alone program, a boatload of money, no extraneous conditions, no matching funds, is coercive? >> it is. but before i make that point, can i simply say that you built into your question the idea that there are no conditions.

and, of course, when you first asked, it was what about the same program with 100% matching on the newly eligible mandatory individuals, which is how the statute refers to them, and that would have a very big condition. and the very big condition is that the states, in order to get that new money, they would have to agree not only to the new conditions, but the government here is -- the congress is leveraging their entire prior participation in the program - >> well, let me give you a hypothetical, mr. clement. >> sure. >> now, suppose i'm an employer, and i see somebody i really like, and i want to hire that person. and i say, i'm going to give you $10 million a year to come work for me. and the person says, well, i -- you know, i've never been offered anywhere approaching $10 million a year. of course, i'm going to say yes to that. now we would both be agreed that that's not coercive, right? >> well, i guess i would want to know where the money came from. and if the money came from - >> wow. wow. i'm offering you $10 million a year to come work for me, and you are saying that this is anything but a great choice?

>> sure, if i told you, actually, it came from my own bank account. and that's what's really going on here, in part. and that's why it's not >> but, mr. clement - >> -- simply a matter of saying - >> mr. clement, can that possibly be? when a taxpayer pays taxes to the federal government, the person is acting as a citizen of the united states. when a taxpayer pays taxes to new york, a person is acting as a citizen of new york. and new york could no more tell the federal government what to do with the federal government's money than the federal government can tell new york what to do with the moneys that new york is collecting. >> right. and if new york and the united states figured out a way to tax individuals at greater than 100% of their income, then maybe you could just say it's two separate sovereigns, two separate taxes, but, we all know that in the real world, that to the extent the federal government continues to increase taxes, that decreases the ability of the states to tax their own citizenry, and it's a real tradeoff. >> is that a limit on the federal government's power to

tax? >> what's that? >> are you suggesting that at a certain point, the states would have a claim against the federal government raising their taxes because somehow the states will feel coerced to lower their tax rate? >> no, justice sotomayor, i'm not. what i'm suggesting is that it's not simply the case that you can say, well, it's free money, so we don't even have to ask whether the program's coercive. >> now, counsel, what percentage does it become coercive? meaning, as i look at the figures i've seen from amici, there are some states for whom the percentage of medicaid funding to their budget is close to 40% but there are others that are less than 10%. and you say, across the board this is coercive because no state, even at 10%, can give it up. what's the percentage of big gift that the federal government can give? because what you're saying to me is, for a bankrupt state, there's no gift the federal

government could give them ever, because it can only give them money without conditions. no matter how poorly the state is run, no matter how much the federal government doesn't want to subsidize abortions or doesn't want to subsidize some other state obligation, the federal government can't give them 100% of their needs. >> and, justice sotomayor, i'm really saying the opposite, which is not that every gift is coercive, no matter what the amount, no matter how small. i'm saying essentially the opposite, which is there has to be some limit. there has to be some limit on coercion. and the reason is quite simple, because this court's entire spending power jurisprudence is premised on the notion that spending power is different, and that congress can do things pursuant to the spending power that it can't do pursuant to its other enumerated powers precisely because the programs are voluntary. and if you relax that assumption that the programs are voluntary,

and you are saying they are coercion, then you can't have the spending power jurisprudence - >> what makes them coercive, that the state doesn't want to face its voters and say, instead of taking 10%, 20%, 30%, 40% of the government's offer of our budget and paying for it ourselves and giving up money for some other function? that's what makes it coercive - >> well - >> -- that the state is unwilling to say that? >> maybe i can talk about what makes it coercive by talking about the actual statute at issue here and focusing on what i think are the three hallmarks of this statute that make it uniquely coercive. one of them is the fact that this statute is tied to the decidedly nonvoluntary individual mandate. and that makes this unique, but it makes it significant, i think. i will continue. i thought you had a question. i'm sorry.

the second factor, of course, is the fact that congress here made a distinct and conscious decision to tie the state's willingness to accept these new funds, not just to the new funds but to their entire participation in the statute, even though the coverage for these newly eligible individuals is segregated from the rest of the program. and this is section 2001a3 at page 23a of the appendix to the blue brief. >> isn't that true of every medicaid increase? that each time -- i mean, and this started quite many years ago, and congress has added more people and given more benefits -- and every time, the condition is, if you want the medicaid program, this is the program, take it or leave it. >> no, justice ginsburg, this is distinct in two different directions. one is, in some of the prior expansions of the program, but not all, congress has made covering newly eligible individuals totally voluntary. if the states wants to cover the newly eligible individuals, they will get the money, but, if they don't, they don't risk any of their existing participation programs. the 1972 program was a paradigm of that. it created this 209(b) option

for states to participate. this court talked about it in the gray panthers case. there were other expansions that have taken place, such as the 1984 expansions, where they didn't give states that option, but, here's the second dimension in which this is distinct, which is, here, congress has created a separate part of the program for the newly eligible mandatory individuals. that's what they called them. and those individuals are treated separately from the rest of the program going forward forever. they are going to be reimbursed at a different rate from everybody who's covered under the preexisting program. now, in light of that separation by congress itself of the newly eligible individuals from the rest of the program, it's very hard to understand congress's decision to say, look if you don't want to cover these newly eligible individuals, you don't just not get the new money, you don't get any of the money under the - >> where does it say that? i'm sorry, where does it say that? >> it says -- well, it -- where does it say what, justice breyer? >> what you just said. you said, congress said, if you don't take the new money to cover the new individuals, you

don't get any of the old money that covers the old individuals. that's what i heard you say. >> right. >> and where does it say that? >> it says it -- there's two places where it says it. >> yeah, where? >> the 2001a3 makes it part of my brief. >> where is it in your brief? >> that's at page 23 a - >> in the blue brief? >> blue brief. >> 23a. okay. thank you. >> and this makes not the point about the funding cutoff. this makes the point just that these newly eligible individuals are really treated separately forevermore. >> i want the part about the funding cutoff. >> right. and there, justice breyer - >> and that cite section is what? >> i don't have that with me - >> well, i have it in front of me. >> great. perfect. thank you. >> and i will tell you what i have, what i have in front of me, what it says. >> right. >> and it's been in the statute since 1965. >> exactly. >> and the cite i have is 42 u.s.c. section 1396(c). so are we talking about the same thing?

>> if that's the -- if that is the provision that gives the secretary - >> yeah, okay. >> -- among other things -- >> and here's what it says at the end. >> -- the authority to cut off all participation in the program, yes. >> it says, "the secretary shall notify the state agency" -- this is if they don't comply -- "that further payments will not be made to the state or, in his discretion, that payments will be limited to categories under or parts of the state plan not affected by such failure, which it repeats until the secretary is satisfied that he shall limit payments to categories under or parts of the state plan not affected by such failure." so, reading that in your favor, i read that to say, it's up to the secretary whether, should a state refuse to fund the new people, the secretary will cut off funding for the new people, as it's obvious the state doesn't want it, and whether the secretary can go further. i also should think -- i could not find one case where the secretary ever did go further,

but i also would think that the secretary could not go further where going further would be an unreasonable thing to do, since government action is governed by the administrative procedure act, since it's governed by the general principle, it must always be reasonable. so i want to know where this idea came from that should state x say, "i don't want the new money," that the secretary would or could cut off the old money? >> and, justice breyer, here's where it comes from, which is from the very beginning of this litigation, we've pointed out that what's coercive is not the absolute guarantee that the secretary could cut off every penny, but the fact that she could. >> all right. now, let me relieve you of that concern, and tell me whether i have. that a basic principle of administrative law, indeed, all law, is that the government must act reasonably. and should a secretary cut off

more money than the secretary could show was justified by being causally related to the state's refusal to take the new money, you would march into court with your clients and say, "judge, the secretary here is acting unreasonably, and i believe there is implicit in this statute, as there is explicit in the ada, that any such cut-off decision must be reasonable." now, does that relieve you of your fear? >> it doesn't for this reason, justice - >> i didn't think it would. >> well, but here's the reason. here's the reason, justice breyer, it doesn't. one is, i mean, i don't know the opinion to cite for that proposition. second is, we have been making in this litigation since the very beginning this basic point, the government has had opportunities at every level of this system, and i suppose they will have an opportunity today to say, "fear not, states, if you don't want to take the new conditions, all you will lose is the new money." >> and i said -- i said because

it could be, you know, given the complexity of the act, that there is some money that would be saved in the program if the states take the new money, and if they don't take the new money there is money that is being spent that wouldn't otherwise be spent. there could be some pile like that. it might be that the secretary could show it was reasonable to take that money away from the states, too. >> mr. clement - >> but my point is, you have to show reasonableness before you can act. >> -- do you agree -- do you agree that the government has to act reasonably? do we strike down unreasonable statutes? my god! >> and, justice scalia, i mean - >> the executive has to act reasonably, that's certain, in implementing a statute, but, if the statute says, in so many words, that the secretary can strike the whole -- funding for the whole program, that's the law, unreasonable or not, isn't it? >> that's the way i would read the law, your honor. >> yeah, but i have a number -- all right.

>> and if i could just add one thing just to the discussion is the point that, you know, this is not all hypothetical. i mean, in -- there was a record in the district court, and there is an exhibit 33 to our motion to summary judgment. it is not in the joint appendix. we can lodge it with the court if you'd like. but it's a letter in the record in this litigation, and it's a letter from the secretary to arizona, when arizona floated the idea that it would like to withdraw from the chip program, which is a relatively small part of the whole program. and what arizona was told by the secretary is that if you withdraw from the chip program, you risk losing $7.8 billion, the entirety of your medicaid participation. so this is not something that we've conjured up - >> all right. >> mr. clement - >> to make you feel a little better, i want to pursue this for one more minute. there are cases, and many, of which justice scalia knows as well, which uses the holly hill, uses the same word as this statute -- in the secretary's discretion. and in those cases, this court has said, that doesn't mean the secretary can do anything that

he or she wants, but, rather, they are limited to what is not arbitrary, capricious, and abuse of discretion, in interpreting statutes, in applying those statutes, et cetera. end of my argument, end of my question. respond as you wish. [laughter] >> well, justice breyer, i'm not sure that the court's federalism jurisprudence should force states to defend on how a lower court reads holy hill. i think that, really, right here, what we know to an absolute certainty is that this secretary -- this statute gives the secretary the right to remove all of the state's funding under these programs. and think about what that is, just - >> mr. clement, do you think that the federal government couldn't, if it chose, congress, say, the system doesn't work. we are just simply going to rehaul it. it's not consistent with how -- what we want to accomplish. we're just going to do away with the system and start a new

health care plan of some sort. and, states, you can take the new plan, you can leave them. we are going to give out 20% less, maybe 20% more, depending on what congress chooses. can congress do that? does it have to continue the old system because that is what the states are relying upon, and it's coercive now to give them a new system? >> justice sotomayor, we are not saying we have a vested right to participate in the medicaid program as it exists now. so, if congress wanted to scrap the current system and have a new one, i'm not going to tell you that there is no possibility of a coercion challenge to it, but, i'm not going to say that it - >> that's what i -- i want to know how i draw the line, meaning - >> well, can - >> -- i think the usual definition of coercion is, i don't have a choice. i'm not sure what -- why it's not a choice for the states. they may not pay for something else.

if they don't take medicaid, and they want to keep the same level of coverage, they may have to make cuts in their budget to other services they provide. that's a political choice of whether they choose to do that or not. but when have we defined the right or limited the right of government not to spend money in the ways that it thinks appropriate? >> well, justice sotomayor, before -- i mean, i will try to answer that question, too. but the first part of the question was, you know, what if congress just tried to scrap this and start over again with a new program? here's why this is fundamentally different and why it's fundamentally more coercive, because congress is not saying, we want to scrap this program. they don't have a single complaint, really, with the way that states are providing services to the visually impaired and the disabled under pre-existing medicaid. and that's why it's particularly questionable why they are saying that if you don't take our new money, subject to the new conditions, we are going to take all of the

money you have previously gotten, that you have been dependent on for 45 years, and you are using right now to serve the visually impaired and the disabled - >> mr. clement, may i -- may i ask you -- question another line. you represent, what, 26 states? >> that's right, justice ginsburg. >> and we are also told that there are other states that like this expansion, and they are very glad to have it. the relief that you are seeking is to say the whole expansion is no good, never mind that there are states that say, we don't feel coerced, we think this is good. you are -- you are saying that because you represent a sizeable number of states, you can destroy this whole program, even though there may be as many states that want it, that don't feel coerced, that say -- think this is a good thing?

>> justice ginsburg, that's right, but that shouldn't be a terrible concern because, if congress wants to do what it did in 1972 and pass a statute that makes the expansion voluntary, every state that thinks that this is a great deal can sign up. what's telling here, though, is 26 states, who think that this is a bad deal for them, actually are also saying that they have no choice but to take this because they can't afford to have their entire participation in this 45-year- old program wiped out, and they have to go back to square one and figure out how they are going to deal with the visually impaired in their state, the disabled in their state - >> mr. clement, i didn't take the time to figure this out, but maybe you did. >> mr. clement, i didn't take the time to figure this out, but maybe you did. is there any chance that all 26 states opposing it have republican governors, and all of the states supporting it have democratic governors? is that possible? >> there's a correlation, justice scalia. >> yes. [laughter] >> let -- let me ask you another thing, mr. -- mr.clement. most colleges and universities

are heavily dependent on the government to fund their research programs and other things, and that has been going on for a long time. and then title ix passes, and a government official comes around and say -- says to the colleges, you want money for your physics labs and all the other things you get it for, then you have to create an athletic program for girls. and the recipient says, i am being coerced, there is no way in the world i can give up all the funds to run all these labs that we have, i can't give it up, so i'm being coerced to accept this program that i don't want. why doesn't your theory -- if your theory is any good, why doesn't it work any time something -someone receives

something that is too good to give up? >> well, justice ginsburg, there is two reasons that might be different. one is, this whole line of coercion only applies -- is only relevant, really, when congress tries to do something through the spending power it couldn't do directly. so if congress tried to impose title ix directly, i guess the question for this court would be whether or not section 5 of the 14th amendment allowed congress to do that. i imagine you might think that it did, and i imagine some of your colleagues might take issue with that, but, that's -- that's the nature of the question. so one way around that would be, if congress can do it directly, you don't even have to ask whether there is something special about the spending power. that's how this court resolved, for example, the ferra case about funding to -- to colleges. >> i'm trying to understand your coercion theory. i know that there are cases of ours that have said there is a line between pressure and coercion, but we have never had, in the history of this country or the court, any federal

program struck down because it was so good that it becomes coercive to be in it. >> well, justice ginsburg, i'm going -- to say the second thing about my answer to your prior question, which is just i also think that, you know, it may be that spending on certain private universities is something, again, that congress can do, and it doesn't matter whether it's coercion. but when they are trying to get the states to expand their medicaid programs, that's - >> let's take -- let's take public colleges. >> okay. then there -- then there may be some limits on that, i mean, but, again, i'm not sure, even in that context, there might not be some things congress can do. it's a separate question. but once we take the premise, which i don't think there is a disagreement here, that congress could not simply, as a matter of direct legislation under the commerce power or something, say, states, you must expand your medicaid programs, if we take that as a given, then i think we have to ask the question of whether or not it's coercive. now, you -- in your second question, you asked, well, you know, i mean, where's the case that says that we've crossed that line? and this is that case, i would respectfully say - >> and isn't the covenant going

to apply, as well, to the 1980 extension to children 0 to 6 years old, 1990 requiring the extension for children up to 18? all those prior extensions, to me, seem just as big in amount, just about as big in the number of people coming on the rolls, and they all are governed by precisely the same statute that you are complaining of here, which has been in the law since '65. >> justice breyer, i don't think that our position here would necessarily extend to say the 1984 amendments, and let me tell you why. you know, i'm -- i'm not saying that absolutely that's guaranteed that's not coercive, but here's reasons why they're different. the one major difference is the size of the program. i mean, the expansion of medicaid since 1984 is really breathtaking. medicaid, circa 1984, the federal spending to the states was a shade over $21 billion. right now, it's $250 billion, and that's before the expansion under this statute. >> well, if you are right, mr. clement, doesn't that mean that medicaid is unconstitutional now? >> not necessarily, justice kagan. and, again, it's because we are

not here with a one trick pony. and this -- one of the factors -- we point you to three factors that make this statute uniquely coercive. one of them is the sheer size of this program. and, you know, if you want a gauge on the size of this program, the best place to look is the government's own number. footnote 6, page 73 - >> so, when does a program become too big? i want you to -- give me a dollar number. >> $3.3 trillion over the next 10 years. that's -- that - >> i thought $1 trillion. >> i'll tell you this number, which i did look up, that the amount, approximately, if you look into it -- as a percentage of gdp, it's big, but it was before this somewhere about 2- point-something percent, fairly low, of gdp. it'll go up to something a little bit over 3% of gdp. and now go look at the comparable numbers, which i did look at, with the expansion that we're talking about before. the expansion from 0 to 18 or even from 0 to 6.

and while you can argue those numbers, it's pretty hard to argue that they aren't roughly comparable as a percentage of the prior program or as a percentage of gdp. if i'm right on those numbers or even roughly right -- i don't guarantee them -- then would you have to say, well, indeed, medicaid has been unconstitutional since 1964. and if not, why not? >> the answer is no, and that's because we're here saying there are three things that make this statute unique. >> what are your second and third? i'm on pins and needles to hear your second -( laughter.) >> one is the sheer size. two is the fact that this statute uniquely is tied to an individual mandate which is decidedly nonvoluntary. and three is the fact that they've leveraged the prior participation in the program, notwithstanding that they've broken this out as a separately segregated fund going forward, which is not ->> so, on the third -- on the third, suppose you had the current

program and congress wakes up tomorrow and says we think that there's too much fraud and abuse in the program, and we're going to put some new conditions on how the states use this money so we can prevent fraud and abuse, and we're going to tie it to everything that's been there initially. unconstitutional? >> no, i think that is constitutional because i think that's something that congress could do directly. it wouldn't have to limit that to the spending program. and i think 18 u.s.c. 666 is -- is a statute -- you know, it may -- it's in the criminal code. it may be tied to spending, but i think that's -- that's a provision that i don't think is constitutionally called into question. >> i guess i don't get the idea. i mean, congress can legislate fraud and abuse restrictions in medicaid, and congress can legislate coverage expansions in medicaid. >> well, justice kagan, i think there's a difference, but if i'm wrong about that and the consequence is that congress has to break medicaid down into remotely manageable pieces as opposed to $3.3 trillion over 10 years before the expansion, i don't think that would be the end of the

world. but i really would ask you to focus on specifically what's going on here, which is they take these newly eligible people -- and that's a massive change in the way the program works. these are people who are healthy, childless adults who are not covered in many states. they say, okay, we're going to make you cover those. we're going to have a separate program for how you get reimbursed for that. you get reimbursed differently from all the previously eligible individuals. but if you don't take our money, we're going to take away your participation in the program for the visually impaired and disabled. if i may reserve the balance of my time. >> well, i'm -- i'm not sure my colleagues have exhausted their questions, so - >> i guess my greatest fear, mr. clement, with your argument is the following -- the bigger the problem, the more resources it needs. we're going to tie the hands of the federal government in

choosing how to structure a cooperative relationship with the states. we're going to say to the federal government, the bigger the problem, the less your powers are. because once you give that much money, you can't structure the program the way you want. it's our money, federal government. we're going to have to run the program ourself to protect all our interests. i don't see where to draw that line. the uninsured are a problem for states only because they, too, politically, just like the federal government, can't let the poor die. and so, to the extent they don't want to do that, it's because they feel accountable to their citizenry. and so, if they want to do it their way, they have to spend the money to do it their way, if they don't want to do it the federal way. so, i just don't understand the logic of saying, states, you can't -- you don't -- you're not entitled to our money, but once you start taking it, the more

you take, the more power you have. >> well, justice sotomayor, a couple of points. one is, i actually think that sort of misdescribes what happened with medicaid. i mean, states were, as you suggest, providing for the poor and the visually impaired and the disabled even before medicaid came along. then all of a sudden, states - the federal government said, look, we'd like to help you with that, and we're going to give you money voluntarily. and then over time, they give more money with more conditions. and now they decide they're going to totally expand the program, and they say that you have to give up even your prior program, where we -first came in and offered you cooperation, we're now going to say you have to give that up if you don't take our new conditions. secondarily, i do think that our principle is not that when you get past a certain level, it automatically becomes coercive

per se. but i do think when you get a program and you're basically telling states that, look, we're going to take away $3.3 trillion over the next 10 years, that at that point, it's okay to insist that congress be a little more careful that it not be so aggressively coercive as it was in this statute. and i would simply say that -- we're not here to tell you that this is going to be an area where it's going to be very easy to draw the line. it's just telling you that exceptionally important to draw that line, and this is a case where it ought to be easy to establish a beachhead, say that coercion matters, say there's three factors of this particular statute that make it as obviously coercive as any piece of legislation that you've ever seen, and then you will have effectively instructed congress that there are limits, and you will have laid down some administrable rules. >> mr. clement, the chief has said i can ask this. >> he doesn't always check first. [laughter] >> as i recall your -- your theory, it is that to determine whether something is coercive, you look to only one side, how much you're threatened with losing or offered to receive. and the other side doesn't matter. i don't think that's realistic. i mean, i think, you know, the -- the old jack benny thing, your money or your life, and, you know, he says "i'm thinking, i'm thinking." it's -- it's funny, because it's no choice. you know?

your life? again, it's just money. it's an easy choice. no coercion, right? i mean -- right? now, whereas, if -- if the choice were your life or your wife's, that's a lot harder. now, is it -- is it coercive in both situations? >> well, yes. it is. [laughter] >> really? >> i would say that. >> it's a tough choice. and -- and -

>> i thought you were going to say that it's your money and your life. [laughter] >> and, well -- it is. but i mean -- i might have missed something, but both of those seem to be the hallmarks of coercion. [laughter] >> no, no, no. to say -- to say you're -- when you say you're coerced, it means you've been -- you've been given an offer you can't refuse. okay? you can't refuse your money or your life. but your life or your wife's, i could refuse that one. [laughter] >> mr. clement, he's not going home tonight. [laughter] >> i'm talking about my life. i think -- take mine, you know? [laughter] >> i wouldn't do that either, justice. >> i won't use that as an example. forget about it. >> that's enough frivolity for a while. but i want to make sure i understand where the meaningfulness of the choice is taken away. is it the amount that's being offered, that it's just so much money, of course you can't turn it down, or is it the amount that's going to be taken away if you don't take what they're offering? >> it's both, your honor. and i think that that's -- i mean, there really is -- there

really is, you know, three strings in this bow. i mean, one is the sheer amount of money here makes it very, very difficult to refuse, because it's not money that, you know, that's come from some -- you know, china or, you know, from the -- the -- you know, the export tariffs like in the old day. it's coming from the taxpayers. so, that's part of it. the fact that they're being asked to give up their continuing participation in a program that they've been participating in for 45 years as a condition to accept the new program, we think that's the second thing that's critical - >> well, why isn't that a consequence of how willing they have been since the new deal to take the federal government's money? and it seems to me that they have compromised their status as independent sovereigns because they are so dependent on what the federal government has done, they should not be surprised that the federal government, having attached the -- they tied the strings, they shouldn't be surprised if the federal government isn't going to start pulling them. >> with all due respect, mr. chief justice, i don't think we can say that, you know, the states have gotten pretty

dependent, so let's call this whole federalism thing off. and i just think it's too important, because, again, the consequence -if you think about it -- if -- the consequence of saying that we're not going to police the coercion line here shouldn't be that well, you know, it's just too hard, so we'll give the federal congress unlimited spending power. the consequence ought to be, if you really can't police this line, then you should go back and reconsider your cases that say that congress can spend money on things that it can't do directly. now, we're not asking you to go that far. we're simply saying that, look, your spending power cases absolutely depend on there being a line between coercion - >> but could you tell me - >> -- and voluntary action. >> i don't understand your first answer to justice kagan. you don't see there being a difference between the federal government saying we want to take care of the poor, states, if you do this, we'll pay 100% of your administrative costs. and you said that could be coercion. all right? doesn't the amount of burden that the state undertakes to meet the federal obligation count in this equation at all?

>> it -- it certainly can, justice sotomayor. i didn't mean to suggest, in answering justice kagan's question, that my case was no better than that hypothetical. i mean, but it's in the nature of things that i do think the amount of the money, even considered alone, does make a difference, and it's precisely because it has an effect on their ability to raise revenue from their own citizens. so it's not just free money that they are turning down if they want to, it really is - >> counsel, if we go back to the era of matching what a state pays to what a state gets, florida loses. it's citizens pay out much less than what they get back in federal subsidies of all kinds. so you can't really be making the argument that florida can't ask for more than it gives, because it's really giving less than it receives. >> well, then i'll make - >> you don't really want to go

back to that point, do you? >> well, then i'll make that argument on behalf of texas. [laughter] >> but it's not -- it's not what my argument depends on, and that's the critical thing. it's one aspect of what makes this statute uniquely coercive. and i really think if you ask the question, what explains the idea that if you don't take this new money, you are going to lose all your money under what you have been doing for 45 years to help out the visually impaired and the disabled, nobody in congress wants the states to stop doing that. they are just doing it, and it's purely coercive, to condition the money. it's leverage, pure and simple. >> if the inevitable consequence of your position was that the federal government could just do this on its own, the federal government could have medicaid, medicare, and these insurance regulations, assume that's true, then how are the interests of federalism concerned? how are the interests of federalism concerned if, in florida or texas or some of the other objecting states, there are huge federal bureaucracies doing what this bill allows the

state bureaucracies to do? i know you have thought about that. i would just like your answer. >> i have, and i would like to elaborate that the one-word answer is "accountability." if the federal government decides to spend money through federal instrumentalities, and the citizen is hacked off about it, they can bring a federal complaint to a federal official working in a federal agency. and what makes this so pernicious is that the federal government knows that the citizenry is not going to take lightly the idea that there are huge, new federal bureaucracies popping up across the country. and so they get the benefit of administering this program through state officials, but then it makes it very confusing for the citizen, who doesn't like this. do they complain to the state official because it's being administered by a state official in a state building, or do they - >> but, mr. clement, that is very confusing because the idea behind cooperative federal/state programs was exactly a federalism idea.

it was to give the states the ability to administer those programs. it was to give the states a great deal of flexibility in running those programs. and that's exactly what medicaid is. >> well, that's exactly what medicaid was. the question is, what will it be going forward? and i absolutely take your point, justice kagan. cooperative federalism is a beautiful thing. mandatory federalism has very little to recommend it because it poses exactly the kind of accountability - >> cooperative federalism does not mean that there are no federal mandates and no federal restrictions involved in a program that uses 90% here, 100% federal money. it means there is flexibility built into the program subject to certain rules that the federal government has about how it wishes its money to be used. it's like giving a gift certificate. if i give you a gift certificate for one store, you can't use it for other stores, but, still, you can use it for all kinds of different things. >> i absolutely agree that if it's cooperative federalism and the states have choices, then that is perfectly okay. but when -- that's why voluntariness in coercion is so important.

because if you force a state to participate in a federal program, then -- i mean, as long as it's voluntary, then a state official shouldn't complain if a citizen complains to the state about the way the state's administering a federal program that it volunteered to participate in. but at the point it becomes coercive, then it's not fair to tell the citizen to complain to the state official, they had no choice. but who do they complain to at the federal level? there's nobody there, which would be -- i'm not saying it's the best solution to have federal instrumentalities in every state, but it actually is better than what you get when you have mandatory federalism, and you lose the accountability that is central to the federalism provisions in the constitution. >> thank you, mr. clement. general verrilli. >> mr. chief justice, and may it please the court -- the affordable care act's medicaid expansion provisions will provide millions of americans with the opportunity to have access to essential health care that they cannot now afford.

it is an exercise of the spending clause power that complies with all of the limits set forth in this court's decision in dole, and the states do not contend otherwise. the states are asking this court to do something unprecedented, which is to declare this an impermissibly coercive exercise of power - >> what do you think we meant in those dicta in several prior cases, where we've said that the federal government cannot be coercive through the spending clause? what -- what do you think we were -- give us a hypothetical. >> yes. first, if i could just try to be a little more precise about it, justice scalia. i think what the court said in steward machine and in dole is that it's possible that you might envision a situation in which there's coercion.

>> okay. >> and the courts didn't say much more, but i can think of something. one example i could think of that might serve as a limit would be a coyle-type situation, in which the condition attached was -- worked a fundamental transformation in the structure of state government in a situation in which the state didn't have a choice but to accept it. but -- and so - >> anything else, so long as you - >> well, but - >> you are talking about situations where they have to locate their state house in some other city - >> or you may have no legislature or something like that. >> -- and they have no choice. but, short of that, they can make the state do anything at all? >> well, no. dole -- the dole conditions are real. the germaneness condition in dole is real, for example. and so those - >> but none of those have addressed the coercion question. >> right. >> 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 it's not what we have here. >> but there's no coercion question at all? >> well, but i think -- i think they are related. i think that the germaneness inquiry in dole really gets at coercion in some circumstances, and that's why i think they are related, but, we don't have that here.

and if i could, i would like to address - >> no, i know we don't have that here. how does germaneness get -- get to coercion? >> well, because it gets to be harder to see what - >> that's germaneness, there's no - >> -- what the connection is between getting you to do a and the money you are getting for - >> so it fails because it is not germane, but, you are saying it would not fail because it was coercive? >> well, i think that -- as i said, i think they are really trying to get at the same thing. and i -- but i do think it's quite different here, and i would like to, if i could, take up each of the - >> no, no. i know it's -- i know it's different here. i'm just trying to understand if you accept the fact or regard it as true that there is a coercion limit, or, that once the federal government -- once you are taking federal government money, the federal government money -- can take it back, and that doesn't affect the voluntariness of your choice? because it does seem like a serious problem. we are assuming, under the spending clause the federal government cannot do this, under the constitution it cannot do this, but, if it gets the state to agree to it, well, then it can. and the concern is, if you can say, if you don't agree to this you lose all your money, whether that's really saying the limitation in the constitution is -- is largely meaningless.

>> well, but i don't think that this is a case that presents that question, mr. chief justice. >> no, no, i know. i'm just -- i know this -- i don't know if i will grant it to you or not, but let's assume it's not this case. do you recognize any limitation on that concern? >> i think the court has said, in steward machine and dole, that this is something that needs to be considered in an appropriate case, and we acknowledge that, but, i do think it's so dependent on the circumstances that it's very hard to say in the abstract with respect to a particular program that there is a - >> you can't imagine a case in which it is both germane and yet coercive, is what you are saying. there is no such case as far as you know. >> well, i am not prepared to -- to say right here that i can -- that ->> i wouldn't think that is a surprise question. i mean, you know ->> i mean, you know, congress has authority to act and - >> hey, i can't think of one. i'm not blaming you for not thinking of one. [laughter] >> but i do think -- but i do think -- i really do think that it's important to look at this, an issue like this, if you are going to consider it, it has got to be considered in the factual context in which it arises.

>> well, let me give you a factual context. let's say congress says this to the states -- we have got great news for you. we know that your expenditures on education are a huge financial burden, so we are going to take that completely off your shoulders. we are going to impose a special federal education tax which will raise exactly the same amount of money as all of the states now spend on education, and then we are going to give you a grant that is equal to what you spent on education last year. now, this is a great offer and we think you will take it, but, of course, if you take it, it's going to have some conditions because we're going to set rules on teacher tenure, on collective bargaining, on curriculum, on textbooks, class size, school calendar, and many other things. so, take it or leave it.

if you take it, you have to follow our rules on all of these things. if you leave it, well, then you're going to have to fine -- you are going to have to tax your citizens, they're going to have to pay the federal education tax, but on top of that, you're going to have to tax them for all of the money that you're now spending on education, plus all of the federal funds that you were previously given. would that be -- would that reach the point -- would that be the point where financial inducement turns into coercion? >> no, i don't think so - >> no? >> -- because they do, the states do have a choice there, especially as a -- as a going-in proposition. the argument the states are making here is not that they're -- that -- this is not a going- in proposition. their argument is that they're - they are in a position where they don't have a choice because of everything that has happened before. but - >> you might be right. but if that's the case, then there's nothing left ->> well, but as a - >> -- of federalism. >> as a practical matter, i disagree with that, justice alito. first of all, as a practical matter, there's a pretty serious political constraint on that situation ever arising, because it's not like the federal government is going to have an easy time of raising the kinds of tax revenues that need to be -- needed to raised to work that kind of fundamental transformation, and that's real. and political constraints do operate to protect federalism in this area.

>> i would have thought there was a serious political strain -- constraint on the individual mandate, too, but that didn't work. what you call serious political constraints sometimes don't work. >> but -- but with respect to a situation like that one, justice scalia, the -- the states have their education system, and they can decide whether they're going to go in or not. but here, of course, i think it's important to trace through the history of medicaid. it is not a case, as my friend from the other side suggested, that the norm here is that the federal government has offered to the states the opportunity either to stay where they are or add the new piece. we can debate that proposition with respect to 1972 one way or another. the states have one view about that, we have a different one. but starting in the 1984 expansion, with respect to pregnant women and infants, it was an expansion of the entire program, states were given the choice to stay in the entire program or not. 1989 when the program was

expanded to children under 6 years of age, under 133% of poverty, same thing. 1990, kids 6 to 18 and 100% of poverty, same thing. in fact, every major expansion, same thing. and so, i just think the history of the program, and particularly when you read that in context of 42 u.s.c. 1304, which reserves the right of the federal government to amend the program going forward, shows you that this is something that the states have understood all along. this has been the evolution of it, and with respect to -chief >> could you give me some assurance? we heard the question about whether or not the secretary would use this authority to the extent available. is there circumstances where you are willing to say that that would not be permissible? i'm thinking of the arizona letter, for example. i mean, if i had the authority and i was in that position, i would use it all the time. you might -- you want some little change made? well, guess what, i can take away all your money if you don't make it.

i win. every time. it seems that that would be the case. so, why shouldn't we be concerned about the extent of authority that the government is exercising, simply because they could do something less? we have to analyze the case on the assumption that that power will be exercised, don't we? >> well, mr. chief justice, it would not be responsible of me to stand here in advance of any particular situation becoming -- coming before the secretary of health and human services and commit to how that would be resolved one way or another. but that -chief >> no, i appreciate that. i appreciate that, but i guess - >> that discretion is there in the statute, and i think there's every reason to think it's real, but i do think, getting back to the circumstances here - >> well, general, what's the - been the history of its use? has the secretary in fact ever made use of that authority? >> that's correct, justice kagan. it's never been used - >> what about the arizona letter we just heard about today?

>> it has never been used to cut off - >> it's been used to threaten - >> of course not. >> of course no state is going say, okay, go ahead, make my day, take it away. they're -- they're going to give in. >> if we could go to the situation we have here, mr. chief justice, this -- with respect to the medicaid expansion, the states' argument is, as they've said in their briefs -- they articulated a little bit different this morning -- this afternoon. but as they said it in their briefs was it's not what you stand to gain, but what you stand to lose. but i think an important thing in evaluating that argument in this context is fully 60% of medicaid expenditures in this country are based on optional choices. and i don't mean by that the optional choices of the states to stay in the program in '84 or '88 or '89. but -- but states are given choices to expand the beneficiaries beyond the federal minimum and to expand services beyond the federal minimum. >> and just a small point, and please correct me if i am wrong. it -- does this act not require states to keep at the present level their existing medicaid expenditure? so some states may have been more generous than others in medicaid, but this act freezes that so the states can't go back. or am i incorrect?

>> it's much more nuanced than that, justice kennedy. there is something called a maintenance of effort provision which lasts until 2014, until such time as the medicaid expansion takes place and the exchanges are in place. that applies to the population. it says, with respect to the population, you can't take anybody out. it does not apply to the optional benefits where the states still have flexibility. they can still reduce optional benefits that they're now providing if they -- if they want to control costs. they can also work on provider rates. there's also -- with respect to demonstration projects by which some states have expanded their populations beyond the required eligibility levels, they don't have to keep them in. and then there's also, if the state has a budgetary crisis, it can get a waiver of that, as wisconsin did. so, that is a -- that's a provision i think that does a significant degree less than my friends on the other side have suggested in terms of -in terms of its effect, and its effect beyond that is just temporary.

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

place, under their theory, the provision is coercive. >> the smaller it, is the bigger the coercion. >> well - >> the smaller what you're demanding of them, the bigger the coercion to go along. >> the more they stand to lose. and -- and so -- and then it -- i'm sorry, justice breyer. >> i -- just before you leave that, i'd -- i'd appreciate it if you would expand a little bit on the answer to justice kagan's question for the reason, when i read the cutoff statute, which as i said has been there since 1965 unchanged, it does refer to the secretary's discretion to keep the funding, insofar as the funding has no relationship to the failure to comply with the condition. and as i read that, that gives the secretary the authority to cut off all the money, but the states' refusal to accept the condition means they shouldn't have. but nothing there says they can go beyond that and cut off unrelated money. now, there is a sentence says maybe they could do that. i thought they had to exercise that within reason. >> right. well - >> i don't know when it be reasonable. so, you've looked into it, and that's what i want to know. >> right. >> is there -- i could find no

instance where they went beyond the funds that were related to the thing that the state refused to do or things affected by that. i would like you to tell me, when you looked into it, that what i thought of in this isolation chamber here is actually true. or whether they have gone around threatening people that we will cut off totally unrelated funds. what is the situation? >> i think the situation is generally as you've described it, but i do want to be careful in saying i don't think it would be responsible of me to commit now that the secretary would exercise the discretion uniformly in one way or another. >> well, but that's just saying that when, you know, the analogy that has been used, the gun to your head, "your money or your life," you say, well, there's no evidence that anyone has ever been shot. >> but - >> well, it's because you have to give up your wallet.

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

and i think that most - >> and you are not privy to what those are. >> and i'm not. but - >> and who wins? >> well, i think -- that's what i think is the problem here, justice scalia, is it seems to me we are operating under a conception that isn't right. the reason we have had all these medicaid expansions, and the reason, it seems to me, why we are were where we are now, and why 60% of what's being spent on medicaid is based on voluntary decisions by the states to expand beyond what federal law requires, iis because this is a good program and it works. and the states generally like what it accomplishes - >> and, general verrilli - >> general verrilli, is this discussion realistic? the objective of the affordable care act is to provide near universal health care. now, suppose that all of the 26 states that are parties to this case were to say, well, we're not going to -- we're not going to abide by the new conditions. then, there would be a huge portion -- a big portion of the population that would not have healthcare. and it's a realistic possibility the secretary is going to say, well, okay, fine,

you know. we are going to cut off your new funds, but we are not going to cut off your old funds, and just let that condition sit there? >> well, just as i can't make a commitment that the authority wouldn't be exercised, i'm not going to make a commitment that it would be exercised. but i do think that that -- to try and move away from the first of their arguments, the sheer size argument, to the second one, which is that it's coercive by virtue of its relationship to the affordable care act, i really think that that's a misconception, and i would like to be able to take a minute and walk through and explain why that is. >> general verrilli, before you do that, i'm sorry, but in response to the chief justice's question, i mean, the money or your life, has consequence because we are worried that that person is actually going to shoot. so i think that this question about are we -- what do we think the secretary is going to do is an important one. and as i understand it, i mean, when the secretary withdraws

funds, what the secretary is doing is withdrawing funds from poor people's health care, and that the secretary is reluctant and loathed to take money away from poor people's health care. and that that's why these things are always worked out. it's that the secretary really doesn't want to use this power, and so the secretary sits down with the state and figures out a way for the secretary not to use the power. >> that's correct, justice kagan. that is no - >> no, what the - >> i'm sorry - >> go ahead. >> that's another way of trying to say what i was trying to say to justice scalia earlier, is that the states and the federal government share a common objective here, which is to get health care to the needy. and, in the vast majority of instances, they work together to make that happen. >> but the question is not -- obviously, the states are interested in the same objective, and they have a disagreement, or they have budget realities that they have to deal with. and states say, well, we are going to cut by 10% what we reimburse this for or that for, and the federal government says, well, you can't. and no one is suggesting that people want to cut health care, but they have different views about how to implement policy in this area.

and the concern is that the secretary has the total and complete say because the secretary has the authority under this provision to say, you lose everything. no one's suggested in the normal course that will happen, but, so long as the federal government has that power, it seems to be a significant intrusion on the sovereign interests of the state. now, i'm not -- it may be something they gave up many decades ago when they decided to live off of federal funds, but i don't think you can deny that it's a significant authority that we are giving the federal government to say, you can take away everything if the states don't buy into the next program. >> well, but what i would say about that, mr. chief justice, is that we recognize that these decisions aren't going to be easy decisions in some circumstances. as a practical matter, there may be circumstances in which they are very difficult decisions. but that's different from saying that they are coercive, and that's different from saying that it's an unconstitutional -

>> why is it different? why is it different? i mean, i thought it might be very unlikely that a state would ever say -- the government -- federal government would say, here's a condition that you have to have a certain kind of eyeglasses for people who don't see. and, by the way, if you don't do that, we'll take away $42 billion of funding, okay? i thought such a thing would not happen. and i thought if it tried to happen, that it's governed by the apa, and the person with the eyeglasses would say it's arbitrary, capricious abuse of discretion. and that's so, even though the statute says it's in the discretion of the secretary. but mr. -- your colleague and brother says no, i'm wrong about the law there, and, moreover, they would do it. that's what i'm hearing now, that they would do it, and they do do it, and -- and, etc. so i would like a little clarification. >> in the situation described in your hypothetical, justice breyer, i think it's -- the secretary of health and human services would never do it. but what i'm saying is, with respect to the medicaid expansion in this case -

>> could never do it or would >> would never do it. >> it's your prediction, okay. >> well, and i think that it would have to satisfy the administrative procedure. think that's a real constraint. what i'm not -- what i don't feel able to do here is to say with respect to this medicaid expansion - >> are you willing to acknowledge that the administrative procedure act is a limitation on the secretary's ability to cut off all the funds, she can't do it if it -- if that would be unreasonable? are you willing to accept that? wouldn't if i were you. >> so - [laughter] >> what i'm trying to do here is to -- is to suggest that the secretary does have discretion under the statute, and that that -- and that >> indeed, part of the discretion is to cut off all of the funds. that's what the statute says. >> and it is possible, and i'm not willing to give that away. but that doesn't make this - >> 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 kagan, but - >> what's making you reluctant? not'm not trying to be -i'm trying to be reluctant. i understand how this works. i'm trying to be careful about the authority of the secretary of health and human services and how it will apply in the future. >> i wouldn't worry a lot if i were you. i don't know of any case that, where the secretary's discretion explicitly includes a certain act, we have held that, nevertheless, that act cannot be performed unless we think it reasonable. i don't know any case like that. yes, when there's just a general grant of discretion, it has to be exercised reasonably. but maybe justice breyer knows such a case. >> yes, i do. >> all right. give it to me. [laughter] >> if i could go back to the sheer size idea, there's, i think, another couple of points that are important in thinking about whether that's a principle courts could ever apply. once you get into that business -- in addition to the problem i identified earlier, that it basically means that congress

is frozen in place -- now, based on the size of the program, you've got this additional issue of having to make a judgment about in what circumstances will -- will the loss of the federal funding be so significant that you would count it as being coercive. >> i suppose one test could be -- i just don't see that it would be very workable -is whether or not it's so big that accountability is lost, that it is not clear to the citizens that the state or the federal government is administering the program, even though it's a state administrator. >> well, but i think this going to come from a - >> and i think that's unworkable. >> this is going to come from a withdrawal situation. their argument's about it's what you stand to lose and with

respect to withdrawal. i mean -- so, does it depend on -- is it an absolute or a relative number with respect to how much of the state budget? is it a situation where you have to make a calculation about how hard would it be for that state to make up in state tax revenues the federal revenue they would lose? does that depend on whether it's a high tax state or a low tax state? it just seems to me -- and then, what is the political climate in that state? it seems to me like - >> in your view -- 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. but, here - >> is that subsumed in the coercion test, or is that an independent one? >> you know, here, the coercion test, as it's been discussed, i think, for example, in justice o'connor's dissent in dole and in some of the other literature, does address federalism concerns in the sense of the federal government using federal funding in one area to

try to get states to act in an area where the federal government may not have article i authority. >> yes. >> but, as your honor suggested earlier, this is a situation in which, while it is certainly true that the federal government couldn't require the states, as the chief justice indicated, to carry out this program, the federal government could, as your honor suggested, expand medicare and do it itself. >> but do you agree that there still is inherent and implicit in the idea of federalism, necessary for the idea of federalism, that there be a clear line of accountability so the citizen knows that it's the federal or the state government who should be held responsible for their program? >> certainly, but i think the problem here is - >> and does coercion relate to that, or is that a separate - >> yes, but i think - >> -- is that a separate doctrine? >> well, i think it relates to it in the opposite way that my friends on the other side would like it to, in that i think their argument is that it would subject us to such a high degree of political accountability at the state level to withdraw ourselves from the program, that it's an unpalatable choice for us, and that's where the coercive effect comes from. and that's why i think - >> well, but i think the answer would be that the state wants to preserve its integrity, its identity, its responsibility in the federal system. >> and it may -- and, of course, it may do so, and it can make ->> may it do so?

doesn't the question come down to this -maybe you can answer this yes. but -- but isn't the question simply -- is it conceivable to you, as it was evidently not to congress, that any state would turn down this offer, that they can't refuse? is it conceivable to you that any state would have said no to this program? congress didn't think that, because some of its other provisions are based on the assumption that every single state will be in this thing. >> i think - >> now, do you -- can you conceive of a state saying no? and -- and if you can't, that sounds like coercion to me. >> i think -- i think congress predicted that states would stay in this program, but the -- prediction is not coercion. and the reason congress predicted it, i think, justice scalia, is because the federal government is paying 90-plus% of the costs. it increases state costs - >> so 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, and if it proves to be wrong, then

congress has time to recalibrate. and beyond that, i do think if -- i just want to go back to the -- the other part of your honor's point -- that with respect to the relationship between medicaid and the -- the act, and particularly the minimum coverage provision, my -- my friend mr. clement has suggested that you can infer coercion because, with respect to the population to which the provision applies, if there's no medicaid, there's no other way for them to satisfy the requirement. i want to work through that for a minute if i may, because it's just incorrect. first of all, with respect to anybody at 100% of the poverty line or above, there is an alternative in the statute. it's the exchanges with tax credits and with subsidies to insurance companies. so with respect to that, the part of the population at 100% of poverty to 133% of poverty, the -the statute actually has an alternative for them. for people below 100% of poverty, it -- it is true that there is no insurance alternative. but by the same token, there is no penalty that is going to be imposed on anybody in that group.

to begin with, right now, the -- the level of 100% of poverty is $10,800. the -- the requirement for filing a federal income tax return is $9,500. so anybody below $9,500, no penalty, because they don't have to file an income tax return. the sliver of people between $9,500 and $10,800, the question there is are they going to be able to find health insurance that will cost them less than 8% of their income. >> well, i'm not -- in selling this argument -- take the poorest of the poor. if there is no medicaid program, then they're not going to get health care. isn't that right? >> yes, that's true. but this - >> so congress obviously assumed -- it thought it was inconceivable that any state would reject this offer, because the objective of the affordable

care act is to provide near- universal care. and medicaid is the way to provide care for at least the poorest of the poor. so it -- it just didn't occur to them that this was a possibility. >> well - >> and when -- when that's the case, how can that not be coercion? >> well - >> unless it's just a gift. unless it's just purely a gift. then it comes back to the question of whether you think it makes a difference that the money -- a lot of the money to pay for this -- is going to come out of the same taxpayers that the states have to tax to get their money. >> this is -- this is a -this is -- these are federal dollars that congress has offered to the states and said, we're going to make this offer to you, but here's how these dollars need to be spent. this is the essence of congress's article i authority under the general welfare clause and the appropriations clause. this is not some remote contingency, or an effort to leverage in that regard. this is how congress is going to have the federal government's money be used if states choose to accept it. yes, it was reasonable for

congress to predict in this circumstance that the states were going to -- to take this money, because -- because it is an extremely generous offer of funds -- 90-plus% of the funding. states can -- can expand their medicaid coverage to more than 20% of their population for an increase of only 1%- >> if it's such a good deal - >> -- of their funding. >> -- why do you care? if it's such a good deal, why do you need the club? >> well, the -- the - >> if it's a good deal, take it. we're not going to -- if you don't take it, you're just hurting yourself. we're not going to - >> that's -- that's a judgment for congress to make about how the federal -how federal funds are going to be used if states choose to accept them, and congress has made that judgment. that's congress's judgment to make, and it's -- it doesn't mean that it's coercive. >> you have another 15 minutes. >> lucky me. lucky me. [laughter]

>> but the -- but the point is -- but the -- the point is, there's -- there's no real - >> can we go back - >> there's no real -- there's no realistic choice. there's no real choice. and congress does not in effect allow for an out -- opt out. we just know that. and it's - >> well, i guess i - >> -- it's substantial. >> i would go back, justice kennedy, to the - >> i recognize the problem with that test. >> i would go back to the fact that 60% of the medicaid spending is now optional. it's -- it's a result of choices that states have made that -- it's expanded the - >> even though they're now frozen in, per our earlier discussions, to a large extent. >> well, but -- well, no -to a more -- much more modest extent was my point, justice kennedy. for example, optional services where a huge amount of money is spent -- more than $100 billion annually -- the largest component of that is nursing home services. that remains optional. it's -- right now, once the minimum -- once the maintenance provision remains in place, states have the flexibility to that -reduce those numbers.

states have considerable flexibility now and going forward with respect to the way that money is spent. and i do think in terms of evaluating whether this expansion should be considered coercive, it has got to be evaluated against the backdrop of the fact that the states are generally taking -- are generally taking advantage of the opportunities of this statute to greatly expand the amount of money that the federal government spends and the amount of money that they spend to try to make the -- the lives of their citizens better. i think - >> of course, they have to do so by hiring a very substantial number of more employees. there will be state employees. there'll be substantial state administrative expenses that are not reimbursed. >> well, but -- i would take issue with that, justice kennedy. part of the affordable care act is that it -- it provides for new streamlined eligibility processes to get people into the system at a -- at a much faster and cheaper rate. there are going to be costs to set that up. but under the statute, the federal government is going to pay 90% of those costs, the short-term set-up costs. and then all of the projections

that we have seen suggest that the medium- to long-term costs once these changes are in place are going to be dramatically lower for the states - >> well, what - >> -- on the administrative side. >> obviously, the federal government isn't bound to that. and what if, after the 90%, they say well, now -- from now on, we're going to pay 70%? what happens then? where does that extra money come from? >> well, i think -- then -then the states would have a choice at that -- at that point whether they were going to stay in the program or not. but that isn't what we have here, and - >> there's no -- they can just bail out -- whenever the government reduces the amount of the percentage that it's going to pay, the states can say, that's -- that's - >> well, i'm not saying it would be an easy choice, mr. chief justice - >> they'd have to bail out of medicaid, you're talking about, not just there. >> right. that that would be - >> oh. >> right. that that would be the option. they can leave medicaid if they decide that that isn't working for them. i'm not saying this is an easy choice. i'm also not saying it would happen, because the secretary does have this discretion -

>> well, the secretary has the discretion. we're talking about something else. we're talking about fiscal realities, and whether or not the federal government is going to say we need to lower our contribution to medicaid and leave it up to the states because we want the people to be mad at the states when they have to have all these budget cuts to keep it up, and not at the federal government. >> but that would be true, mr. chief justice, whether this medicaid expansion occurred or not and - >> i know, but you've been emphasizing that the federal government is going to pay 90 percent of this, 90% of this, and it's -it's not something they can take to the bank, because the next day or the next fiscal year, they can decide, we're going to pay a lot less. and you, states, are still on the hook, because you -- you don't -- you say it's not an easy choice. we can say -- ask whether it's coercion. you're not going to be able to bail out of medicaid. you just have to pay more because we're going to pay less. >> well, like i said, i -- i agree that it would be a difficult choice in some circumstances.

but that is not to say it's coercion as a legal matter or even as a practical matter. and i think it would depend on what the circumstances were on how -- and i -- i think, trying to think about how a court would ever answer the question of whether it was coercive, it was too difficult as a practical matter for states - >> general, i'm trying to - >> -- to withdraw. >> -- go back to that because justice kennedy asked you whether there is -- i think he said it's -- it's coercion if no one can be politically accountable. i'm not sure how that could be practically politically accountable because almost every gift -- if the terms are attractive, it would be an un -- unattractive political alternative to turn it down. dole itself was one of those cases. i think every state raised the drinking age to 21, correct? >> yes, justice sotomayor, and this argument was raised in dole, and the court rejected it as a - >> i guess my point is that political accountability has two components -- what can i do if i like something, and what can i do if i don't like something? and if people really like something like medicaid, they're not going to let you drop it, correct.

>> well, the citizens of the state, but that's the citizen of the state acting - >> exactly. that's the whole point, that's their choice, right? >> -- in the capacity of the citizens of the state. and i think that's why i get - try to get back to the point, that's why i think this is wrong to think about this as coercion, because this is a program that works effectively for the citizens of the state, and states' governments -- and state governments think that, and that's why it has expanded the way it has expanded, because it's providing an essential service for millions of needy citizens in these states. it's providing access to health care that they would not otherwise have. >> you mentioned the -the dole case. now, what was the threat in that case, raise your drinking age to 21 or what? >> or lose a percentage of your highway funds. >> do you remember the percentage? >> 7%, yes. >> yes. it's a pretty small amount. that's really apples and oranges when you're talking about lose all of your medicaid funds or lose -- i thought it was 5, but 7 - 7% of your highway funds. >> it's -- i think i agree with your honor, that it -- that it's different, but i don't think that that makes coercion as a legal matter.

as i said, i think that this is a situation in which the -- if the states -- is it -- i'm not saying it would be an easy choice, but the states made the choice, they've made the choice. and - >> well, they made a choice with the stimulus bill, didn't they? some governors rejected the stimulus bill - >> that's -- that's correct, justice sotomayor. and - >> -- and some of -- some of their congressional or legislative processes overturned that. >> that's right. >> in others, they supported it. the percentages were smaller, but it's always the preference of the voters as to what they want, isn't it? >> that is correct. >> what was the threat in the stimulus bill? what would the state lose? >> that answer i don't know, mr. chief justice. >> would anything be taken away, or would it just lose the opportunity to get the money? >> i don't know the answer to that.

i don't know the answer to that. but if i may just say in conclusion that -i'd like to take half a step back here, that this provision, the medicaid expansion that we're talking about this afternoon and the provisions we talked about yesterday, we've been talking about them in terms of their effect as measures that solve problems, problems in the economic marketplace, that have resulted in millions of people not having health care because they can't afford insurance. there is an important connection, a profound connection, between that problem and liberty. and i do think it's important that we not lose sight of that. that in this population of medicaid eligible people who will receive health care that they cannot now afford under this medicaid expansion, there will be millions of people with chronic conditions like diabetes and heart disease, and as a result of the health care that they will get, they will be

unshackled from the disabilities that those diseases put on them and have the opportunity to enjoy the blessings of liberty. and the same thing will be true for -- for a husband whose wife is diagnosed with breast cancer and who won't face the prospect of being forced into bankruptcy to try to get care for his wife and face the risk of having to raise his children alone. and i could multiply example after example after example. in a very fundamental way, this medicaid expansion, as well as the provisions we discussed yesterday, secure of the blessings of liberty. and i think that that is important as the court is considering these issues that that be kept in mind. the -- the congress struggled with the issue of how to deal with this profound problem of 40 million people without health care for many years, and it made a judgment, and its judgment is one that is, i think, in conformity with lots of experts thought, was the best complex of options to handle this problem.

maybe they were right, maybe they weren't. but this is something about which the people of the united states can deliberate and they can vote, and if they think it needs to be changed, they can change it. and i would suggest to the court, with profound respect for the court's obligation to ensure that the federal government remains a government of enumerated powers, that this is not a case in any of its aspects that calls that into question. that this was a judgment of policy, that democratically accountable branches of this government made by their best lights. and i would urge this court to respect that judgment and ask that the affordable care act, in its entirety, be upheld. thank you. >> thank you, general. mr. clement, you have 5 minutes. >> thank you, mr. chief justice

and may it please the court -- just a few points in rebuttal. first of all we talked a lot about the sort of hallmark of coercion, your money or your life, with somebody with a gun. i would respectfully suggest that it is equally coercive or certainly not uncoercive if i say your money or your life -- and by the way, i have discretion as to whether or not i will shoot the gun.

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congress wanted to deal with adverse selection caused by bringing in people who were less healthy into the act. there are -- to begin with, the act authorizes annual enrollment periods so people can't just show up at the hospital. if they don't show up and sign up at the right time, they at least have to wait to the time next year. that's authorized by the act. with respect to the subsidies, there are did he mpt things that make this important.

first of all, the subsidies are very generous for people below 200% of the federal poverty line. the subsidy will cover 80% on average of the premium, which makes it attractive to them to join. the structure of the sub sippedies, because they create a floor based on the income of the person getting the insurance, and then the government covers everything over that. and this is important in adverse selection, because if you do have a change in the mix of people and average premiums start to rise, the government picks up the increase in the premium, the amount that the person who's getting insured contributes remains constant at a percentage of his or her income. and the third thing -- >> there's nothing about federal support that is unsustainable, right? that is infinity. >> well, fair a fair point,

justice scalia, although one of the things that happens, if you take the mandate out, while it is true that the sunnies will increase, and they will be less efficient i want to go back to part of what congress are using, because for people below 50% of the federal poverty line.

some states had a variance of 1.5 to 1. massachusetts, for example, their aid span was 2-1, so when congress is enacting this act, it's not simply looking at the states and thinking, well, that didn't go very well. why don't we put in a minimum coverage provision and that will solve the problem? congress did a lot of different things to try to combat the

adverse selection. it seems to me quite honestly it's an important part, because that is taxable in this whole sort of quest for what we're trying to figure out. finding seems to stand out as something that the court can rely on and say here's something congress is has actually told us. it's on page 4 , 43, excuse me, of the solicitor general's brief in the appendix. but the finding is it made specifically in the context of interstate commerce. that is why the findings are in the act at all.

congress wanted to indicate to the court knowing that the minimum coverage provision was going to be challenged, wanted to indicate to the court the basis on which it believed it had the power under the commerce clause to enact this law. why does that make a difference to finding i, which is the one the government is relying on, in particular the last sentence, which says this requirement is essential to creating effective health insurance markets in which guaranteed issue and preexisting illnesses can be covered. the reason is because the word essential in the commerce clause context doesn't have the colloquial meaning. in the common clause context, essential effectively means useful so that when one says in lopez, when the court says selection 922-q is not an essential part of a larger

regulatory scheme of economic activity, it goes on to say in which the regulatory scheme would be undercut if we didn't have this provision. well, if that's all congress means, i agree with that, the system will be undercut somewhat if you don't have the minimum coverage provision. it's like the word necessary, the necessary proper clause t. doesn't mean the court has said on numerous occasions absolutely necessary. it means conducive to, advancing the objectives, advancing the aim. it's easy to see, i think, that's what -- >> a dictionary that gives that -- the dictionary gives the description of essential? it's very imaginative. just give me one dictionary. >> well, but i think my point, justice scalia, is that they're not using it in the true dictionary sense. >> how do we know that? when people speak, i assume

they're speaking english. >> well, i think there are several reasons that i would suggest that we would know that from. the first is, as i say, the findings themselves, congress says, congress makes the following findings, and they're talking about the interstate b effects on the national economy and interstate commerce, so we know the context that congress is talking about. it is more or less quoting from the statements. but if one looks at finding h, which is on 42 over on to 43, congress, at that point also uses the word essential in the second sentence. it says this requirement -- and again, we're talking about the minimum coverage provision -- is an essential part of this larger regulation of economic activity, which is, by the way,

an exact quote from lopez in which it undercut legislation. but what it's referring to is essential, an essential part of arisa, the national health service act and the affordable care act. it can't possibly be, even the plaintiffs have an argument that those acts would all fall in their entirety if you took out the minimum coverage provision. as a second example of the same usage by congress, the statute that was before the court, section 801 of title 21, the court said that the regulation of intrastate drug activity, drug traffic, was essential to the regulation of interstate drug activity. again, it is simply not skeeable that congress was saying one is so indispensible

to the other the way the united states uses the term here. so indispensible if we can't regulate the interstate traffic either, the whole law criminalizing drug traffic would fall. so i think once you look at the finding for what i believe it says, which is we believe this is a useful part of our regulatory scheme, which congress would think in its own approach would be sufficient -- >> counsel, the problem i have is that you're ignoring the congressional findings and all of the evidence congress had before it that community ratings and guarantee issuings would be a death spiral. i think that was the word that was used without minimum coverage.

those are all of the materials that are part of the legislative record. even if it might not be because of the structure of the act, that's post-hoc evidence. why should we be looking at that as opposed to what congress had before it? and use essential in its plain meaning? you can't have minimum coverage without what the s.g. is arguing community ratings and guaranteed issue. you can't have those two without minimum coverage. >> well, i think that's a fair question, but the idea that all the information before congress only led to the idea that you would have death spirals seems to me to be contradicted a little bit at least by the c.b.o. report in november of 2009, which is about four months before the act passed, where the c.b.o. talks about adverse. now, i want to be clear. this is at a time when the

minimum coverage provision was in the statute, so i'm not suggesting that this is a discussion without that in it. but nonetheless, the c.b.o. goes through and talks about adverse selection and points out the different provisions in the act, the ones i've mentioned, plus one other actually, where in the first three years of the operation of the exchanges, those insurance companies that get sort of a worse selection of consumers will be given essentially credit from insurance companies that get better selection. >> do you want us to write an opinion saying we have concluded that there's an insignificant risk of a substantial adverse effect on the insurance company, that's our economic conclusion, and therefore not several? that's what you want me to say? >> doesn't sound right the way you say it.

>> but you don't want them to say either that there's a death spiral. you don't us to make either of those two findings. >> that's correct. now, i agree that there's a risk. the significance of it people can debate. but i think what is lost in that question -- and i didn't mean to be whimsical about it -- what's lost is what's on the other side, which is the fact that if you follow the government suggestion, if the court follows the government suggestion, what is going to be lost is something we know is a central part of the act. i mean, indeed, if one sort of looks at the legislative history more broadly, i think much of it is directed toward the idea that guaranteed issue and community rates were the crown jewel of the act. the minimum coverage provision wasn't something that everybody was bragging about. it was something that was meant to be part of this package. i agree with that.

but the point of it was to have guaranteed issue and minimum coverage. i mean, guaranteed issue and community ratings, and that's under the government's proposal, those would disappear. we would go back to the old system, and under what i think is the proper analysis, the real question the court is asking, should be asking, is would congress rather go back to the old system than to take perhaps the risk that you're talking about? >> you're referring to the government's second position. their first, of course, is that we shouldn't address this issue at all. >> that's correct. >> i asked mr. kneedler about what process would be anticipated for people who are affected by the change in the law, change in the economic consequences. do you have a view on how that could be played out? it does seem to me if we accept your position, something -- there has to be a broad range

of consequences, whether it's additional legislation, additional litigation, any thoughts on how that's going to play out? >> well, if the court adopts the position i'm advocating, i think what would happen is the court would say that the minimum coverage provision by hypothesis, of course, is unconstitutional, and the fact of that being unconstitutional does not mean the invalidation of any other provision. so, under the position i'm advocating, there would no longer be challenges to the remaining part of the act. but if the challenge is what we're questioning today, whether, if you're an insurance company and you don't believe that you can get the coverage in the way congress mandated it without the individual mandate, what type of action do you bring to court? >> if the court follows the course that i'm advocating, you

do not bring an action in court. you go to congress, and you seek a change to say the minimum provision has been struck down by the court, here's the information that we have to show you what the risks are going to be, here are the adjustments you need to make. one of the questions earlier pointed out that states have adjusted their systems as they've gone along, as they've seen things work or not work. you know, i was talking earlier about the difference ratio for ages in insurance. states have tended to change that, because they found that having too narrow a band worked against the effectiveness of their program. except for massachusetts. they didn't enact mandates. i think the position i'm advocating would simply have those pleas go to congress, not in court. now, just to discuss the issue

more generally, if that's helpful, i think that if there were situations where the court deferred for discretionary reasons, the court said we're not going to take up the question of severability, and therefore, not resolve it in other situations, it certainly seems to me that enforcement actions -- for example, if the time comes in 2014 and somebody applies to an insurance company for a policy and the insurance company says, well, we're not going to issue a policy, we don't think your risks are ones that we're willing to cover, it seems to me that they could sue the insurance company and the insurance company could raise its defense that this provision, the guaranteed issue provision of the statute, is not enforcible because it was inseverable from the provision that the court held unconstitutional in 2012.

>> let's consider how your approach, severing as little as possible, thereby increases the deference that we're showing to congress. it seems to me it puts congress in this position. this act is still in full effect. there is going to be this deficit that used to be made up by the mandatory coverage provision. all that money has to come from somewhere. you can't repeal the rest of the act, because you're not going to get 6 owe votes in the senate to repeal the rest. it's not a matter of enacting -- you got to get 60 votes to repeal it. so the rest of the act is going to be the law. so you're just put to the choice of, i guess, bankrupting insurance companies and the whole system comes tumbling down, or else enacting a

federal subsidy program to the insurance companies, which is what the insurance companies would like, i'm sure. you really think that that is somehow deference to congress and respecting the democratic process? it seems to me it's a gross distortion of it. >> well, you know, the difficulty is that it seems to me the other possibility is for the court to make choices particularly based on what it expects the difficulties of congress altering the legislation after a court ruling would be. i'm not aware of any severability decision. >> no, that wouldn't be my approach. my approach would say, if you take the heart out of the statute, the statute is gone. that enables congress to do what it wants in the usual fashion, and it doesn't inject us into the process of saying

this is good, this is bad, this is good, this is bad. seems to me it reduces our options the most and increases congress' the most. >> i guess to some extent i have to quarrel with the premise, justice scalia, because at least the position that i'm advocating today under which the court would only take out the minimum coverage provision, i don't think it would fit the description that you have given of taking out the heart of the statute. now, i do think once you take out guaranteed issue and community rating, you are getting closer to the heart of the statute, and one of the difficulties i think with the government's position is that i think it's harder to cabin that, to draw that bright line around it. it's harder than the government thinks it is. to begin with, even the government seems to acknowledge, i think, that the exchanges are going to be relatively pale exchanges of the standardized products.

everybody can come and make comparisons based on products that look more or less the same. but the other thing that's going to happen is with the subsidy program. the way that the subsidy program is set up, the subsidy is caling dated according to essentially a benchmark plan. if the court wants to look at the provisions, they begin at page 64-a of the private plaintiffs brief, again, in the appendix. the particular provision is 68-a. but there's a question -- you're looking essentially to calculate the premium by looking at a standardized silver plan. first question obviously is, is there going to be any such plan if you don't have guaranteed issue and community rating if the plans can basically be individualized? but the second problem is is that, in the provision on 68-a,

the provision that's used for calculating the subsidy, what is anticipated in the provision under the act as it is now is that you do have the floor income, you would take this benchmark plan, and the government would pay the difference. and as we talked about earlier, the benchmark plan can change for age, and the provision says it can be adjusted only for age. so if, in fact, you even have such a thing as a benchmark plan anymore, if the rates of people in poor health go up because of individual insurance underwriting, the government subsidy is not going to pay for that. >> mr. farr, i understood the answer you give to justice scalia was essentially the minimum coverage position was not the heart of the act. instead, the minimum coverage position was a tool to make the nondiscrimination provisions community rating began teeds

issue work. so if you assume that, that all the minimum coverages is a tool to make those provisions work, then i guess i would refocus justice scalia's question and say, if we know that something is just a tool to make other provisions work, shouldn't that be the case in which those other provisions are severed along with the tool? >> i don't think so, because there are many other tools to make the same things work. that's, i think, the point. the case that comes to mind is new york versus the united states, where the court struck down the title provision, but left two other incentives essentially in place. even without the minimum coverage provision, there will be a lot of other incentives still to bring younger people into the market and to keep them in the market. and if my reading of the finding is correct, and that's

all that congress is saying, that this would be useful, it doesn't mean that it's impossible to have -- >> i'd just like to hear before you leave your argument against what justice scalia just said. let's assume, contrary to what you want, that the government's position is accepted by the majority of this court, and so we now are rid of the part of the bill. now, still, there are a lot of other provisions here, like the indian act, the black lung disease, the wellness program, the restaurants have to have a calorie count of major menus, etc. now, some of them cost money, and some of them don't. and there are loads of them. now, what is your argument that just because the heart of the bill is gone that has nothing to do with the vality of these other provisions, both those

that cost money or at least those that cost no money. do you want to make an argument in that respect, that destroying the heart of the bill does not blow up the entire bill, it blows up the heart of the bill? i'd just like to hear what you have to say about that. >> well, justice breyer, if one goes back to what i think is the proper severability standard and say would congress rather have no bill as opposed to the bill with whatever is severed from it, it seems to me when you're talking about coverage, there's no reason to answer that question as any other way than yes, congress would want these provisions. >> the real congress or a hypothetical congress? >> an objective congress. >> why put congress to that false choice? if you only have two choices, congress, you have the whole bill or you can have parts of the bill or no bill at all, why

that false choice? >> i think the reason is because severability is, by necessity, a blunt tool. the court doesn't have, even if it had the inclination, doesn't essentially have the authority to retool the statute -- >> well, i would say stay out of politics, that's for congress, not us. but the question here is, you've read all these cases. have you ever found a severability case where the court ever said, well, the heart of the thing is gone, and therefore, we strike down other provisions that have nothing to do with it, which could stand on their feet independently and can be funded separately or don't require money at all. >> i think the accurate would be i'm not aware of a modern case that says that. i think there probably are cases in the 1920's and 1930's that would be more like that. if i could just take one second to address the economist brief,

because justice alito raised it earlier. leaving aside the whole balancing thing, if one looks at the economist brief, i see it's very important to note that when they're talking about one side of the balanced measurement -- when they're talking about balance, they're not just talking about the minimum coverage provision. they very carefully word it to say the minimum coverage provision and the subsidy programs, and so when you're doing the mathematical balancing, the subsidy programs are extremely large. in year 2020, they're expected to be over $100 billion in that one year alone. so, if you're looking at the numbers, please consider that. thank you. >> thank you, mr. farr. mr. clement, you have four minutes remaining. >> he says that congress didn't go into this act to impose minimum coverage.

they went into the act to have a different purpose, i.u., to get people coverage when they needed it, to increase coverage for people, that this is only a tool. but other states, going back to my original point, that there are other tools besides minimum coverage that congress can achieve the same goals. so, if we strike just a tool, why should we strike the whole act? congress has other tools available. >> mr. chief justice, i'll make four points in rebuttal, but start with this question, which is to simply say this isn't just a tool, it's the principal tool. congress identified it as an essential tool. it's not just the tool to make it work. it's a tool to pay for it, to make it affordable. and again, that's not my characterization. that's congress' characterization in finding a on page 43-a of the government's brief. that brings me to my first point in rebuttal, which tells

this court don't look at the budgetary implications. well, the problem with that, though, is once it's common ground, the individual mandate is in the statute at least in part to make community rating and guaranteed issue affordable. that really is all you have to identify. that establishes the essential link that it's there to pay for it. you don't have to figure out exactly how much that is and which box -- i mean, it clearly is a substantial part of it, because what they were trying to do is take healthy individuals and put them into the risk pool, and this is quoting their findings, which they put people into the market, which will lower premiums. you don't have to get to the final number. you know that's what was going on here, and that's reason alone to sever it. the government also says there's an easy dividing line between what they want to keep and what they want to dish out. the problem with that is that, you read their brief and might think, oh, there's a provision subtitle in the bill. there's not. to figure out what they're

talking about, go to page six of their brief, of our opening brief, where they tell you what's in and out. the easy dividing line is actually between 300--g a-1 and a-2. they say a-1 goes, but a-2 has to stay, because that's the way you'll have a community rating for the exchanges. but if you look at those provisions, a-2 makes all these references to a-1. it just doesn't work. now, in getting back to an inquiry that i think this court actually can approach, look at what congress was trying to do. you need look no further than the title of the statute, patient protection and affordable care. i agree that community rating and guaranteed issue were the crown jewels of this act. they were what was trying to provide patient protection. and what made it affordable, the individual mandate. if you strike down guaranteed issue, community rating and the individual mandate, there's nothing left to the heart of

the act. that takes me to my last point, which this court created a halfway house, and it took congress 40 years to try to deal with the situation when contrary to my time of their intent, they had to try to figure out, what are we going to do when they're struck with this contribution, but we can't get at expenditures because the court told us we couldn't. for 40 years, they worked in the halfway house. why make them do that in healthcare? the choice is to give congress the task of fixing the statute, the residual of the statute after some of it's struck down or giving them the task of simply fixing the problem on a clean slate. i don't think that's a close choice. if the individual mandate is unconstitutional, the rest of the act should fall. >> thank you, mr. clement. mr. farr, you are invited by this court to brief and argue in these cases in support of the decision below on severability. you have ablely carried out that responsibility for which we are grateful. case number 11339 is submitted.

we will continue on case 11400 this afternoon. >> in the fourth and final oral argument of the week on the healthcare law, the u.s. supreme court looked at the expansion of the medicaid program by the federal government. this case is on appeal from the 11th circuit. the court ruled that congress overreached and that individual mandate is unconstitutional. but the medicaid portion of the statute can stand. this is an hour and 25 minutes. >> we will continue argument this afternoon in 11400, florida versus the department of health and human services. mr. clement? >> mr. chief justice, and may it please the court, the constitutionality of the act's massive expansion of medicaid depends on the answer to two related questions. first, is the expansion coercive, and second, does that coercion matter?

>> mr. clement, can i ask you just a matter of clarification, would you be making the same argument if, instead of the federal government picking up 90% of the cost, the federal government picked up 100% of the cost? >> just kagan, if everything else remained the same, i would be making the exact same argument. >> the exact same argument. to that really reduces to the question of why is a big gift from the federal government a matter of coercion? in other words, the federal government is here saying we're giving you a boatload of money, there are no matching funds requirement, there are no extraneous conditions attached to it. it's just a boatload of federal money for you to take and spend on poor people's healthcare. it doesn't sound coerce i have to me, i have to tell you. >> well, justice kagan, eventually i'm going make a point where even if you had a stand-alone program that just give 100% -- the 100% boatload,

nothing but lote load -- >> you do make that argument in your brief, a boatload of money, no extraneous conditions, no matching funds is coercive? >> it is, but before i make that point, can i simply say that you built into your question the idea that there are no conditions, and, of course, when you first asked, it was what about the same program with the 100% matching on the newly eligible mandatory individuals. that would have a very big condition. the very big condition is that the states, in order to get that new money, they would have to agree not only to the new conditions, but the government here is congress is leveraging their entire prior participation in the program. >> let me give you a hypothetical. suppose i'm an employer, and i see somebody i really like and i want to hire that person. and i say, i'm going to give you $10 million a year to come work for me. the person says, well, you know, i've never been offered

anywhere approaching $10 million a year, of course i'm going say yes to that. now, we would both agree that's not coercive, right? >> well, i guess i'd want to know where money came from. if the money came from -- >> wow! wow! i'm offering you $10 million a year to come work for me, and you're saying that this is anything but a great choice? >> sure, if i told you actual it will came from my own bank account. and that's what's really going on here in part. that's why it's not simply a matter of saying -- >> mr. clement, can that possibly be? when a taxpayer pays taxes to the federal government, the person is asking as a citizen of the united states, when a taxpayer pays taxes to new york, a person is asking as a citizen of new york. and new york can no more tell the federal government what to do with the federal government's money than the federal government can tell new york what to do with the moneys that new york is collecting. >> right, and if new york and the united states figured out a way to tax individuals at

greater than 100% of their income, then maybe you could just say it's two separate sovereigns, two separate taxes. but we all know that, in the real world, that the extent the federal government continues to increase taxes, that decreases the ability of the states to tax their own citizenry. it's a real trade. >> a limit on the federal government's power to tax? are you suggesting that at a certain point the states would have a claim against the federal government raising their taxes because somehow the states will feel coerced to lower their tax rate? >> no, justice society -- sotomayor, you can't say it's free money, so we don't have to ask whether the program is coercive. >> now, counsel, what percentage does it become coercive? meaning, as i look at the figures i've seen, there are some states for whom the percentage of medicaid funding to their budget is close to

40%, but there are others that are less than 10%. you say no state even at 10% can give it up. what's the percentage of big give, that the federal government can give? because what you're saying to me is, for a bankrupt state, there's no gift the federal government could give them ever, because it can only give them money without conditions. no matter how poorly the state is run, no matter how much the federal government doesn't want to subsidize abortions or doesn't want to subsidize some other state obligation, the federal government can't give them 100% of their needs. >> and justice sotomayor, i'm really saying the opposite, which is not that every gift is coercive, no matter what the amount, no matter how small. i'm sayinging essentially the opposite, which is there has to be some limit on coercion. the reason is quite simple, because this court's entire

spending power jurisprudence is premised on the notion that spending power is different and that congress can do things pursuant to the spending power it can't do pursuit to its other powers precisely because the programs are voluntary. if you relax that assumption that the programs are voluntary and you're saying they're coerce, then you can't have -- >> what's coercive, that the state doesn't want to face its voters and say instead of taking 10%, 20%, 30%, 40% of the government's offer of our budget and paying for it ourselves and giving up money for some other function, that's what makes it coercive, the state is unwilling to say that? >> well, i can talk about what makes it coercive by talking about the statute and focus on what i think are the three hallmarks of this statute that make it uniquely coercive.

one of the them is the fact that this statute is tied to the decidedly nonvoluntary individual mandate, and that makes it unique, but significant. i'll continue. i thought you had a question. the second factor is the fact that congress here made a distinct and conscious decision to tie the states' willingness to accept new funds, not just to the new funds, but to their entire participation in the statute, even though the coverage for these newly eligible individuals is segregated from the rest of the program, and this is section 20 a-3. >> isn't that every medicaid increase, that each time -- i mean, like many years ago in congress, they've added more people and given more benefits and every time the condition is -- if you want the medicaid program, this is the program, take it or leave it. >> no, justice ginsburg, this is distinct in two different directions. one is, in some of the prior

expansions to the program, but not all, congress has made covering newly eligible individuals totally voluntary. if the states want to cover individuals, they'll get additional money. but if they don't, they don't risk any of their existing participation programs. the 1972 program was a paradigm of that. it created this 209-b option for states to participate. this court talked about it. there were other expansions that have taken place, such as the 1984 expansion, where they didn't give states that option, but here's the second dimension in which this is distinct, which is here, congress has created a separate part of the program for the newly eligible mandatory individuals. that's what they call them. and those individuals are treated separately from the rest of the program going forward forever. in light of that separation of the newly eligible individuals from the rest of the program, it's very hard to understand congress' decision to say, look, if you don't to want

cover these newly eligible individuals, you don't just not get the new money, you don't get any of the money under the -- >> where does it say that? >> it says that -- well, where does it say what? >> what you just said. you said congress said if you don't take the new money to cover the new individuals, you don't get any of the old money that covers the old individuals. that's what i heard you say. where does it say that? >> it's two places. >> where in your brief? >> page 23-a. >> in the blue brief, 23-a, ok, thank you. >> and this makes not the point about the funding cutoff, this makes the point just that these newly eligible individuals are really treated separately forever more. >> i want the part about the funding cutoff. that section is what? >> i don't have that -- >> well, i have it in front of

me, and i'll tell you what i have in front of me, what it says. >> right. >> it's been in the statute since 1965. >> exactly. >> the cite i have is section 13 the 6-c. are we talking about the same thing? >> if that is the permission that gives the secretary, among other things -- >> it says the secretary shall notify the state agency -- this is if they don't comply -- that further payments will not be made to the state, that payments will be limited to categories under or parts of the same plan, not affected by such failure. until the secretary is satisfied that he shall limit payments to categories under or parts of the plan not affected by such failure. so, reading that in your favor, i read that to say it's up to the secretary whether should a

state refuse to fund the new people, the secretary will cut off funding for the new people, as it's obvious the state doesn't want it, and whether the secretary can go further. i also should think -- i could not find one case where the secretary ever did go further, but i also would think that the secretary could not go further, where going further would be an unreasonable thing to do since government action is governed by the administrative procedure act, since its governed by the general principle it must always be reasonable. i want to know where this idea came from that should state x say i don't want the new money, that the secretary would or could cut off the old money. >> and here's where it comes from, which is the very beginning of this litigation, we've pointed out that what's coercive is not the absolute

guarantee that the secretary could cut off every penny, but the fact that she could. >> all right, now, let me relieve you of concern and tell you whether i have. a basic principle of administrative law, indeed, all law, is that the government must act reasonably. and should a secretary cut off more money than the secretary could show was justified by being causally related to the state's refusal to take the new money, you would march into court with your clients and say , judge, the secretary here is acting unreasonably, and i believe there's implicit in this statute, as there is explicit in the a.d.a., that any such cutoff decision must be reasonable. does that relieve you of your fear? >> it doesn't. >> i didn't think it would. >> well, here's the reason. here's the reason, justice brey, it doesn't. one is, i don't know the opinion to cite for that

proposition. second is, we've been making in this litigation since the very beginning the basic point the government has had opportunities at every level of this system, and i suppose they'll have an opportunity today to say fear not, states, if you don't want to take the new conditions, all you will lose is the new money. >> and i said because it could be, given the complexity of the act, that there is some money that would be saved in the program if the states take the new money and if they don't take the new money, there is money that is being spent that wouldn't otherwise be spent. there could be some pile like that. it might be that the secretary could show it was reasonable to take that money away from the states too. but my point is you have to show reasonableness. >> do you agree the government has to act reasonably? do we strike down unreasonable statutes? my god. >> and justice scalia.

>> the executive has to act reasonably. that's certain in implementing a statute. but if the statute says in so many words that the secretary can strike the whole funding for the whole program, that's the law, unreasonable or not, isn't it? >> if i could add one thing to the discussion, the point that this is not all hypothetical. there's a record in the court, it's not in the joint appendix. we can lodge it with the court if you'd like, but it's in the record in this litigation, and it's a letter from the secretary to arizona, when arizona floated the idea that it would like to withdraw from the chip program, which is a relatively small part of the whole program, and what arizona was told by the secretary is that if you withdraw from the chip program, you risk losing $7.8 billion the entirity of your medicaid participation. so this is not something that we've -- >> mr. clement --

>> i want to pursue this for one more minute. there are cases and many of which justice scalia knows as well which uses the holly hill, uses the same word as this statute, in the secretary's discretion. and in those cases, this court has said that doesn't mean the secretary can do anything that he or she wants, but rather, they are limited to what is not arbitrary, capricious, and abuse of discretion in interpreting statutes, in applying those statutes, etc., end of my argument, end of my question, respond as you wish. >> well, justice breyer, i'm not sure the court's jurisprudence should force states to depend on how a lower court reads holly hill. i think that really, right here, what we know to an absolute certainty is that this statute gives the secretary the right to remove all of the state's funding under these programs, and think about what

that is you know. >> do you think the federal government couldn't, if it chose, accomplish and say this system doesn't work. we're just simply going to rehaul it, it's not consistent with what we want to accomplish, we're just going to do away with the system and start a new healthcare plan of some sort. and states, you can take the new plan, you can leave them, we're going to give out 20% less, maybe 20% more, depending on what congress chooses. can congress do that? does it have to continue the old system? because that is what the states are relying upon and it's coercive now to give them a new system? >> justice sotomayor, we're not saying we have a vested right to participate in the medicaid program as it exists now. so if congress wanted to scrap the current system and have a

new one, i'm not going to tell you there's possibility of a coercion challenge to it -- >> i want to know how i draw the line. i think that the usual definition of coercion is, i don't have a choice. i'm not sure why it's not a choice for the states. they may not pay for something else. if they don't take medicaid and they want to keep the same level of coverage, they may have to make cuts in their budget to other services they provide. it's a political choice of whether they choose to do that or not. but when have we defined the rights or limited the right of government not to spend money in the ways that it thinks appropriate? >> before -- i'll try to answer that question too. but the first part was, what if congress just tried to scrap this and start over again with a new program? here's why this is fundamentally different and why it's fundamentally more coercive, because congress is

not saying we want to scrap this program, they don't have a single complaint really with the way that states are providing services to the visually impaired and the disabled under preexisting medicaid. and that's why it's particularly questionable why they're saying that if you don't take our new money subject to the new conditions we're going to take all of the money you've previously gotten, that you've been dependent on for 45 years and you're using right now to serve the visually impaired and disabled -- >> may i ask you a question in another line? you represent, what, 26 states? >> that's right. >> so we're also told that there are other states that like this expansion. and they are very glad to have it. the relief that you're seeking is to say the whole expansion is no good, never mind that there are states that say we don't feel coerced, we think

this is good. you're saying that because you represent a sizable number of states, then destroy this whole program even though there may be as many states that want it, that don't feel coerced, think this is a good thing. >> cut ginsburg, that's right, but that shouldn't be a terrible concern, because if congress wants to do what it did in 1972 and pass a statute that makes the expansion voluntary, every state that thinks that this is a great deal can sign up. what's telling here, though, is 26 states who think that this is a bad deal for them actually are also saying that they have no choice but to take this, because they can't afford to have their entire participation in this 45-year-old program wiped out, and they have to go back to square one and figure out how they're going to deal with the visually impaired in their state, the disabled in their state -- >> i didn't take the time to

figure this out, but maybe you did. is there any chance that all 26 states opposing it have republican governors and all of the states supporting it have democratic governors, is that possible? >> there's a correlation. >> let me ask you another thing, mr. clement. most colleges and universities are heavily dependent on the government to fund their research programs and other things. that's been going on for a long time. and then title nine passes, and the government comes around and says, if you want money for your lab and all the other things you get it for, then you have to create an athletic program for girls. the recipient says i am being

coerced, there's no way in the world i can give up all the funds to run all these labs that we have. so i'm being coerced to accept this program that i don't want. why doesn't it work any time, someone receives something that's too good to give up? >> well, justice ginsburg, there's no reasons that might be different. one is, this whole line of coercion only applies -- is only relevant, really, when congress tries to do something through the spending power it couldn't do directly. so if congress tried to impose title ix directly, i guess the question for this court would be whether or not section five of the 14th amendment allowed congress to do that. i imagine you might think that it did, and i imagine some of your colleagues might take issue with that, but that's the nature of the question. one way around that would be, if congress could do it directly, you don't have to ask whether there's something special about spending power. that's how this court resolved the fair case -- upe trying to

understand your coercion theory. i know that there are cases that have said there's a line between pressure and coercion, so we have never had in the history of this country or the court any federal program struck down because it was so good that it becomes coercive to be in it. >> look, ginsburg, the secretary thing about my answer to your prior question, i also think that it may be that spending on certain private universities is something, again, that congress can do and it doesn't matter whether it's coerce. when they're trying to get the states to expand their medicaid programs -- >> let's take public colleges. >> there may be some limits on that. but again, i'm not sure, even in that context, there might not be some things congress can do. it's a separate question. once we take the premise, which i don't think there's a disagreement here, that congress could not simply as a matter of direct legislation under the commerce powers say states, you must expand your

medicaid programs f. we take that as a given, then i think we have to ask the question of whether or not it's coercive. now, in your second question, you asked, well, where's the case that says that we've crossed that line? and this is that case. >> it applies to the 1980 extension, to children zero to 6 years old, 1990, requiring the extension for children up to 18, all those prior extensions to me seem just as big an amount, just about as big in the number of people coming on the rolls, and they all are governed by precisely the same statute that you're complaining of here, which has been in the law since 1965. >> justice breyer, i don't think that our position here would extend to say the 1984 amendment, and let me tell you why. i'm not saying that absolutely that's guaranteed that's not coercive, but here's reasons why they're different. the one major difference is the size of the program. the expansion of medicaid since 1984 is really breathtaking.

medicaid circa 1984, the federal spending to the states was a shade over $21 billion. right now, it's $250 billion, and that's before the expansion under this statute. >> if you are right, mr. clement, doesn't that mean that medicaid is unconstitutional now? >> not necessarily, justice kagan. and again, it's because we're not here with a one-trick pony, and one of the factors, we point to three factors that make it statute uniquely coercive. one of them is the sheer size of this program. if you want a gauge on the size of this program, the best place to look it the government's own number. footnote six -- >> when does the program become too big? give me a dollar number. >> $3.3 trillion over the next 10 years. >> i'll tell you which number, which i did look up, that the amount approximately, if you look into it, as a percentage of g.d.p., it's big. but it was before this

somewhere about two-point something percent of g.d.p., it will go up to a little bit over 3% of g.d.p., and now go look at the comparable numbers, which i did look at, with the expansion that we're talking about before. it's the expansion from zero to 18 or from zero to 6. and while you can argue those numbers, it's pretty hard to argue that they aren't roughly comparable as a percentage of the prior program or as a percentage of g.d.p. if i'm right or those numbers, or even roughly right, i don't guarantee them, then would you have to say, well, indeed, medicaid has been unconstitutional since 964. if not, why not? >> the answer is no. there are three things that make this statute -- >> what are your second and third? i'm on pins and needled. >> well, one is the sheer size. two is the fact that this

statute uniquely is tied to an individual mandate, which is decidedly nonvoluntary, and three is the fact that they've leveraged the prior participation in the program, notwithstanding that they've broken this out as a separately segregated fund going forward, which is not -- >> so, on the third, suppose you have the current program, and congress wakes up tomorrow and says, we think that there's too much fraud and abuse in the program and we're going to put some new conditions on how the states use this money so we can prevent fraud and abuse, and we're going to tie it to everything that's been there initially. unconstitutional? >> no, i think that is constitutional, because i think that's something that congress could do directly, it wouldn't have to limit that to the spending program. i think a state is in the criminal code, it may be tied to spending, but i think that's a provision that i don't think is constitutional called into question. >> i guess i don't get the idea. congress can legislate fraud

and abuse restrictions in medicaid and congress could legislate coverage expansion in medicaid? >> well, i think there's a difference. if i'm wrong about that and the consequences that congress has to break medicaid down into remotely manageable pieces as opposed to $3.3 trillion over 10 years before the expansion, i don't think that would be the end of the world, but i really would ask to you focus on specifically what's going on, which is they take these eligible people, and that's a massive change in the way the program works. these are people who are healthy, childless adults who are not covered in many states. they say, ok, we're going to make you cover those. we're going to have a separate program for how you get reimbursed for that. you get reimbursed differently from all the previously eligible individuals. but if you don't take our money, we're going to take away your participation in the program for the visually impaired and the disabled. i reserve the balance of my time. >> well, i'm not sure my colleagues have exhausted their questions. >> my greatest fear, mr. clement, with yoo your argument

is the following. the bigger the problem, the more resources it needs, we're going to tie the hands of the federal government in choosing how to structure a cooperative relationship with the states. we're going to say to the federal government, the bigger the problem, the less your powers are, because once you give that much money, you can't structure the program the way you want. it's our money, federal government, we're going to have to run the program ourselves to protect all our interests. i don't see where to draw that line. the uninsured are a problem for states only because they, too, politically -- just like the federal government -- can't let the poor die. and so, to the extent they don't want to do that, it's don't want to do that, it's because they feel