friends on the other side have suggested. the effect beyond that is temporary. with respect of the argument, it is difficult to see how that is going to work. if the question is about what you stand to lose rather than what you stand to gain, it seems to me that it does not matter whether the medicaid expansion is substantial or whether it is modest or if there is any -- expansion of. the government could decide that under the current system, too much money has a and employing to nursing home care and that would be better in serving the general welfare if it were directed at infants and children but if the government said we will redirect the spending priorities of the money we're offering, they could say we do not like that and we would like to keep spending money and we have no choice because this program has gotten too big for us to exit. it seems to me standing here --

>> the smaller it is the bigger the coercion. the more you stand to lose. >> before you leave. >> 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. trying's another way of 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? >> i'm not trying to be -i'm not trying to be reluctant. i understand how this works. i'm trying to be careful about the authority of the secretary of health and human services and how it will apply in the future. >> 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. generaln there's just a 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 - nowven though they're 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. i don't think that eliminates the coercion. i also don't think this is a discretion that the secretary would ever be able to exercise. and the reason is, we disagree on the details, but the solicitor general and i agree that, over the years, congress has had different approaches to expanding medicare. sometimes, as in 1972, it makes the expansion voluntary, that's also by the way what happened with the stimulus funds, which were voluntary funds. you didn't lose all your medicaid funds, which is why 17 states could say no. sometimes, they take the voluntary approach. sometimes, as in 1984, they take the mandatory approach. if the secretary exercised t