Critics of the Graham-Cassidy bill to repeal Obamacare argue that it would result in millions of Americans losing their health insurance. They also decry the rushed process by which the Senate GOP leadership plans to bring the bill to a floor vote without a single public hearing. In addition to these concerns of substance and procedure, Graham-Cassidy has another flaw that should give Senators pause: the funding formula for the block grants to states that form the bill’s core is unconstitutional.

As originally enacted, the Affordable Care Act would have withheld all Medicaid funding from states that declined to expand Medicaid coverage to include the working poor. However, in 2012 the Supreme Court found that the Medicaid expansion involved so much money as to be effectively coercive. As a result of the ruling, states were free to decline Obamacare’s funding for expanded Medicaid without jeopardizing funding for the original Medicaid program. Some states declined Medicaid expansion funds, while others accepted the funds and the conditions that came with them. 

The Court’s ruling in NFIB v. Sebelius relied on a longstanding constitutional limit on the power of Congress under the Spending Clause of the Constitution’s Article I. Congress may attach strings to funds it provides the states, but only if those strings themselves respect the states’ rights to make their own policy choices. NFIB involved one type of limit on the Spending Clause. Another such limit was articulated by the justices in a 1981 case and has been repeatedly reaffirmed since then: If Congress wishes to attach conditions or consequences to a state’s acceptance of federal funds, it “must do so unambiguously.”

Graham-Cassidy violates that principle.

The bill would eliminate the expansion of Medicaid and much of the rest of the architecture of Obamacare. It would convert much of the funding for Obamacare into a system of block grants to states. The bill’s backers tout the block grants as providing states with greater flexibility to experiment with various approaches that better suit their respective circumstances and values. Whether or not that greater flexibility would be used wisely, the bill’s formula for allocating block grants is unconstitutional.

News reports have noted that under Graham-Cassidy, states that accepted Medicaid expansion funding under Obamacare would lose, while states that refused such funding would gain. That’s true, but the public discussion thus far has failed to explain exactly how much the expansion states would lose out. They would not lose just the money they would otherwise receive under Obamacare’s Medicaid expansion, as they would if Congress simply repealed that expansion. The Graham-Cassidy block grant formula reduces how much money states receive in future years by effectively clawing back money that was previously provided to states that expanded Medicaid.

The clawback is unconstitutional, because it violates the requirement that Congress specify any conditions on federal funds “unambiguously.” When states like Alaska, Kentucky, and West Virginia decided to accept federal Medicaid expansion funds they were not told at all—much less told unambiguously—that such acceptance would result in a reduction in their allocation of federal health insurance funding in future years. Graham-Cassidy imposes a retroactive penalty on states that accepted Medicaid expansion funding.

One could try to argue that the Graham-Cassidy clawback is not a condition on federal funding because Congress is under no constitutional obligation to provide any further health insurance funding for states. But that argument would overlook the fundamental logic of the limits on congressional power under the Spending Clause. Congress is never under any constitutional obligation to spend money in any particular way. The Spending Clause cases are themselves conditional. They hold that when Congress does spend money via the states, there are limits on how it may do so. Clarity is one of those limits. 

The requirement that Congress state any conditions on federal funding unambiguously is no mere technical nicety. It is a fundamental principle of American federalism. It protects states’ sovereign prerogatives. It enables states to make informed judgments about the consequences of accepting federal funds. And few judgments are more consequential to the states than those that affect how much money they will have to meet the needs of their people. A state that was told in 2014 that Medicaid expansion then would cost it tens of millions of dollars in 2020 and thereafter might well have made a different choice.

Senator Graham recently characterized the decision whether to enact his bill as a choice between “socialism or federalism.” There is more than a little irony in that characterization. In the name of federalism, Graham-Cassidy would violate a basic constitutional protection for state sovereignty.

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