Citation. Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 567 U.S. 519, 183 L. Ed. 2d 450, 80 U.S.L.W. 4579, 2012-2 U.S. Tax Cas. (CCH) P50,423, 109 A.F.T.R.2d (RIA) 2563, 80 A.L.R. Fed. 2d 501, 53 Employee Benefits Cas. (BNA) 1513, 23 Fla. L. Weekly Fed. S 480, 2012 WL 2427810 (U.S. June 28, 2012)
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Brief Fact Summary.
A challenge to the constitutionality of the Affordable Care Act attacking the imposition of expanded Medicaid coverage.
Synopsis of Rule of Law.
Expanding Medicaid coverage under the Affordable Care Act requires States to increase eligibility and health benefit coverage, which goes beyond the authority of Congress under the Spending Clause.
Facts.
[The procedural history is based on a series of federal lawsuits by the State of Florida and others (States) (Plaintiff) against the United States Department of Health and Human Services (Federal Government) (Defendant) challenging the constitutionality of the Affordable Care Act, specifically the expansion of Medicaid coverage which required that all States (Plaintiff) increase eligibility to all persons under the age of 65 with incomes below 133 percent of the federal poverty line, and to provide a new “essential health care benefits” package to all new applicants.
Issue.
Does expanding Medicaid coverage under the Affordable Care Act that requires States to increase eligibility and health benefit coverage go beyond the authority of Congress under the Spending Clause?
Held.
(Roberts, C.J.) Yes. Expanding Medicaid coverage under the Affordable Care Act requires States to increase eligibility and health benefit coverage, which goes beyond the authority of Congress under the Spending Clause. Under Medicaid, the ACA clearly increases state obligations dramatically. Under the current Medicaid program, States (Plaintiff) are required to cover only certain distinct categories of needy individuals—pregnant women, children, needy families, the blind, the elderly, and the disabled. There is no mandatory coverage for most adults without children, and the States (Plaintiff) do not typically offer it. Also, the States (Plaintiff) have considerable flexibility regarding the coverage levels for parents of needy families. States (Plaintiff) on average cover only unemployed parents who earn less than 37 percent of the federal poverty level, and only employed parents who make less than 63 percent of the poverty line.
 In contrast, the Medicaid provisions of the ACA require States (Plaintiff) to expand their Medicaid programs by 2014 to cover all people under the age of 65 with an imcome below 133 percent of the federal poverty line. The ACA also establishes a new “essential health benefits” package, which States (Plaintiff) must provide to all new Medicaid recipients—a level sufficient to satisfy a recipient’s obligations under the individual mandate. The ACA provides that the Federal Government (Defendant) will pay 100 percent of the costs to cover those people who are newly eligible through 2016. In the following years, the federal payment level decreases gradually, to 90 percent at a minimum.
 The Spending Clause grants Congress with power “to pay the Debts and provide for the . . . general Welfare of the United States.” This Court has long recognized that Congress may use this power to grant federal funds to the states, and may condition such a grant upon the states’ “taking certain actions that Congress could not require them to take.” The conditions Congress imposed on the States was to ensure that the funds are used by them to “provide for the . . . general Welfare” in the way Congress intended.
 At the same time, our cases have recognized limits on Congress’s power under the Spending Clause to make sure states are complying with federal objectives. This Court has repeatedly characterized Spending Clause legislation as similar to a contract. For the exercise of the spending power by Congress to be legitimate, the state must accept the terms of the contract voluntarily and knowingly. Respecting this limitation is critical to making sure that Spending Clause legislation does not undermine the status of the states as independent sovereigns in our federal system. The Constitution has never been interpreted to give Congress the ability to require the states to govern according to the instructions of Congress. Otherwise the two-government system the Framers of the Constitution established would give way to a system that gives all of the power to one central government, and individual liberty would suffer.
 That insight has led this Court to strike down federal legislation that hijacks a State’s legislative or administrative apparatus for federal purposes. It has also led us to scrutinize Spending Clause legislation to make sure that Congress is not using financial incentives to exercise a “power akin to undue influence.” Congress may use its spending power to create incentives for states to act according to federal policies. However, when “pressure turns into compulsion,” the legislation runs contrary to our system of federalism. The Constitution simply does not give Congress the authority to require the states to regulate. That is true whether Congress directly orders a state to regulate or indirectly coerces a state to adopt a federal regulatory system as its own.
 The States (Plaintiff) argue that Congress has crossed the line distinguishing encouragement from coercion with the Medicaid expansion. Not only did Congress refuse to grant new funds to States (Plaintiff) that rejected the new conditions, Congress has also threatened to withhold their existing Medicaid funds. The States (Plaintiff) claim that this threat’s only purpose is to force States that are unwilling to sign up for the dramatic expansion in health care coverage affected by the ACA.
 Because of the nature of the threat and the programs at issue here, this Court agrees. In this case, the financial “inducement” Congress has chosen seems more of a hostile threat, rather than “relatively mild encouragement.” The Medicaid Act provides that if a State’s (Plaintiff) Medicaid plan does not comply with the requirements of the Act, the Secretary of Health and Human Services (Defendant) may declare that “further payments will not be made to the State (Plaintiff). A State that opts out of the ACA’s expansion in health care coverage therefore stands to lose not merely a relatively small percentage” of its current Medicaid funding, but all of it. Medicaid spending accounts for over 20 percent of the average State’s (Plaintiff) total budget, with federal funds covering 50 to 83 percent of those costs. Also, the States (Plaintiff) have developed complex statutory and administrative regimes over the course of many decades to implement their objectives under existing Medicaid. The threat to withhold 10 percent of a State’s (Plaintiff) overall budget equals economic intimidation that leaves the States (Plaintiff) no choice but to comply with the Medicaid expansion.
 The States (Plaintiff) argue that in reality the expansion is a new program and that Congress is forcing them to accept it by threatening to withhold funds for the existing Medicaid program. The Federal Government (Defendant) claims that the Medicaid expansion is properly viewed as simply a modification of the current program because the States (Plaintiff) agreed that Congress could change the terms of Medicaid when they signed on in the first place. However, the Medicaid expansion achieves a shift in kind, not simply degree. The original program was designed to cover medical services for four particular categories of the needy: the disabled, the blind, the elderly, and needy families with dependent children. Prior amendments to Medicaid eligibility only changed and expanded the boundaries of those categories. Under the ACA, Medicaid is transformed into a program to meet the health care needs of the entire nonelderly population with income below 133 percent of the poverty level. It is no longer a program to care for the neediest of our citizens, but rather part of a comprehensive national plan to provide universal health insurance coverage.
 Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that States (Plaintiff) accepting those funds comply with the conditions on their use. However, Congress is not free to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding.
 There is still the question of whether today’s holdings affect other provisions of the ACA. The question here is whether Congress would have wanted the rest of the ACA to stand, if it had known that States (Plaintiff) would have a genuine choice whether to participate in the new Medicaid expansion. Unless it is “evident” that the answer is no, this Court must leave the rest of the ACA intact. The Court is confident that Congress would have wanted to preserve the rest of the ACA. The Court today limits the financial pressure the Secretary (Defendant) may apply to persuade States (Plaintiff) to accept the terms of the Medicaid expansion. As a practical matter, that means States (Plaintiff) may now choose to reject the expansion, which is the whole point. But that does not mean all or even any States (Plaintiff) will do so. Certainly some States (Plaintiff) will decline to participate because either they are not certain they will be able to afford their share of the new funding obligations, or because they are not willing to commit the necessary administrative resources to support the expansion. Other States (Plaintiff), however, may sign up voluntarily, finding the idea of expanding Medicaid coverage attractive, particularly given the amount of funding the ACA offers to start. The Court, confident that Congress would not have intended differently, concludes that the rest of the ACA still stands.
Discussion.
The majority agreed with the States’ (Plaintiff) argument that the Medicaid expansion went beyond Congress’s authority under the Spending Clause. It was improper for Congress to use coercion to adopt the changes it wanted by threatening to withhold all of a State’s Medicaid grants unless the States (Plaintiff) accept the new expanded funding and comply with the conditions that come with it. They argued this was a violation of the basic anti-commandeering principle that the Federal Government (Defendant) may not compel the States (Plaintiff) to enact or administer a federal regulatory program. The impact of this portion of the Court’s decision was politically controversial and cumbersome because it allows States (Plaintiff) to opt out of the goal of “universal” health care coverage.
