Interview: Attorney Derek Schmidt on the legal challenge of the health reform law

Editor’s note: KHI’s Jim McLean recently interviewed Kansas Attorney General Derek Schmidt about the reasons the state joined the lawsuit challenging the federal health reform law and his views about the strength of the state’s case.

KHI: First of all, I just want to thank you for taking some time to talk to us about this.

Schmidt: Happy to do it, it’s an important issue.

KHI: As I remember, during the campaign you made it quite clear that if elected, you were going to join the states that were filing a lawsuit against the Affordable Care Act/federal health reform law, which you did very quickly after getting into office. Did you make that decision based on the legal merits of the case, or were there any political considerations involved in that decision? Because at that time, and still today, the law appears to be pretty unpopular with Kansans.

Schmidt: Well, I think the law is very unpopular with many Kansans. That’s sort of a side point to the underlying legal issue. There are tremendous legal issues at stake in this legal challenge, and I think any question about that has been put to rest by the fact that the United States Supreme Court has granted an unprecedented five and a half hours of oral arguments on this case. The court’s not inclined to grant lengthy arguments if it’s simply a matter of politics. The legal precedent that’s going to be set by this decision is going to have ramifications in American jurisprudence for generations. This is the first time in the history of the United States that a majority of the states have joined together in a legal challenge to the authority of the federal government to enact law that has an effect on the states. It’s a big deal, and the legal issues that are at stake here are really consequential.

KHI: In terms of legal scholars on both sides of this issue attempting to predict what the court will do, from my own scan of that information, it seems that the preponderance of opinion is on the side of the court will uphold. Is that your read of it as well?

Schmidt: There are several different issues that the court has agreed to hear from the appeals, and I think that the federal government has stronger arguments on some than on others. Similarly, the states have stronger arguments on some than on others. I think we have a very good chance if we’re able to convince the court that, as we see it, this is a case of first impression. It is the first time with respect to the mandate question that Congress has attempted to exercise the power to order people to go engage in commerce and then regulate their behavior because they’ve engaged in commerce.

KHI: Heretofore, they’ve had the power to regulate commerce, but you’re making the argument that they’ve gone a step beyond that.

Schmidt: Absolutely. The difference is, we believe the commerce clause is intended to authorize Congress to regulate commerce that exists. In this case, the Congress is claiming the power to compel commerce to exist and therefore be able to regulate it. That’s a very attractive power because essentially it means Congress can stick its nose in any business, regardless of whether it’s specifically enumerated in the Constitution or not, by simply boot-strapping its way in. Part of our argument, and we think it’s a very strong legal argument, is that it is such an attractive power. The fact that Congress hasn’t used it in more than two centuries suggests that nobody thought it existed until a creative Congress came up with it two years ago.

KHI: The other thing we’re challenging in the law is the way the law would expand more significantly than any other states’ Medicaid program. What is the argument against that from the states’ point of view?

Schmidt: The individual mandate issue is, we believe, a case of first impression. The Medicaid expansion issue is different. It’s not a case of first impression, it’s an ages-old legal issue of what limit, if any, exists upon the ability of Congress to cause states to do things that otherwise Congress couldn’t compel simply by dangling money as an incentive. It’s the carrot-and-stick metaphor or, if you will, it’s the condition grant-in-aid. There is a long line of case law that goes back at least to the New Deal. Obviously it’s not a new concept, it’s been around for a long while. The case law has consistently upheld federal authority, which is why we’ve lost on that argument in the District Court and on the 11th Circuit. But in every case, even though the Supreme Court has consistently upheld federal action on prior fact patterns, the court has always taken care to articulate that there is some limit to the ability of Congress to do what it otherwise could not by simply making it a condition grant-in-aid. Our argument in this case is essentially, if all of that jurisprudence language that says there is some limit has any meaning at all, this is the case where the court needs to find that Congress has exceeded the limit. It’s hard to imagine, if this is a permissible condition grant-in-aid, when you’re talking about programs which for most states are either the second or third largest component of their state budget, as is true with Kansas, Medicaid expenditures, when you’re talking about the condition being a threatened withholding of the entirety of federal aid, but for the additional action. In other words, Congress isn’t just saying, “We’re not going to give you extra money, states, to do what we want you to do new.” They’re saying, “If you don’t do what we want you to do new, we’ll withhold the entirety of the money, including that which you’re already getting.” There really isn’t an option in that as a practical matter for most states. Most states want to opt out of the Medicaid program in its entirety. So our argument essentially is, if this doesn’t exceed the limit, then all of that language the court always included previously, like on the 55 mph speed limit case for example, that says there is some limit, really doesn’t have any meaning.

KHI: So, this part of the case really is about drawing a line?

Schmidt: It is. The reason I think that we’ve lost so far on that is that the case law, as the federal government has argued, has always upheld federal action. So the inferior courts have deferred to that. But I think that we have a good case to make on the grant-in-aid issue. The court’s going to have to decide is this merely another example of a long line of cases where they uphold federal authority or, as we’re arguing, is this a case where, based on these facts, if the court upholds this action, it may as well abandon all of the jurisprudence that says there is some limit, because there’s not, as a practical matter.

KHI: Yes, the federal government is compelling the states to significantly expand the Medicaid program up to 133 percent of poverty. In Kansas that would be a very large expansion in terms of eligibility. But it’s also promising to pay for the first several years 100 percent of the cost of that expansion. Does that have any merit in the legal case?

Schmidt: If the promise were to pay in perpetuity, it might have some bearing on the legal argument. But that’s not the promise. Even on its face, it’s a short-term sweetener that’s designed to make this whole thing more politically palatable. It doesn’t change the fact that ultimately, over time, this is simply a dictate from the Congress saying you’ve got to expand this and pay your traditional share or else we’re going to take away money in order to get it. The other thing on that though is, without questioning the sincerity, the reality of the federal budget right now is that large expansions of spending are simply not in the cards. We have the governor in this case, and the federal delegation telling us on almost a daily basis on many other subjects, we need to prepare as a state for a reduction in federal aid in almost every category. We’re trying to take those steps as a state to prepare. That flies in the face of this notion that we have to reduce everywhere else that we’ve become accustomed to being part of the federal government, but on this one case we can believe the promise that they’ll pay 100 percent of the cost. I think there are two answers to that question. One is that it doesn’t really matter from a legal standpoint over time, unless the promise is for the feds to always pay the cost and I don’t believe that is the promise. And two, there is a real world question about whether this promise to pay the cost is actually going to be borne out when the bills come due.

KHI: Two quick follow-ups on that. It’s not a promise to pay 100 percent of the costs in perpetuity. It is a promise to pay 90 percent of the costs in perpetuity. According to the Congressional Budget Office, the money that would be expended for that purpose is found someplace else in the budget, so it’s budget neutral.

Schmidt: We’ve now gotten well into the policy arguments. On the budget-neutral issue and the money being found elsewhere, if you were to talk to our congressional delegation, those who were there and those who actually voted on the Affordable Care Act, I think one of the arguments they would make is, yes that’s true on paper. But of course the reductions in, for example, the Medicare program are unlikely to happen in the real world, so it was more fiction than fact. That’s their argument, not our argument. But it does go back to the bigger point I was making earlier. It’s one thing to make assurances; it’s quite another against the backdrop of declining federal resources and huge budget gaps at the federal level for us to rely on those and to think that payment will actually be there as promised.

KHI: Talk to me a little about what our role has been in this case. Kansas joined rather late; there were many states ahead of us. As I understand it from discussions with the folks in Florida, there are several charter member states that are paying $20,000 each, some more that are paying $10,000 and a few that are paying $5,000. To my understanding, Kansas is one of a handful of states, I think five, that didn’t have to ante up to join the lawsuit. Is that the case?

Schmidt: That is the case. By joining late, Kansas did have one advantage. At the point I got to start serving in the office of the attorney general there were, I believe, 23 or 24 states that had already become plaintiffs in the lawsuit. There was obviously some attraction, from the standpoint of those states, to having more than half the states joined in this battle. As I mentioned, this is the first time this has happened in American history. So there was value to other states having Kansas become part of the states that made its majority. At the same time, I had an interest in not having Kansas spend money on the challenge. Any time we can save money and still accomplish our legal objective, it’s a good thing. And so we were able to work out an accommodation where we joined but weren’t asked to join financially. So we’ve been in a terrific position where we’ve been able to be full partners without paying a financial cost.

KHI: Can you point to anything in the pleadings so far that kind of have your name on it that you know is a contribution you or this office has made in terms of the arguments?

Schmidt: We have reviewed, I think, every pleading. I, personally, have reviewed almost all of them. I’m not sure I’ve literally read every one before it was filed. We’ve reviewed them all. We had one that came through not too long ago that had a couple of factual errors in a draft form on some assertions made that related to the Medicaid program. We caught them and offered some corrections. So we’ve been active participants.

KHI: Do you have a member of your staff who is full-time bird dogging this and staying up-to-date on the pleadings and the developments and the other context around this case as it moves forward?

Schmidt: The deputy in charge of civil litigation, Jeff Cheney, handles an awful lot of litigation for us, but he’s been the coordinator for this office. Our solicitor general, Steve McAllister, has been active in discussions with some of the other counsel that have been involved in the litigation. Those two and myself have really been the principals that are engaged.

KHI: How often are you, personally, on the phone with other attorneys general and others around the country that are involved in this case? Is that activity picking up as the date for the arguments before the high court approaches?

Schmidt: We’ve talked about this as attorneys general several times, I’d guess four or five times since we joined the lawsuit, which is a significant number. It’s rather unusual in routine multistate litigation for the AGs to personally be in conference on it with any amount of regularity. This one has been more active at the senior level.

KHI: Do you have a prediction as to how this thing is going to turn out? Again, the scholars out there are thinking some arguments are stronger than others.

Schmidt: I’m optimistic we’re going to prevail.

KHI: On both primary arguments?

Schmidt: I do think our chances are good on both of them. On the one argument, the mandate, we’re 2-0, we won in both of the lower courts. On the other we’re 0-2, we lost in both of the lower courts – that’s on the condition-in-aid argument. They both go before the Supreme Court, and I think we’ve got a good argument on both. At the end of the day, it boils down to what the justices decide the law needs to be going forward. On the mandate issue, it boils down to whether for the first time in more than two centuries of constitutional history the justices want to recognize a heretofore unrecognized congressional power under the commerce clause. And on the condition-in-aid argument, it boils down to whether the justices share our view that if they uphold this condition grant-in-aid, then all of that language over more than half a century suggesting that there is some enforceable limit has no meaning. We’ll see where five justices are. The one thing I hope does not happen, as I wouldn’t presume to speak for any other parties in the suit, including the federal government, based on the pleadings I would think they would share our view on this. One of the four issues the court agreed to hear was whether the Anti-Injunction Act was applicable to this. Of course that basically boils down to the question of whether the mandate in particular can be lawfully characterized as a tax, in which case the general rule is that it’s not ripe for legal determination until the tax has been assessed and collected. We’ve taken the position as a group of states that that is not the case and that the Anti-Injunction Act should not apply. The federal government also argues that the Anti-Injunction Act should not apply. The court hadn’t agreed to hear that argument and has actually appointed a third party to argue that side of the case because neither of the principal parties wants the case resolved on that basis. That’s not terribly unusual; it does happen from time to time. The real world consequence, if the court were to decide the case on that point, would be that we could go through all of this again in two years. That’s not to anybody’s advantage – the fed’s or the states’. We would like an answer on the merits so we know what the rules are and we can move on.

KHI: It’s possible, given the lower court decisions, that the high court could strike down the mandate, uphold on Medicaid. In your estimation, both as an attorney general and a former legislator, what does that do to the law? The law stays in place, Congress or the president could propose another mechanism to compel people into the marketplace. Is that your understanding, as well, that the law will remain in place?

Schmidt: There are four issues before the court. There’s the Anti-Injunction Act issue, there’s the constitutionality of the mandate, there’s the constitutionality of the condition grants-in-aid and then there’s the severability question. Which is: If one part – particularly the mandate – falls, but it’s severed from the rest of the act, what’s that mean for the rest of the act? The mandate, of course, is the funding provision for the bulk of the statute. And to your point, at least in theory, it would be possible then for the policymakers in Congress to go back and seek another funding mechanism. I think the reality is, this case arises in the context of health care policy. Obviously there are health care implications throughout; that is its nature. But as I suggested when we first started the conversation, from a legal standpoint, the issues here really aren’t health care issues, they’re federal power issues, which is part of the reason we’re so actively engaged in trying to shape the outcome here. If this attractive power is upheld in the health care context, it won’t be long until Congress seeks to use it in other contexts, and so the legal issues and the immediate policy issues are somewhat separate. On the policy issues, at the end of the day – regardless of the outcome of our case, obviously I’m very hopeful we’re going to win – the health care debate is going to have to be settled in the political arena. There are real health care problems and challenges in this country, on the finance side, the delivery side. Those aren’t going to go away, and they’re not going to be resolved by this statute or this lawsuit. Policymakers ultimately are going to have to come to grips with that. That will be true whether we succeed in striking the mandate or whether we don’t succeed in striking the mandate. It may be a bit more urgent if we succeed in striking the mandate, because then I suppose the obvious point is, we will have shown that this approach is sort of analogous to the old notion that the emperor has no clothes, and they’re going to have to come up with a new way to proceed.

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