Stateline Story

States Suing Feds Over Seniors' Rx Costs

Fifteen states want the U.S. Supreme Court to block the federal government's plan to bill them for a portion of costs for the new Medicare prescription drug benefit passed by Congress.

The case tests Congress' power to bill states directly for the costs of a federal program. States not only object to chipping in for the drug benefit for seniors, but they also worry it will set a precedent that Congress could use to force states to pay for federal initiatives in the future.

Five states — Texas, Kentucky, Maine, Missouri and New Jersey — used a special constitutional provision to go straight to the nation's highest court to sue the Bush administration in March. They argue Congress is imposing an illegal tax on states.

Ten states have filed papers supporting the challenge to the 2003 Medicare law, calling it an "unprecedented intrusion into each state's sovereignty."

Last week, the Bush administration told the justices there isn't anything unusual about Congress' mechanism for funding the drug benefits and said the matter belongs before a lower court.

When Congress expanded Medicare to cover drug costs for seniors for the first time, it voted to make states continue to pick up most of the tab for 6 million "dual eligibles," poor seniors whose drug costs already were being covered by states under the Medicaid program for the poor and disabled.

States had hoped Congress would relieve them of paying for drugs for the dual eligibles. But Congress instead ordered states to make "clawback" payments to the federal government, in order to claw back the savings states would reap by no longer having to spend Medicaid dollars for seniors' prescriptions. The first of those clawback payments came due in March, spurring the Supreme Court lawsuit.

States have a lot at stake in the case. The federal government wants payments of $6.8 billion from states this year and another $9.7 billion next year.

The high court, which can choose to hear disputes between states and the federal government, has not yet decided whether to take the case.

Florida State University political science professor Carol Weissart said the dispute is important because a victory for the federal government would clear the way for Congress to make states pay for federal programs, especially at a time when Congress has been cutting domestic initiatives.

Weissart, the editor of Publius, an international journal focusing on issues of federalism, called the so-called clawback payments at the center of the controversy "highly unusual."

"Basically, it requires states, after the fact, to write a check to the federal government," she said.

In a brief filed with the Supreme Court May 16, Bush administration lawyers dismissed the idea that the clawback payments were anything more than "merely an accounting mechanism."

"A financial arrangement that is designed to result in a net savings for the states under a program that is infused with massive federal support and subject to ongoing financial adjustments cannot sensibly be considered a 'tax' that implicates questions of 'intergovernmental tax immunity,'" the Department of Justice lawyers wrote.

One of states' top complaints is that the mandatory payments make it impossible for state legislators to do their jobs.

"There can be no debate among the state's legislators about the best way to spend the funds. There can be no compromise among competing interests. Instead, the states must hand over to the federal government a specified dollar amount for the support and operation of an entirely federal program," the five suing states argued.

The supporting cast of states argued that allowing the federal government to tax states makes both state and federal lawmakers less accountable to voters.

Congress "has engineered a means of obtaining billions of dollars from state governments so that it can take credit for bestowing a prescription drug benefit without having to risk paying the political price that would accompany raising federal taxes or cutting other federal funding to cover the benefit," they wrote in their brief.

"Simultaneously, state governments, who have no control over the amount of their clawback bills, may face their constituents' political ire for failing to use the funds that the clawback requisitions to address other problems or for raising taxes if they are forced to do so because of clawback bills," the states continued.

Under the 2003 Medicare law, states that don't make the clawback payment will be docked that amount from the total they receive from the federal government for its share of Medicaid costs.

But that could set a dangerous precedent, the 10 states said. For instance, the federal government could require states to pay for a nuclear safety program or else lose money they would have received for highway safety or child-support enforcement, they said.

"That fact may be obscured, however, because Medicare and Medicaid may appear on the surface to be different aspects of the same program. They are not," they wrote. Medicare is an entirely federal program for seniors. Medicaid is run by states using both state and federal money. It covers poor elderly, blind and disabled residents and low-incomes families.

But administration lawyers said the payments for the prescription drug benefit work essentially the same as Medicaid premiums for physician visits. State Medicaid programs must cover the premiums and co-payments for dual eligibles, and that money goes into the federal account that funds Medicare, the attorneys noted.

The 10 states joining in the friend-of-the-court brief are Arizona, Alaska, Connecticut, Kansas, Mississippi, New Hampshire, Ohio, Oklahoma, South Carolina and Vermont. The case is Texas, et al. v. Michael O. Leavitt, etc., No. 22O135.