Medicaid, the entitlement program for low-income Americans jointly funded by the state and federal government, represents about 25 percent of state budgets. Federal funding represents more than half (57 percent) of that amount, and that funding is now being threatened by Obamacare.

In what seems like déjà-vu all over again, Maine’s Department of Health and Human Services (DHHS) is pursuing a lawsuit to prevent this sort of federal coercion.

Here’s the scoop: In 2009, the American Recovery & Reinvestment Act (ARRA) offered states stimulus funds if they agreed to a maintenance-of-effort (“MOE”) provision that required them to maintain Medicaid-eligibility standards at July 2008 levels through December 2010. MaineCare, Maine’s Medicaid program, accepted those funds and the accompanying MOE provision. In relevant part, MaineCare covered low-income individuals ages 18 to 20 in 2008 — even though Medicaid doesn’t require states to include non-pregnant, non-disabled 18- to 20-year olds — so that MOE provision required Maine to continue to do so through 2010. Then the Affordable Care Act came along and added its own MOE provision, which required states to “freeze” eligibility levels until 2019 or risk losing all federal Medicaid funding.

When the ACA took effect on March 23, 2010, Maine was still bound by the ARRA’s MOE requirements, and thus had to continue to cover 18- to 20-year olds for an additional nine years. In August 2012, however, the Maine DHHS sought to drop this coverage. The federal Center for Medicare and Medicaid Services (CMS) rejected Maine’s position regarding alleged inconsistencies between the MOE provisions.

On appeal, Maine argued that the ACA’s MOE provision is unconstitutionally coercive under the Spending Clause, that it unconstitutionally applies retroactively to ARRA MOE provisions, and that it violates Maine’s right to equal sovereignty. Nevertheless, the U.S. Court of Appeals for the First Circuit affirmed the CMS decision, so Maine now seeks Supreme Court review.

Cato has filed a brief supporting that petition. We outline the significance of the case and reiterate concerns over the executive branch’s interpretations of NFIB v. Sebelius (the previous Obamacare case at the Supreme Court). The issues presented here need to be resolved so states can decide whether to establish exchanges — regardless of how King v. Burwell is decided — or expand their Medicaid programs. In enforcing the eligibility freeze, the ACA creates inequality among states in administering their Medicaid programs and threatens state sovereignty.

After NFIB struck down mandatory Medicaid expansion, U.S. HHS Secretary Sebelius suggested that the Court’s ruling didn’t apply to populations covered under MOE requirements. Yet the Supreme Court majority clearly stated that expanding mandatory Medicaid eligibility beyond “discrete categories of needy individuals” represented a dramatic increase of state obligations. All 34 states that have chosen not to establish exchanges are still responsible for the populations under the MOE provision, however, and most states that haven’t expanded Medicaid are facing budget shortfalls.

Aside from clear federalism issues, this case therefore has a huge impact on state budgets. The Court must grant cert. in order to address federalism issues and provide clarity so that the states can make informed decisions about ACA implementation.

The Supreme Court will decide whether to take up Mayhew v. Burwell later this spring.