On the third and final day of the Supreme Court hearings on Obamacare, the Justices will hear arguments on two separate issues. One concerns severability.  If one portion of the law is found unconstitutional, such as the mandate, does that require the Court to strike down related provisions, or even the entire law?

There’s is a presumption of severability, but if some provisions are so interdependent that striking down one makes the others unworkable, they can be struck down too. And in fact, that’s what the Court will hear today: whether the individual mandate can be removed from the law while the rest of the law stays intact. Given yesterday’s arguments, this is a question that could very well come into play.

Precedent suggests that the constitutionally valid parts of the law should stay in operation, with only the unconstitutional parts removed. The government will argue that three of the elements work in tandem – the individual mandate, the pre-existing condition exclusion, and community rating, which mandates that all consumers get charged at the same basic rate regardless of medical history (with a few exceptions: age, geographic location and tobacco use).

But this is only true in the context of a deal with the health insurance industry – you take all comers and charge them the same, and we mandate purchase. There’s no reason, actually, that insurers should get off the hook on pre-existing conditions if they lose the mandate. The government says the market would go out of control if everyone can just purchase health insurance right when they get sick. That’s may be true in theory, but in practice, there have been plenty of systems without a mandate that have actually functioned. And that’s especially true with the subsidies being offered at the low end of the scale. You may not need any contingency plans if the mandate falls.

Paul Starr, a health policy expert at Princeton University, agrees and points to the high enrollment rates for Medicare’s Part B and Part D plans, which cover doctors and prescription drugs; in contrast to Medicare’s hospitalization plan, they are optional.

“Seniors don’t have to sign up, but they do because it’s a good deal,” Starr said.

The plaintiffs actually agree on not just severing the mandate, but they want the whole law struck down. So there’s a third argument, with the Supreme Court bringing in an appointed lawyer, to just strike down the mandate and nothing else.

The second half of the day will concern the Medicaid expansion. And the arguments on this will have a major resonance for social policy going forward:

As part of the Affordable Care Act (ACA), Medicaid regulations change. Starting in 2014, all adults, regardless of whether they have children, will be eligible for Medicaid if they earn up to 133% of the federal poverty line. These changes are an enormous expansion of Medicaid, so much so that about half of the newly insured under the ACA will be getting their coverage through the program.

Of course, such a large expansion cannot be cheap. In fact, the Congressional Budget Office estimates that it will cost almost $800 billion over the next decade. To make this more palatable to states, the federal government will cover 100% of the expansion when it begins in 2014. That will slowly phase out, so that by 2020, the federal government will cover 90% of the expansion. While this will leave states paying for some of those who will newly be eligible for Medicaid, their share of the expansion will still be far less than the 25% to 50% that they must cover for Medicaid today [...]

Florida, along with 26 other states, is bringing a case to court based on the Constitution’s Spending Clause. Basically, the federal government has the right to make states accept certain conditions for which they will be given federal funds. If they don’t accept the conditions, then they don’t get the money. This is how Medicaid began, as an optional program states could agree to join. All of them did, obviously.

But now the law has changed, and those against the ACA’s new policy argue that this is an unfair expansion of a program that in practical terms is no longer optional. Medicaid is so fundamental to states’ operations now, they assert, that it can’t be considered funding that states can refuse if they choose not to agree to the new regulations. Because they will lose not only the new funding but all Medicaid funding if they don’t expand the programs, they say the actions of the federal government are coercive.

The federal government, of course, feels differently from Florida. It has argued that Congress has included new populations in Medicaid many times, and has at each time made Medicaid funding conditional on the acceptance of new regulations. They hold that the program is still voluntary. They argue that this use of the Spending Clause is constitutional and necessary for a functioning government. Moreover, they assert that should the Supreme Court intervene, it, not the elected representatives of Congress, will be responsible for determining how policy and revenues are set between the federal and state governments.

The actual argument made by the states here is that the government is giving them too good a deal to pass up. It’s a real shock – and an ominous sign – that this question even got cert at the Court. If the Court strikes down the Medicaid expansion, the federal government would be incredibly constrained even in programs that are state-federal partnerships.

[Note: original introduction revised to better reflect the severability issue.]