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For Immediate Release:  
For Further Information Contact:
March 3, 2006

Office of The Attorney General
- Zulima V. Farber, Attorney General


Lee Moore


Attorney General Farber Announces Filing of State Lawsuit
Challenging Medicare “Clawback” Provision

TRENTON – Attorney General Zulima V. Farber announced today that New Jersey has filed a lawsuit in the U.S. Supreme Court challenging a provision of a new federal prescription drug benefits plan that requires states to help pay for certain outpatient prescription drug coverage provided under Medicare.

In filing its complaint with the Supreme Court in Washington, D.C., New Jersey joins four other states – Texas, Kentucky, Missouri and Maine – in challenging a provision of the new federal law governing prescription drug coverage for “dual eligibles” under Medicare. Dual eligibles are low-income elderly persons or disabled individuals who are enrolled in both Medicare and Medicaid. There are approximately 140,000 dual eligibles in New Jersey.

Under the new law, which took effect in January of this year, New Jersey and the 49 other states are required to help fund federal Medicare coverage for dual eligibles via a monthly payment to Medicare commonly referred to as the “clawback.” It represents the first time since enactment of the Medicare program in 1965 that a significant portion of a federal Medicare benefit is being financed by state payments. New Jersey’s lawsuit contends that, in requiring states to help fund an entirely federal program, the federal government is encroaching on the State’s sovereignty.

“Our contention is that the Medicare clawback provision is unconstitutional because, among other things, it undermines the ability of New Jersey to control its own destiny as a state,” said Attorney General Farber. “In requiring the states to pay a specified dollar amount to support a federal program, the new law eliminates our ability to exercise control over a fundamental state function – spending.”

Farber acknowledged that, in bypassing lower appeals court levels and directly petitioning the U.S. Supreme Court, the states are taking an unusual action. The Attorney General explained, however, that such an extraordinary action is warranted because the Medicare clawback matter presents important constitutional issues, and could threaten the states with fiscal harm.

“We believe that, constitutionally speaking, the clawback provision takes us into uncharted waters as a nation,” said Farber. “New Jersey and the other states are not aware of any other federal statute that has conscripted state governments to fund a federal program. Plainly put, our position is that this is the first time Congress has expanded its power to include direct taxation of the sovereign states.”

Prior to enactment of the new federal “Medicare Part D” law in January, states paid for the outpatient prescription drugs of dual eligibles through Medicaid. Under Medicare Part D, dual eligibles are now covered under Medicare, and states are required to help fund the cost by remitting a monthly payment to the federal government. The amount of each state’s monthly payment is calculated by a federally-determined formula, and is supposed to approximate the amount each state would pay if it continued to fund prescription drugs for its own dual eligibles via Medicaid.

Attorney General Farber noted that, while some states have taken issue with the amount of their financial obligation to Medicare as calculated by the federal government, New Jersey is not, at this juncture, claiming direct fiscal harm as a result of the new Medicare Part D provision.

However, Farber said, being required to help pay for an entirely federal program, and having no ability to control, influence or anticipate the annual cost of doing so, imposes an element of unpredictability on state legislative and budget processes that not only violates the Tenth Amendment, but could one day result in fiscal harm.

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