Far-Reaching Implications in States" Health Care Law Challenge WASHINGTON - A major issue in the Supreme Court battle over the new health care law is whether Congress can force states to make a huge expansion of Medicaid, to add millions of low-income people to the rolls. States say the federal law is unconstitutionally coercive because all their Medicaid money would be at risk if they flout the new requirement. The states" argument has implications that go far beyond health care. It raises questions about Congress's ability to attach conditions to federal grants to the states for other purposes, like education, transportation, law enforcement and protection of the environment. The implications for the health care overhaul are also enormous. The Congressional Budget Office says that about half of the people expected to gain coverage under the new law - 16 million of the 31 million people - will get it through Medicaid. The Obama administration denies coercion and says the terms of the deal are exceedingly generous to states. The states" argument has "no logical stopping point," said Solicitor General Donald B. Verrilli Jr., who will defend the health care law at the Supreme Court next week. The states" theory, he said, "would call into question not only the extension of Medicaid eligibility in the Affordable Care Act, but also every other requirement for participation in the Medicaid program, not to mention an unspecified number of other federal spending programs." Senator Charles E. Grassley, Republican of Iowa, a vocal critic of the new law, offered a similar assessment, saying that a ruling for the states could "bring into question" prior expansions of Medicaid and conditions attached to other federal money. Medicaid is by far the largest grant program, accounting for more than 40 percent of all federal aid to state and local governments, according to the White House. The health care law offers Medicaid to people with incomes up to 133 percent of the federal poverty level (up to $14,850 for an individual and $30,650 for a family of four). Some states, like Louisiana, expect Medicaid rolls to grow by more than one-third, as many uninsured adults without children gain coverage. In a Supreme Court brief, the 26 states challenging the law describe the expansion of Medicaid as "an extreme and unprecedented abuse of Congress's spending power." And they assert: The Affordable Care Act threatens states with the loss of every penny of federal funding under the single largest grant-in-aid program in existence - billions of dollars each year - if they do not capitulate to Congress's steep new demands. The Obama administration says that Medicaid is technically a voluntary program from which states can withdraw. But states say they have "no real choice" because they depend so heavily on it to finance medical care for low-income people. For years, governors have complained about explosive growth in Medicaid costs, and they say the expansion of the program will further drive up costs. The administration says that Congress has often expanded Medicaid to cover additional people and services. Moreover, it says, the latest expansion will be less onerous than states assert. The federal government normally pays 50 percent to 83 percent of Medicaid costs. But it will pay a much larger share for people who become eligible under the new health care law: 100 percent of the costs in 2014-16 and 95 percent in 2017, declining to 90 percent in 2020 and later years. States say they cannot afford to turn down so much federal money - more than $500 billion from 2014 to 2020. But the Obama administration said this argument led to a perverse conclusion: When the federal government offers more money to states, on more generous terms, it becomes more coercive. "That cannot possibly be the law," Mr. Verrilli said. Lower courts rejected the states" argument on Medicaid, but the Supreme Court said specifically that it wanted to hear the issue debated next week. States cite cases going back to the New Deal to support their claim that federal requirements can be unduly coercive. In 1987, the Supreme Court upheld a federal law that required states to set a minimum drinking age of 21 as a condition of receiving their full allotment of federal highway money. William H. Rehnquist, who was then chief justice, wrote that, "in some circumstances, the financial inducement offered by Congress might be so coercive as to pass the point at which pressure turns into compulsion." That is exactly what happened with the 2010 health care law, states say. To support their argument, states point to two other cases as well. In 1992, the Supreme Court said Congress could not "commandeer state governments" to carry out a federal regulatory program involving the disposal of radioactive waste. Five years later it ruled that Congress could not require state officials to help administer a federal gun control law by performing background checks of prospective gun buyers. The Senate majority leader, Harry Reid, Democrat of Nevada, and the House Democratic leader, Nancy Pelosi of California, told the Supreme Court last month that federal judges had no business "attempting to draw a line between permissible persuasion and impermissible coercion." That, they said in a "friend of the court" brief, is a political question that should be left to elected officials. The new law requires most Americans to carry insurance, starting in 2014. States say "Congress knew that no state could or would opt out" of Medicaid and therefore provided no other means for the poorest Americans to comply with the requirement. Congress created insurance exchanges where people can shop for private health insurance, subsidized by the federal government. But the subsidies will generally not be available to people with incomes below the poverty level, who are expected to go into Medicaid. The Obama administration says that, far from being coercive, the new law will save money for states, reducing the need for them to care for the uninsured. Oregon and a dozen other states have filed a brief in the Supreme Court supporting the expansion of Medicaid as an example of "cooperative federalism." States have long wanted to expand coverage, they say, and the new law will help them do so.