The Humana Controversy and Government Funding:

Various people defended the Department of Health & Human Services "instruct[ing]" Humana to stop distributing allegedly "misleading and confusing" political advocacy, on the grounds that Humana gets huge benefits from participating in various DHS programs. But while the government has substantial control over how government program dollars are spent by people and institutions hired to administer the programs, the government may not impose blanket limits on everything the recipients say, as a condition of participating in the program. Rather, the recipients must retain the right to speak using their own money (at least unless their speech is otherwise punishable).

Here's the relevant passage from Rust v. Sullivan:

The Secretary's regulations [restricting the use of government funds for abortion-related speech] do not force the Title X grantee to give up abortion-related speech; they merely require that the grantee keep such activities separate and distinct from Title X activities. Title X expressly distinguishes between a Title X grantee and a Title X project. The grantee, which normally is a health care organization, may receive funds from a variety of sources for a variety of purposes. The grantee receives Title X funds, however, for the specific and limited purpose of establishing and operating a Title X project. The regulations govern the scope of the Title X project's activities, and leave the grantee unfettered in its other activities. The Title X grantee can continue to perform abortions, provide abortion-related services, and engage in abortion advocacy; it simply is required to conduct those activities through programs that are separate and independent from the project that receives Title X funds.

In contrast, our "unconstitutional conditions" cases involve situations in which the government has placed a condition on the recipient of the subsidy rather that on a particular program or service, thus effectively prohibiting the recipient from engaging in the protected conduct outside the scope of the federally funded program. In FCC v. League of Women Voters of Cal., we invalidated a federal law providing that noncommercial television and radio stations that receive federal grants may not "engage in editorializing." Under that law, a recipient of federal funds was "barred absolutely from all editorializing" because it "is not able to segregate its activities according to the source of its funding" and thus "has no way of limiting the use of its federal funds to all noneditorializing activities." The effect of the law was that "a noncommercial educational station that receives only 1%" of its overall income from [federal] grants is barred absolutely from all editorializing" and "barred from using even wholly private funds to finance its editorial activity." ...

So if the government simply directed Humana not to use federally-provided funds for its political advocacy to recipients, that would be permissible. It's possible that if Humana used a federally-provided mailing list for its mailing (I don't know whether that's true), the government could attach similar restrictions on the use of the mailing list. But the government went further: It instructed Humana even to take the advocacy off its Web site, without regard to whether Humana used government-provided money for such advocacy. That, it seems to me, is unconstitutional under FCC v. League of Women Voters.

To be sure, because money is fungible, this League of Women Voters principle in effect does stop the government from making sure that its subsidies aren't indirectly used for certain speech. If the government gives someone $1 million (whether as a subsidy or as fair market compensation for the value of its services), and the speaker continues speaking using what is ostensibly its own money, that speech will still be much facilitated by the government grant -- the $1 million will free up money that the recipient would otherwise have had to spend, and will let the recipient use that freed-up money for its own speech.

But the Court considered that argument in League of Women Voters and rejected it. And when the government (federal, state, and local) controls 25-30% of the GNP, and provides valuable range of contracts and subsidies to a vast range of institutions, including private universities, think tanks, newspapers, and so on, giving the government a free hand to restrict recipients' speech as a condition of its contracts would give the government vast power over public debate.