32 States Haven’t Tried To Establish an Exchange. Are They Making a Huge Mistake?

Established by the state.

Those three words could be the difference between having health coverage — or not — for millions of Americans next year.

And it all rests on how the Supreme Court chooses to rule in King v. Burwell, the latest major challenge to the Affordable Care Act.

In King, the plaintiffs argue that the ACA expressly details that subsidies to purchase health insurance should only be available through exchanges established by the state. That Congress was essentially including those subsidies as a lever to get states to build their own exchanges. And that the 34 states relying on HealthCare.gov are getting those subsidies illegally.

This isn’t a small matter. Roughly 4.6 million people took advantage of subsidies to buy their health coverage through the federal health insurance exchange. And in many cases, those subsidies were essential to making their health coverage affordable.

(“Road to Reform” has tracked the ongoing legal fight over subsidies in the exchanges. Here’s a close look at the origins of Halbig v. Burwell, a sister case to King.)

Michael Cannon and Jonathan Adler, who have championed the case in King, have argued that based on a textual reading of the law, the ACA clearly says that only state-based exchanges should enjoy the benefit of subsidies.

But other observers aren’t so sure. The 4th U.S. Circuit Court of Appeals, which ruled for the government in King, concluded that the law’s language is ambiguous.

Nicholas Bagley, a University of Michigan law professor, writes in an upcoming edition of the Journal of Health Politics, Policy, and Law that Cannon and Adler’s reading is “quite implausible.”

“If Congress did mean to use the three words to threaten the states, it should be easy to find evidence of that threat in the legislative record,” Bagley writes. “Yet there is none.”

What Could Happen

The Supreme Court is expected to hear King in the spring and rule on the case by June 2015. If the high court concludes that the subsidies are illegal, the IRS will immediately halt paying them out.

And that decision could end up “unraveling” the health law, experts tell Kaiser Health News‘s Julie Rovner. Millions of poor Americans would likely be unable to afford the coverage on the exchanges, and end up dropping their plans. That could cause a so-called death spiral on the federal exchanges, leading to skyrocketing premium prices, the trade association for the insurance industry has warned.

And the timing would be difficult for the states relying on HealthCare.gov, as they’ve already missed various deadlines to apply for federal help in setting up their own exchanges, and with the next ACA open enrollment period looming in October 2015.

“I don’t think there are any rosy scenarios,” said Timothy Jost, a law professor at Washington and Lee University who’s supported the ACA.

“It’s a complete disaster.”

And there’s reason to believe that the challengers will win here. While lower courts found against King, the mere fact that the Supreme Court accepted the case suggests that at least four justices believe the lawsuit has merit.

“What’s troubling is that four justices apparently think — or at least are inclined to think — that King was wrongly decided” at lower levels, Bagley wrote at “The Incidental Economist” in November. “If those four adhere to their views … the challengers just need one more vote to win.” 

What States Are Doing: Very Little

Despite the threat, most states are taking a wait-and-see approach.

Just two states — Arkansas and Illinois — appear to be proactively moving to establish their own exchanges by next year, Paul Demko notes at Modern Healthcare. A few other states that have opted for partnership exchanges, like Delaware, may attempt last-ditch workarounds if the Supreme Court rules for King, Bloomberg‘s Alex Wayne reports.

There are several reasons for this inertia. Some officials aren’t rushing to deal with the risk posed by King because the conventional wisdom, particularly among liberals, is that the case rests on a typo in the ACA and will end up being defeated.

“The Latest Challenge to Obamacare Should Embarrass Conservative Judges,” the New Republic asserted this week.

More generally, health care hasn’t been a winning political issue, and the law remains unpopular. Legislators aren’t keen to reopen the issue unless it’s absolutely necessary.

And setting up a health insurance exchange requires surmounting several legislative barriers, in some cases ones created by the states themselves. Several Republican-led legislatures have explicitly prevented their governor from having the authority to establish a state-run health insurance exchange.

“The practical obstacle is that creating an exchange is not child’s play,” Bagley told Kaiser Health News. “They’ve got to be able to carry out a variety of functions,” including working with consumer assistance groups and overseeing plans’ compliance with the laws.

But for all the challenges now, it will likely be even harder if the Court rules for King next year. On the local level, Republicans won an unprecedented statehouse majority in last month’s elections, with many candidates voicing their displeasure with the health law. And with the Senate scheduled to shift to Republican control, Democratic supporters of the ACA may face unpleasant options if they need to try to find a legislative patch.

“I would hope that states should be moving en masse right now, to get their ducks in a row, in case the Supreme Court strikes down [the subsidies],” Bagley told California Healthline.

“It would be the prudent move — the responsible act of governance,” he added.

“I hope there’s more happening behind closed doors than what we’re seeing publicly.”

Around the nation

Here’s a look at other stories making news on the road to reform.

We’re overlooking Obamacare’s ‘underinsurance’ problem. Writing at the New York Times‘ “The Upshot,” Aaron Carroll notes that while the ACA has expanded health coverage, it hasn’t done very much to address the nation’s pervasive health plans with incredibly high deductibles.

Is the health law driving up health costs? Christopher Flavelle of Bloomberg News suggests that the Affordable Care Act hasn’t really led to higher costs for employer-based health insurance, despite some Americans’ high-profile stories of premium hikes.

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