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Paul Ginsburg, a healthcare policy expert at the University of Southern California

Reform Update: States will face pressure to keep subsidies jeopardized by ruling

By Paul Demko
Posted: July 25, 2014 - 12:01 am ET

The ramifications of this week's federal appellate court ruling in Halbig v. Burwell—assuming the decision is upheld by the U.S. Supreme Court—could be immense.

If individuals in states that haven't established their own exchanges can't access subsidies, more than 7 million people would lose access to $36 billion in healthcare subsidies, according to a study by the Urban Institute. That has the potential to fatally undermine the fledgling exchanges and the entire Patient Protection and Affordable Care Act.

“It becomes health reform for blue states,” said John Holahan, an author of the Urban Institute report. “In the rest of the country, you don't have health reform.”

But most experts believe it won't come to that. The case still faces significant legal scrutiny. The Obama administration plans to appeal the ruling to the full U.S. Circuit Court of Appeals for the District of Columbia, which includes seven judges appointed by Democrats and four appointed by Republicans. And the 4th Circuit Court of Appeals, in a similar case in Virginia and the same day as the Halbig decision came down, ruled the subsidies are legal.

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But past all of that and assuming the decision would be upheld, states could find creative ways to avoid the loss of subsidies for millions of individuals. Some analysts argue that impacted governors could find an easy legal workaround to establish a state-run exchange that would comply with the Halbig ruling.

Nicholas Bagley, an assistant professor of law at the University of Michigan, wrote that a state could “establish an exchange and appoint a state-incorporated entity to oversee and manage it. That state-incorporated entity could then contract with to operate the exchange.”

Attorney Mark Rust, chair of Barnes & Thornburg's healthcare practice, suggests that states with partnership exchanges—which rely on for enrollments, but fulfill other duties such as plan management—may already meet the standard for having a state-based exchange. Currently there are seven such partnership exchanges, including in Michigan and Illinois, according to the Kaiser Family Foundation.

Rust suggests that other states in jeopardy of losing subsidies could fairly easily convert to this hybrid model.

“That middle course should be read as a state-established exchange,” Rust argued. “I do think that that absolutely is another alternative.”

Paul Ginsburg, a healthcare policy expert at the University of Southern California, points out that the Obama administration would be highly motivated to come up with accommodations for states facing the potential loss of subsidies. “I suspect that there will be workarounds in willing states, particularly given that you have a willing administration,” Ginsburg said.

The ruling also could push states, especially those with Democratic leadership, that haven't established their own exchanges to do so. Illinois state Rep. Robyn Gabel said that she may try to push legislation establishing a state exchange when the state legislature reconvenes in November. Previously efforts to establish a state exchange have foundered despite Democratic control of all branches of government.

“I think that people felt that it was important to have bipartisan support for a state exchange,” Gabel said. “But with a more dramatic and compelling reason, we may be able to pass it with just Democratic votes.”

The ruling also has the potential to shake up political contests if individuals start losing subsidies. Republican governors, in particular, political observers say, could feel the heat if their intransigence in implementing the law starts to cost constituents benefits. But those repercussions aren't like to occur anytime soon, which probably mutes near-term political impact.

Still, given what a political lightening rod the ACA has become, it's not too far-fetched to assume some candidates will be talking about Halbig, for and against, during this fall's elections.

Judge tosses lawsuit challenging insurance subsidies for congressional staffer

A federal judge tossed out Sen. Ron Johnson's lawsuit challenging Obamacare subsidies for legislators and their staffs. U.S. District Judge William Griesbach ruled that Johnson and a member of his staff didn't have standing to bring the lawsuit because they had not suffered any harm. “Given that the plaintiffs receive, at worst, a benefit, they cannot claim to be injured under an equal protection theory,” Griesbach wrote. Johnson (R-Wis.) said in a statement that he would review the ruling with his lawyers before deciding whether to appeal.

Planned Parenthood: Hobby Lobby ruling could have political consequences

The U.S. Supreme Court's ruling in the Hobby Lobby case, which found that companies can deny contraceptive coverage to employees on religious grounds, could affect the voting patterns of women this November, according to new polling data (PDF) released by Planned Parenthood. More than half of respondents, 58%, indicated that they opposed allowing companies to deny birth control coverage for religious reasons. In addition, 57% indicated that they would be more likely to support a candidate who opposes allowing employers to refuse contraceptive coverage.

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