Healthcare Business News

States may need to take big steps to keep subsidies

By Harris Meyer
Posted: August 2, 2014 - 12:01 am ET

Some state officials and legal experts argue it should be relatively easy for states that have not yet established their own insurance exchanges to find a legal workaround to retain federal premium subsidies following last month's ruling disallowing subsidies through the federal exchange.

But one noted legal analyst who supports the Patient Protection and Affordable Care Act cautioned that it will take a lot more than semantic maneuvers.

In a Health Affairs online article last week, Washington & Lee University law professor Tim Jost laid out five major steps states will have to take to “establish” their own exchange and enable their residents to keep their federal premium tax credits, if the federal appellate court ruling in Halbig v. Burwell is ultimately upheld.

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“Establishing a state exchange takes time, and will probably, in most states, take legislative action,” Jost said in an interview.

The ruling is causing great anxiety among state officials because it could mean the loss of subsidies worth $36 billion to 7.3 million Americans in 2016, according to the Urban Institute.

Experts have suggested that some states—particularly the seven that have federal partnership exchanges—may be able to easily fulfill the requirements to meet the definition of a state-based exchange.

Some state officials argue the partnership exchange in their state should be considered a state-established exchange because the state carries out some of the marketplace functions. Attorney Mark Rust, chairman of Barnes & Thornburg's healthcare practice in Chicago, said the states with partnership exchanges already may meet the standard for having a state-established exchange, and that other states could fairly easily convert to this hybrid model.

But after a close reading of various sections of the ACA and of HHS regulations, Jost wrote it's not going to be that easy. To “establish” its own exchange, a state must:
  • Enact authorizing legislation or have a properly issued executive order establishing the exchange.
  • Establish a properly constituted governing board.
  • Issue governing principles.
  • Fulfill all exchange functions directly or through contracting with a private entity or under arrangement with HHS.
  • Provide funding for the exchange, which must be self-sufficient for 2015.
“It is not enough for a state simply to set up a website,” Jost wrote. “It is also not sufficient if a state department of insurance operates some functions in a partnership relationship with a federal exchange.”

So, state elected officials still may have to do the hard political work to establish a state-run exchange.

Follow Harris Meyer on Twitter: @MHHmeyer

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