States and the federal government can find ways to keep subsidies for millions of people. Obamacare: States may find way

If the courts ultimately block Obamacare subsidies through the federal exchange, more than half the country would be cut off from the money that makes the health care law work. Or maybe not.

States and the federal government can find ways to keep subsidies for millions of people already receiving them in the 36 states relying on the federal exchange, several former administration officials and health policy experts said after a set of conflicting appeals court rulings Tuesday raised questions about the future of the subsidies.


States could build their own exchange websites, although there’s little appetite now among the ones that haven’t already. Regulators could identify states as having their own exchanges even if they continue to use HealthCare.gov. States could also do something like Maryland has done — abandon its ill-fated website and contract with another state for technology that actually works.

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Of course that assumes that a state wants the subsidies to keep flowing to its people, a pretty good bet for the blue states but a more politically complicated calculus for Republican governors who have fought Obamacare but may still be reluctant to cut people off.

The Affordable Care Act says there are two kinds of exchanges — those set up by the states, and a fallback federal one for states that didn’t. But variants have been defined by regulatory fiat, including state-federal “partnership” exchanges that appear nowhere in the actual law. The requirements for what states have to do to have their own exchange have evolved as well. Definitions could change to enable what are now federal exchange states to claim that “state” status, if they wanted to.

“The [HHS] Secretary has broad-based regulatory authority when it comes to the exchanges,” said Joel Ario, a former director of exchanges at HHS who is now a partner at Manatt Health Solutions. “There are a lot things she could do.”

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“You look at the exchanges as they exist today, and they really fall on a continuum,” said Sabrina Corlette, a health policy expert at Georgetown University. “It’s not at all a binary choice between a state-established exchange and a federal one.” Nearly all the states on the federal exchange are playing some role in regulating their insurance market under the health law.

Two appeals courts issued conflicting rulings Tuesday on the legality of subsidies in the federal exchanges. The U.S. Court of Appeals for the Fourth Circuit said it’s OK, and the U.S. Court of Appeals for the District of Columbia said it’s not. The legal fight will go on, but health policy experts immediately started thinking ahead.

At least two of the states that relied on the federal website during Obamacare’s first enrollment season, New Mexico and Idaho, are in fact state-run exchanges. They conduct the insurance plan management, outreach and advocacy, the review of proposed premiums — everything except running the enrollment website, and they are planning to take that over as well for the next sign-up season. Seven other states have “partnership” exchanges, meaning they are sharing part of the task of implementing the law but use the federal website for enrollment.

“State exchanges don’t necessarily have to build their own IT,” Ario explained.

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That would be an important factor for states considering conversion to a state exchange. The high-profile collapses of exchange technology in states like Oregon, Maryland and Massachusetts, built with hundreds of millions of federal grant dollars, on top of the fiasco of a rollout of HealthCare.gov, sapped states’ appetite for engaging in major new Obamacare tech projects.

But Maryland suggests one possible alternative course. It abandoned its failed exchange effort and is contracting to use Connecticut’s technology in the next enrollment season, starting this fall. Some Obamacare watchers suggest that if states can contract with other states, or even commercial IT vendors to operate their exchanges, they ought to be able to contract with HealthCare.gov to do the same.

“If the states were to do this immediately, no one would have to lose their subsidies,” Bob Laszewski, an insurance industry consultant, wrote in a blog post.

“They could basically license HealthCare.gov to state exchanges and say basically, you guys control things and you just license our technology,” said George Brandes, vice president for health care programs at Jackson Hewitt. “[T]hat’s almost certainly an option and probably would prove to be an indispensable one because states are not going to go out and spend another $600 million toward building their own system.”

Exchange officials in Oregon, which is scrapping its technology and will use HealthCare.gov, insisted Tuesday that the court rulings don’t apply to them, that they remain a state-run exchange even if they rely on the federal website for enrollment.

“State law has said we’re going to be a state-based exchange, and we’re going to comply with that law,” said Clyde Hamstreet, who recently stepped down as acting executive director of Cover Oregon, at a board meeting Tuesday held within hours of the Tuesday appeals court rulings. Nevada, which is also in the process of moving to Healthcare.gov, says it too would be a state exchange even if it adopts the federal software.

“Switching to HealthCare.gov does not affect our status as a state-based marketplace,” said CJ Bawden, a spokesman for Nevada Health Link. Technically, when Nevada starts using the federal system for eligibility and enrollment in November, it will have a “supported state-based exchange,” a new designation from HHS.

Whether other states would partner with the federal government, especially red states, is another question. But about 5 million people are already receiving subsidies in states that used HealthCare.gov, and millions more are expected to be added to the rolls next year.

If the question arises again, the political calculus will be different that it was before the subsidies started flowing and people were getting covered, Ario said.

“The governors would be under extreme pressure to act,” he said. Ario also noted that 45 out of 50 states have agreed to enforce the law, rather than leave it to federal authorities, and that there’s been at least some cooperation from all of them.

Jay Angoff, the first director of the Office of Consumer Information and Insurance Oversight in the Obamacare-era at HHS, said the government has already done everything it can to entice states into building their own exchanges. “HHS begged the states to set up exchanges — begged them,” he said.

It made virtually unlimited funds available, was flexible with deadlines and how the money could be spent. Still, states refused. “I don’t see how they can do anything else,” Angoff said.

But, he asked, “can HHS do something to call a federal exchange a state exchange? I think that was looked at. It’s an interesting question.”

Any effort to redefine a state exchange to get around a court ruling is bound to draw more legal challenges, but that wouldn’t necessarily stop federal health officials from trying.

“I would bet that some people in the HHS [general counsel’s office] are looking at this right now,” said Tevi Troy, a former Bush administration deputy secretary at HHS and a critic of Obamacare.

But he said the ruling on Tuesday suggested the courts are looking closely at the legislative text of the health law.

“The courts that ruled this way would be casting a very careful and narrow eye on those kinds of shenanigans,” Troy said.

With contributions from Sarah Wheaton, Mackenzie Weinger and Jennifer Haberkorn