Election Day 2014 - Republicans and Democrats in the campaign

It was just announced that on March 4, 2015, the United States Supreme Court will hear augments regarding a controversial piece of text in the Patient Protection and Affordable Care Act that could remove the availability of subsidies in states which decided to go with a federally facilitated marketplace.

The case is based on a selective piece of text in the Act highlighting the availability of insurance subsidies in only those states which established their own state exchanges. In case the United States Supreme Court rules in favor of the challengers, as many as 4 million people could lose health insurance subsidies across 37 states which opted for the federal marketplace.

In response to this, the Obama administration has made it clear that it was never their intention to limit the health insurance subsidies to only those who were shopping through state exchanges. The CBO, too, established that the tax credits will be available nationwide, and inculcated this cost while estimating the overall impact ACA will have on the federal budget. The appellants, on the other hand, are fixated on a four-word phrase ‘established by the state’ for exchanges that allow subsidies in the form of tax credits to people buying a health plan off that exchange. As the Court hears the case and prepares to pass a verdict, some states are already working to circumvent this situation and, thus, keep their subsidies intact.

States like Delaware and Illinois are already leading the way with a complete response plan. The state of Delaware plans to implement a technical workaround that will prevent them from losing their insurance subsidies. Illinois, on the other hand, is trying for a legislative fix that would connect them to the subsidies.

Delaware’s Workaround

Out of all other states, Delaware’s case is pretty interesting. Back in 2010, Delaware decided that its small size would hinder its ability to build a state exchange. Delaware did side with the federal insurance exchange, but state officials are confident that they will not lose the subsidies as they are in control of a ‘Delaware version’ of the federal insurance exchange, which is almost like having a contractor managing the state run health insurance exchange. If the court agrees with this definition of the state-based marketplace, Delaware will be in a favorable position and will be allowed to retain its subsidies.

If this option works out for Delaware, it will set a precedent for other states to follow suit. However, having this legislative change in their favor will be a tough nut to crack, and Delaware might not be able to make this technical workaround.

State Partnerships with Federal Insurance Marketplace

Aligned with the definition of state insurance marketplaces, some other states have a ray of hope that will allow them to retain the subsidies. Six states, other than Delaware, are in control of some aspects of the federal insurance marketplace for their state, such as controlling the available health plans. In such situations, the states can be said to be in a partnership with the federally run marketplace, and hence might help them retain the subsidies through a legislative fix that recognizes these partnerships as state managed marketplaces. Illinois is one such state.

However, the problem with this legislative fix is that out of these six states, Illinois, Iowa, Michigan, and Arkansas will have Republican governors next term, and they are highly likely to shoot down this partnership theory. To avoid that, these states will need to make their move under the current administration.

Road Ahead

The road ahead is wrought with challenges, as even the fixes at hand have a low probability of working out. In case the United States Supreme Court removes the availability of these subsidies, states will be left with only the option of creating a state-based marketplace. States like Virginia, Pennsylvania and Mississippi are disgruntled over the fact that they are about to lose subsidies, while Delaware and Illinois are contending that their partnership with the federal marketplace should be enough for qualifying them for subsidies. The best possible outcome of the whole case would be a resounding rebuttal of Appellants arguments and retention of Obamacare subsidies across the federal exchange participant states.

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