The issue before the Supreme Court in King v. Burwell is whether individuals who purchased health insurance through a State Exchange or through exchanges established and operated by the Federal government can receive federal money (subsidies) as per IRS rule 36B or whether sections 1311 and 1321 of the PPACA prevent the IRS from allowing the payment of subsidies to individuals enrolled in Obamacare through exchanges established by the Federal Government.
It’s important to note that the two cases, one from Washington, DC and one from Virginia AGREE that the PPACA does NOT specifically provide for subsidies for individuals enrolled through a federally established Exchange. However, one court found support for such subsidies by reading INTENT into the PPACA and the other found no support for subsidies because they are not provided for in the law.
Top five reasons I believe SUBSIDIES WILL BE UPHELD:
1. The INDIVIDUAL MANDATE has been upheld by the Supreme Court and this lawsuit is trying to get around that legal provision of the Act by challenging the availability of subsidies thereby increasing the number of people who would be EXEMPT from compliance with the individual mandate.
As stated: “Petitioners in this case are individuals residing in Virginia, which has declined to establish its own Exchanges and thus is served by HealthCare.Gov. They do not want to comply with the individual mandate, and, given their low incomes, would not be subject to penalties for failing to do so but for the IRS Rule,” http://sblog.s3.amazonaws.com/wp-content/uploads/2014/07/King-Petition-Final.pdf.
2. I believe that it is arguable that there are only STATE Exchanges. There is no such thing as a Federal Exchange and therefore while enrollment might occur through a state or federal PORTAL, all enrollment occurs through a state exchange making individuals eligible for subsidies.
Section 1311(d)REQUIREMENTS (1) states that: “IN GENERAL.—An Exchange shall be a governmental agency or nonprofit entity that is established by a State.”
Section 1311 (b), AMERICAN HEALTH BENEFIT EXCHANGES states (1) IN GENERAL--Each State shall, not later than January 1,2014, establish an American Health Benefit Exchange (referred to in this title as an ‘‘Exchange’’) for the State.
Two things we get from sections 1311 (d) and 1311(b), first the definition of Exchange with a capital E as a state-established American Health Benefit Exchange AND from 1311 (b) the use of the word SHALL indicating that every state MUST establish such American Health Benefit Exchange.
3. States that elect not to establish an Exchange actively still “establish” an Exchange by complying with Exchange requirements in that State as established and run by the federal government.
The question becomes: What qualifies as a State ESTABLISHING an American Health Benefit Exchange. Obviously the requirements of state establishment must be able to be met EVEN IF a State chooses NOT to ESTABLISH its OWN portal but to instead fall back on predominantly Federal work in creating the State Exchange.
We know that states aren’t required to elect to establish their own state-run state exchange as provided in PPACA section 1321 (c) where we find “FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS.—(1) IN GENERAL.—If—(A) a State is not an electing State…” Therefore a State can be a non-electing state but it still must have an American Health Benefit Exchange.
This is where the PPACA steps in under section 1321(c). If States can elect NOT to establish an exchange but are under section 1311 obligated to establish an exchange then the federal government steps in and acts on behalf of that state under section 1321(c) where we find, FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS.—which provides under (1) (B) (ii) that “…the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State.”
These non-electing states then have a State Exchange established and operated by the federal government. But how do we know these are still STATE exchanges allowing for premium tax credits?
4. There is NO Exchange that is independent of the Federal government and therefore, ALL state Exchanges are subject to ongoing Federal governance regardless of whether they create their own Internet portal to access healthcare choices or not.
For purposes of the PPACA, Exchange activity is subject to ongoing Federal review including GAO oversight as provided in Section 1313 to ensure financial integrity without distinction as to the portal used by individuals for enrollment. No Exchange is established or operated independently from the Federal government.
The PPACA leaves much authority and discretion in the hands of the Secretary of HHS, such as reviews of state actions and extensive and ongoing reporting requirements. In sections of the PPACA such as Section 1313, “Financial Integrity,” there are provisions for ongoing obligations of Exchanges to “…keep an accurate accounting of all activities, receipts, and expenditures and shall annually submit to the Secretary a report concerning such accountings.”
Using standards such as those used by the IRS to distinguish an employee from an independent contractor, we can look at behavioral control, financial control and the type of relationship between Exchanges and the federal government in the establishment and running of Exchanges to determine that NO state Exchange operates independently of the federal government and therefore ALL exchanges amount to Federally facilitated exchanges to a greater or lesser extent.
Therefore regardless of whether a State runs its own Internet portal or if the Federal government runs that portal, all Exchange enrollees should be eligible for subsidies.
Under section 1321 (d) the Federal government is obliged to work within STATE law where the federal government is establishing the state’s Exchange as long as such state laws do “…not prevent the application of the provisions of this title.”
We also know that insurance plans and premium costs as well as the availability of Medicaid will vary from state to state whether an individual is using a state portal or the federal portal. There is NO Federal option universally available to consumers using the Federal portal. The identity of the states is preserved because the health benefit options vary depending on state.
Because the federal government must establish the state Exchange in accordance with state laws, the nature of the Exchange retains a state identity and therefore is arguably a state Exchange which is consistent with the Act’s definition of an EXCHANGE as a STATE entity.
5. The Federal PORTAL is not an EXCHANGE. Section 1103 (a) of the PPACA, “Immediate Information that Allows Consumers To Identify Affordable Coverage Options,” describes the Secretary’s duty to “establish a mechanism, including an Internet website, through which a resident of any State may identify affordable health insurance coverage options in that State.”
Further, section 1311 (c) (5) (A), “Internet Portals,” describes that the Secretary must “continue to operate, maintain, and update the Internet portal developed under section 1103(a) and to assist States in developing and maintaining their own such portal; and(B) make available for use by Exchanges a model template for an Internet portal that may be used to direct qualified individuals and qualified employers to qualified health plans, to assist such individuals and employers in determining whether they are eligible to participate in an Exchange or eligible for a premium tax credit or cost-sharing reduction, and to present standardized information…”
This provision describing the “template” to be maintained, operated and updated by the federal government includes the requirement that individuals and employers be able to determine “whether they are eligible to participate in an Exchange or [are] eligible for a premium tax credit.”
The tool of the portal that is part of EXCHANGE access for individuals must include the ability to calculate the premium tax credit. This is consistent with providing an even playing field for all individuals to comply with the lawful FEDERAL requirement of the individual mandate where citizens are penalized if they don’t enroll in health insurance.
States that elect NOT to do the work themselves do not have the power to cripple citizen ability to obtain health insurance information and purchase health insurance with the same tool, a portal, which would make it harder for citizens in some states than others to comply with the PPACA. Similarly, the premium tax credits which benefit eligible enrolling individuals is FEDERAL law designed to help individuals not STATES and therefore should apply to all eligible individuals regardless of what portal they use to enroll.
This is consistent with the Federal government complying with other requirements as per 1311 (d) when they step in and act in the place of states that elect NOT to act by January 1, 2014 to establish their Exchange.
The portal, a tool for accessing health Exchange information is specifically tailored for each State including Federal requirements as provided by the Act in terms of qualified health plans, et cetera. Any Exchange as defined under the PPACA is described in section 1311 (b)(1)(A) “facilitates the purchase of qualified health plans.”
So if the Federal government is charged with doing the work where states elect not to, why would any state choose to do its own work?
Money under Section 1311 (a) is used as the tangible carrot approach used by the PPACA to get states to do their own work to establish Exchanges rather than leave it to the Federal government.
The PPACA does NOT provide a penalty for state non-election to do the work in establishing an Exchange but rather attempts to incentivize such state establishment through provision for the use of grants and much leeway in such establishment.
