Yesterday I went through the provisions of the PPACA that describe a law designed to get the states to establish a health benefits exchange but that provides for the federal government to establish an exchange in those states that elect not to establish an exchange [TWICE ESTABLISHED? 5 Reasons the Supreme Court Should NOT Uphold Premium Tax Credits for all, 12/11/2014, conoutofconsumer.blogspot.com. ]
Here I’m addressing ONE aspect of the 36B/SUBSIDIES problem, FEDERALLY ESTABLISHED EXCHANGES and how 36B EXCLUDES enrollees through these exchanges from premium tax credits, subsidies.
READ IRS Rule 36B by typing in 1401, the Section of the PPACA that incorporates Section 36B, REFUNDABLE CREDIT FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN. Using Google's Health Reform Navigator is helpful.
Go down to 36B(b)(2) and you’ll find the words, “…through an Exchange established by the State under 1311.” ESTABLISHED BY THE STATE UNDER 1311, the provision of the PPACA about funding and requirements for State implementation of a STATE EXCHANGE.
Rule 36B seems pretty straightforward.It is the way the IRS regulations have interpreted and applied the availability of premium tax credits to anyone enrolled in Obamacare through any exchange that is the issue.
If you look at the headings of 1311, AFFORDABLE CHOICES OF HEALTH BENEFIT PLANS and 1321, STATE FLEXIBILITY IN OPERATION AND ENFORCEMENT OF EXCHANGES AND RELATED REQUIREMENTS.
The heading of Section 1311 provides for the establishment of an Exchange (by a State) and includes all the requirements that must be met to ESTABLISH A STATE EXCHANGE. Section 1311, as part of the PPACA encouragement to states to establish an Exchange (including money grants) also includes in 1311 (f) under the heading FLEXIBILITY, provision for regional or other interstate Exchanges and Subsidiary Exchanges. THERE IS NO MENTION of a Federal Exchange or Federally Facilitated Exchange.
So having provided for the STATE ESTABLISHMENT of Exchanges in 1311 and defining EXCHANGE TWO TIMES in Section 1311, once in 1311 (b)(1) where we’re told that each State shall…establish an American Health Benefit Exchange (referred to in this title as an ‘‘Exchange’’) and in 1311(d)(1) where we’re informed, “An Exchange shall be a governmental agency or nonprofit entity that is established by a State,” we also notice that there is the omission of any mention of a Federal Exchange or of a Federally Assisted Exchange or of a Federal Partnership Exchange.
Consistent with the flexibility for the STATE ESTABLISHMENT OF AN EXCHANGE under 1311, Section 1321 provides for STATE FLEXIBILITY in OPERATION and ENFORCEMENT OF EXCHANGES. 1321 is as its number and heading indicate is a NEXT STEP describing STATE FLEXIBILITY IN OPERATION AND ENFORCEMENT OF EXCHANGES AND RELATED REQUIREMENTS.
1321 (a) Provides for the Secretary to issue regulations once the PPACA law is passed that set standards for meeting the requirements under this title.
So far so good, 1321 (a) means regulations will follow from the Secretary after the PPACA becomes law.
OK, what will those regulations cover? 1321(a)(1) provides: “The Secretary shall, as soon as practicable after the date of enactment of this Act, issue regulations setting standards for meeting the requirements under this title, and the amendments made by this title, with respect to—(A) the establishment and operation of Exchanges…”
OK, so under 1321 the Secretary will issue regulations about establishment and operation of Exchanges.
So, in addition to the establishment criteria and functions outlined in the law for the establishment of an Exchange by States under 1311, 1321 provides that the Secretary will create standards through REGULATIONS with respect to the establishment and operation of Exchanges.
So what went wrong? Well, it started with Section 1321 (b) entitled STATE ACTION. In 1321 (b) we’re introduced to a new term ELECTING, which provides that EACH STATE THAT ELECTS TO APPLY THE REQUIREMENTS DESCRIBED IN SUBSECTION (a)…SHALL…ADOPT AND HAVE IN EFFECT the Federal Standards under subsection (a)…or…a State law or regulation that…implements the standards within the State.
1321(b) requires as its heading says, STATE ACTION and that ACTION is the ELECTION BY THE STATE to apply the requirements of 1321 (a) (the regulations to be issued by the Secretary after the Act becomes law) which ELECTION is shown by the State ADOPTING AND HAVING IN EFFECT “(1) the Federal standards established under subsection (a); or (2) a State law or regulation that the Secretary determines implements the standards within the State.”
OK, so Exchanges established under Section 1311 must also take STATE ACTION (1321(b)) to show they ELECT to apply regulation requirements issued by the Secretary under Section 1321 (a) for establishment and operation of Exchanges.
BUT WHAT IF THEY DON’T? Section 1311 only talks about statutory requirements, criteria and options for ESTABLISHMENT BY A STATE, it does not talk about IF A STATE DOES NOT ESTABLISH.
Section 1321 Talks about regulations, additional requirements and standards that must be met by States that ESTABLISH A STATE EXCHANGE under 1311 which States must elect under 1321 (b) which shows specific State ACTION regarding regulations issued under 1321 (a).
SECTION 1321(c) answers the question: What if the States don’t establish under 1311 or act to follow the regulations issued by the Secretary under 1321(a)?
The heading of 1321(c) is FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS. OK, so we know that in order to ESTABLISH an Exchange under 1311, a STATE must also ELECT (under 1321(b) to apply requirements of regulations issued under 1321 (a) for ESTABLISHMENT AND OPERATION OF EXCHANGES.
Therefore, a State that opts NOT TO ELECT (1321(b)) TO follow the regulations issued under 1321(a) for establishment and operation of Exchanges cannot be a State that establishes an Exchange under 1311.
Therefore individuals enrolling in an Exchange in such a STATE would NOT be eligible for premium tax credits under IRS 36B and IRS regulations should not unlawfully expand the availability of premium tax credits to Exchanges that are not ESTABLISHED BY A STATE UNDER 1311.
That makes 1321(c) (A) easier to understand with respect to: “IF (A) a State is not an electing State under subsection (b).” It means that a State does not have an Exchange established by the State if it does not ELECT (take action under 1321(b)) to follow the regulations that the Secretary issues under 1321 (a). That is the first trigger for when the Secretary is authorized by 1321 (c) to step in.
But there is another part of 1321(c) where the Secretary can step in as indicated in the name of the section, FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS, the failure to implement requirements.
Under 1321 (c)(1)(B)[If]…an ELECTING STATE fails to have any Exchange operational or has not taken the actions necessary to implement… the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.”
Under B, the statute refers to a STATE that does not have any Exchange operational or has not taken the actions necessary to implement. It does not say in a State that has not established an Exchange. Actually, it indicates that the State must have established an Exchange in order for such Exchange to be non-operational.
Therefore if the STATE has ESTABLISHED under Section 1311 including have ELECTED under section 1321 (b) but under Section 1321(c)(1)(B) does not have an operational Exchange this also will trigger Secretary activity.
Of the cumulative actions the Secretary can take in the event of either A, non-electing or B electing, 1321 (c) provides establishment and operation as well as steps to implement. But if a STATE’s Exchange is not operational, meaning it has an Exchange then that State must have ESTABLISHED under 1311 and 1321 and therefore the Federal government could not step in to establish but only to operate and implement. You can’t ESTABLISH TWICE, therefore the Secretary would operate and implement rather than establish, operate and implement under 1321(c)(1)(B).
We know that in order to Establish that under 1311 certain criteria must be met. We also know that under 1321 that establishment and operation also require compliance with regulations issued by the Secretary. We also know that regardless of what actions a State has taken under 1311 that in order to ESTABLISH an EXCHANGE the State must ELECT to follow the regulations for establishment and operation under 1321(a) and that this is mandated in 1321 (b) STATE ACTION.
A non-electing State is therefore NEVER an ESTABLISHING STATE since in order to ESTABLISH AND OPERATE an EXCHANGE under 1311 a State must take action described in 1321 (b) and ELECT to apply requirements of the regulations issued by the Secretary under 1321 (a).
But what if a State takes steps under 1311 and ELECTS to apply requirements of regulations under 1321 (b) BUT fails to meet deadlines or effectively implement everything they must? Under Section 1321 (c) the statute provides that if “an electing State—(i) will not have any required Exchange operational by January 1, 2014…” Obviously a non-operational Exchange is still an Exchange Established by a State.
But can a State that is an electing State under 1321(b) but has not met the deadlines for having an operational Exchange or has inadequate compliance with the regulations under 1321(a) be considered to have an exchange ESTABLISHED BY A STATE under 1311? Again, yes.
If a State has taken the ESTABLISHMENT steps under 1311 and made an election under 1321(b) by the date deadlines, flexibility is both stated in and incorporated into the implementation of the Act such that the State is given time and assistance to successfully complete its Exchange, otherwise the distinction between electing and not electing States that is in Section 1321(c) would be superfluous.
In other words under 1321(c) you can have an establishing State under section 1311 that is an electing state under 1321 but still fails to have an operational Exchange and therefore becomes subject to the provisions of section 1321 (c) FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS.
But does the language in the law that says that “…the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements,” allow for the two instances so clearly outlined in 1321(c)’s heading: Failure to Establish…OR Implement and within its body regarding ELECTING and NON-ELECTING STATES? Yes.
1321 (c) is called: FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS. Since we’re not going with typo theories here, the use of the word OR indicates two circumstances, one where there is a failure to ESTABLISH and one where there is a FAILURE TO IMPLEMENT REQUIREMENTS.
This is consistent with what we’ve seen so far where we know that ESTABLISHMENT is covered under Section 1311 and implementation incorporating the regulations to be issued under 1321(a) are two separate provisions of the law.
Although ESTABLISHMENT cannot occur without ELECTION to incorporate the regulations of 1321, ESTABLISHMENT IS NOT CONTINGENT ON THE SUCCESSFUL COMPLETION OF THE PROCESS BUT INSTEAD ON THE STATE’S ELECTION to apply the requirements of 1321 (a).
The rest of 1321(b) includes the deadline of 1/1/2014 for a State “…to have in effect the Federal standards or a State law [that] implements the standards within a State.” We know from the very next section that such deadline cannot mean the State must have successfully completed these requirements nor must it have an operational Exchange incorporating these requirements in order to be deemed to have ELECTED them and satisfied the conditions of 1321(b) by the dates provided because 1321(c) specifically talks about “electing States” that have not yet achieved an operational Exchange or have not taken all actions necessary to implement.
SO WE KNOW THAT 1321(c) distinguishes between ELECTING STATES that have not yet completed the implementation of a STATE EXCHANGE and non-electing STATES that have not ESTABLISHED A STATE EXCHANGE.
We also know that 1321describes the role the federal government can play in both instances (A) and (B) which is to “…establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.”
In the second scenario outlined in the 1321(c) in the case of the ELECTING STATE, the Federal government might operate a State Exchange and implement requirements but would not have to ESTABLISH an Exchange. Therefore, in the second instance, enrollees would be eligible for IRS payments under 36B which provides for premium tax credits in Exchanges established by a State under 1311.
1321(c) and the Federally Facilitated Exchange or is it a Partnership Exchange? Exchanges are evolving as are their definitions. Current definitions as indicated in ecfr.gov under 45 CFR 155.20 include the definition of a Federally-facilitated Exchange as one "established and operated within a State by the Secretary under section 1321(c)(1) of the Affordable Care Act." However, under that same section, the definition of an Exchange has been expanded to include an Exchange "...regardless of whether the Exchange is established and operated by a State (including a regional Exchange or subsidiary Exchange) or by HHS."
While 1321(c) most certainly establishes a level of Federal government involvement, it seems apparent that there is a difference at the very least between a Federally established Exchange and a Federal partnership or the instance of 1321(B) where the State has begun but not finished its work necessitating Federal involvement in the operation and implementation of an Exchange.
I have read that one or all of these could be considered as subsets of Federally facilitated Exchanges and I've also read that only where the Federal government establishes and operates an Exchange is it a Federally Facilitated Exchange. Clearly the definitions under 45 CFR 155.20 are attempting to wipe out any distinction among Exchanges for purposes of definition though that would be impossible in lieu of the provisions of the PPACA in 1311 outlining establishment and those of 1321 identifying two instances where the Federal government can step in. They are mentioned here because they do exist in 45 CFR 155.20. Federally facilitated Exchange does NOT appear in the PPACA and Exchange is NOT defined as it is in 155.20. Certainly definitions that are true to the provisions of the PPACA Sections 1311 would be helpful as would definitions that reflect 1321(c) and the different roles of the Federal government in non-electing, non-establishing States and electing and establishing though not operational states would be helpful.
Until such clarity in labeling is provided, there is no justification to discard the distinction the PPACA identifies between states that trigger Federal government involvement in Exchanges, in the non-electing State, the more extensive functions and in the electing State the less extensive functions since the Act identifies a distinction between those two under 1321 (A) and (B)and at least considers that there could be an Exchange Established by a State under 1311 and 1321 that is not yet operational under 1321(B).
Therefore, in a Federally established exchange under 1321 (c) premium credits would not be available while in a federally operated and implemented State Exchange that didn’t meet all requirements but where the State did ESTABLISH AN EXCHANGE, the availability of premium credits would make sense.
This would comply with 36B and its requirement that for individuals to receive federal premium credits they must enroll through an EXCHANGE ESTABLISHED BY A STATE UNDER 1311. The IRS has wrongfully expanded the availability of premium tax credits to all individuals enrolled on a federally established Exchange but should make those premium tax credits available to individuals enrolled on a Federally operated and implemented Exchange where the State has already elected to ESTABLISH (under 1311)and Adopt Federal regulations (under 1321) but which has not yet completed a fully operational Exchange.
