1. SUMMARY: The Supreme Court should NOT uphold the availability of premium tax credits for individuals who enroll in a health plan through a FEDERALLY ESTABLISHED STATE EXCHANGE under 1321 of the PPACA as has been interpreted by the IRS.
Though a Federally facilitated exchange is neither mentioned nor defined in the PPACA under 45 CFR 155.20 FEDERALLY FACILITATED EXCHANGE is defined:
“Federally-facilitated Exchange means an Exchange established and operated within a State by the Secretary under section 1321(c)(1) of the Affordable Care Act,” ecfr.gov. But the provisions of the PPACA that identify two possible roles for the Federal government under 1321 are not obliterated by 45 CFR 155.20 which also includes a definition of EXCHANGE that states: “…regardless of whether the Exchange is established and operated by a State (including a regional Exchange or subsidiary Exchange) or by HHS.” The inclusion of an Exchange established and operated by HHS in this definition simply adds more reason to examine the PPACA itself to determine the Federal government role authorized by PPACA 1321.
Under 1321(c) of the PPACA under the heading, FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS,” two circumstances are outlined where the Federal Government’s role to Establish Exchange or Implement Requirements are triggered, first where a STATE is a NON-electing STATE (under Section 1321(b)) which requires specific STATE ACTION OR where a State is an ELECTING STATE (under Section 1321 (b)) but has failed to implement requirements necessary for operation of its State Exchange.
In those two instances the Federal government steps in and has the power to establish and implement under 1321 (c). Obviously the Federal government can only establish where a State has not established before because you cannot establish twice.
Therefore, it is crucial to determine whether under 1321 the Federal government can play different roles depending on the two circumstances identified within 1321 when a State has failed to Establish or when a State has failed to Implement requirements necessary for operation of any Exchange. It is clear that the federal government only gets to ESTABLISH an Exchange in the case of a non-electing State rather than the electing State that failed to implement under Section 1321.
There is only one instance where the Federal government is the ESTABLISHER and that’s where the State has taken no action to ESTABLISH as described in 1311 and 1321. Therefore, there are anticipated two types of federal involvement in an Exchange under 1321.
IRS 36B authorizes eligibility for premium tax credits for individuals enrolled in qualified plans WITHIN a STATE AND enrolled through an Exchange established by the State under PPACA 1311. An EXCHANGE cannot be established TWICE. Therefore if an Exchange is ESTABLISHED under 1311 by a STATE IT CANNOT then be ESTABLISHED by the Federal Government under 1321 and therefore an Exchange established under 1321 by the Federal Government is NOT eligible to include premium tax credits for its enrollees.
Under 36B and consistent with the distinction created in 1321 (c) between States that FAIL TO ESTABLISH OR IMPLEMENT, in the first instance being a STATE described as a NON-ELECTING STATE under 1321 (b) and in the second instance being a STATE described as an ELECTING STATE under 1321(b) that has failed to implement requirements, premium tax credits are ONLY available in States with an Exchange ESTABLISHED by the State under 1311, not the Federal Government under 1321.
This would STILL allow the payment of Premium Tax Credits in States that failed to IMPLEMENT REQUIREMENTS but nevertheless were electing States under 1321 (b).
Provisions 1311, 1321, 1401, 1402, 1412 and 1332 and IRS 36B also include a distinction between the default position of a Federally ESTABLISHED STATE EXCHANGE under 1321 and those that ELECT to take steps to ESTABLISH a STATE Exchange whether they fail to implement all the requirements or meet the requirements and are certified as State Exchanges.
In order to find that PREMIUM TAX CREDITS ARE AVAILABLE FOR FEDERALLY ESTABLISHED EXCHANGES UNDER 1321, the IRS must unlawfully EXPAND the provisions of the PPACA that clearly limit the availability of such premium tax credits to Exchanges Established by States under 1311 as stated by the IRS in Rule 36B rather than those ESTABLISHED by the Federal government under 1321.
The following four reasons go into detail regarding the specifics of the summary above.
2. There are TWO Conditions when the Federal Government can step in under 1321.Section 1321(c) of the PPACA has the heading, “FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS.” Section 1321(c)(1) goes on,
IN GENERAL.—If—
(A) a State is not an electing State under subsection (b); or
(B) the Secretary determines, on or before January 1, 2013, that an electing State—
(i) will not have any required Exchange operational by January 1, 2014; or
(ii) has not taken the actions the Secretary determines necessary to implement—
(I) the other requirements set forth in the standards under subsection (a); or
(II) the requirements set forth in subtitles A and C and the amendments made by such subtitles; 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.
The heading identifies TWO circumstances, a FAILURE to ESTABLISH OR IMPLEMENT requirements. Which kinds of States have FAILED to ESTABLISH AN EXCHANGE? That too is identified in 1321, when a State is a NON-ELECTING STATE UNDER SUBSECTION (b).
Go to Subsection (b) and under Section 1321(b), “STATE ACTION- Each State that elects, at such time and in such manner as the Secretary may prescribe, to apply the requirements described in subsection (a) shall, not later than January 1, 2014, adopt and have 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.”
There are SPECIFIC REQUIREMENTS for a State under Section 1311 to ESTABLISH and to ELECT under 1321. If a STATE has taken steps to ESTABLISH under 1311 and a STATE has taken ACTION under 1321(b) to fulfill the standards of 1321(a) then under 1321(c) it is deemed an ELECTING STATE that does not require the Secretary to “ESTABLISH AN EXCHANGE” but has instead FAILED TO IMPLEMENT REQUIREMENTS under 1321 (b).
In either instance, Failure to Establish OR implement, the PPACA under Section 1321 triggers the provision that in those two circumstances 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.”
The Secretary is given authority to ESTABLISH and operate AND separately the Secretary is given the authority to take such actions as are necessary to implement such other requirements. This language is consistent with the distinction between the two types of situations where there is a failure to establish OR where there is a failure to implement. It should be noted that despite the confusion of 45 CFR 155.20 that in both a Federally facilitated exchange definition and in the definition of an Exchange the language of ESTABLISHED and OPERATED is used.
3. Section 1401 of the PPACA is IRS Section 36B, Refundable Credit Under a Qualified Health Plan that provides for the premium tax credit ONLY when health plans are “…within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act.”
This text preserves the language used by the PPACA to distinguish between two separate roles the Federal government would play in the event that a STATE is a non-electing STATE or an electing STATE that failed to implement requirements.
Remember under 1321(c) (1) (B) the Federal government in accordance with 1321’s heading, Failure to establish OR failure to implement requirements, is provided in those circumstances the ability to Establish and Operate and Implement such Exchange WITHIN the State and the Secretary shall take such actions as are necessary to implement such other requirements.
IRS 36(b) provides for Premium Assistance Credit for individuals enrolled in qualified plans “WITHIN a STATE AND enrolled through an Exchange established by the State UNDER 1311,” not a STATE EXCHANGE ESTABLISHED by the Federal government under 1321. Therefore, premium credits are not available under 36(b) where the Federal government ESTABLISHES the State Exchange under 1321.
4. Rule 36(b) also clarifies “…within a State which cover the…and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act.”
PPACA 1311under the heading, “Affordable Choices of Health Benefit Plans,” is broken down into subsections (a) through (k). Twice 1311 defines Exchange first as an American Health Exchange “established” by EACH STATE and in (d) Requirements which defines Exchange as An Exchange shall be a governmental agency or nonprofit entity that is established by a State. (Unfortunately, 45 CFR 155.20 seeks to unlawfully expand this definition to include Federally established and operated exchanges.)
An EXCHANGE CANNOT be ESTABLISHED TWICE and therefore, though Non-electing States where the Federal government is authorized to ESTABLISH an EXCHANGE under 1321 precludes an Exchange from being an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act, ELECTING STATES with non-operational EXCHANGES, which must therefore have ESTABLISHED EXCHANGES under 1311 and 1321 would not be EXCLUDED from eligibility for Premium tax credits under 36B.
Section 1402 of the PPACA which provides for Reduced Cost-Sharing for Individuals Enrolling in Qualified Health Plans, provides under 1402 (f) Definition and Special Rules that: “(1) IN GENERAL.—Any term used in this section which is also used in section 36B of the Internal Revenue Code of 1986 shall have the meaning given such term by such section. (2) LIMITATIONS ON REDUCTION.—No cost-sharing reduction shall be allowed under this section with respect to coverage for any month unless the month is a coverage month with respect to which a credit is allowed to the insured (or an applicable taxpayer on behalf of the insured) under section 36B of such Code.”
Therefore because 36B limits the availability of premium assistance under IRS 36B Premium Assistance Credit Amount (2)Premium Assistance Amount …(A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the…and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act,” 1402 (f) (2) would make 1402 inapplicable to individuals enrolling in Exchanges that were not ESTABLISHED BY THE STATE under 1311 but were instead State Exchanges Established by the Federal Government in the case of non-electing States under 1321.
5. Other provisions that preserve the distinction between a non-electing State where the Federal government would have to ESTABLISH a State Exchange within a State and electing States where the Federal Government might have to step in if a State fails to implement requirements follow.
In 1412 (a) it is provided that, “The Secretary, in consultation with the Secretary of the Treasury, shall establish a program under which—UPON REQUEST OF AN EXCHANGE (emphasis added), advance determinations are made under section 1411 with respect to the income eligibility of individuals enrolling in a qualified health plan in the individual market through the Exchange for the premium tax credit allowable under section 36B of the Internal Revenue Code of 1986 and the cost-sharing reductions under Section 1402.”
This provision also preserves the distinction between a state-established Exchange under 1311 as provided in Rule 36B and a State Exchange ESTABLISHED by the Federal government under 1321 (c) where a State is a non-electing State.
Under Section 1332 (a) (1) of the PPACA entitled, “Waiver for State Innovation,” the PPACA states: “A STATE may apply to the Secretary for the waiver of all or any requirements described in paragraph (2) with respect to health insurance coverage within that State for plan years beginning on or after January 1, 2017.”
In that section 1332 (a) (3) rewards such STATE initiative by providing for “PASS THROUGH OF FUNDING,” by stating that in the event a State seeks a waiver under 1332 after the year 2017:
“With respect to a State waiver under paragraph (1), under which, due to the structure of the State plan, individuals and small employers in the State would not qualify for the premium tax credits, cost-sharing reductions, or small business credits under sections 36B of the Internal Revenue Code of 1986 or under part I of subtitle E for which they would otherwise be eligible, the Secretary shall provide for an alternative means by which the aggregate amount of such credits or reductions that would have been paid on behalf of participants in the Exchanges established under this title had the State not received such waiver, shall be paid to the State for purposes of implementing the State plan under the waiver.”
Again, having ESTABLISHED a STATE EXCHANGE under 1311 in accordance with 36B, if the STATE obtains a waiver after the year 2017, then the amounts payable under 36B, as previously determined for those enrolled in an Exchange established by a State under 1311, then the State will receive money for individuals and employers in the State plan.
Therefore, premium tax credits are not lawfully permitted under the PPACA in the case of Federally established Exchanges where States are not electing States but are available in Federally operated or implemented Exchanges in the case of electing states under 1321.
