No health insurance exchange, no subsidies, no employer mandate

If no state health care exchange is set up, does that mean there will be no health care subsidies under Obamacare?  If so, it seems pretty clear that without subsidies  there is no employer mandate.  The Hill newspaper on Sunday described this whole debate this way:

The push to resist state exchanges is driven in part by the hope that a long-shot lawsuit will derail federal subsidies to help people pay for private insurance. Oklahoma filed the suit, which argues that subsidies can only flow through state-based exchanges, not a federally run fallback. If that argument succeeds in the courts, only a few states will have functional exchanges and the law’s coverage expansion will be eviscerated. . . .

A lot is at stake in that series of links.  The Obama administration does not want to test this theory and apparently knew that a lot of states weren't going to setup their health insurance exchanges so they gave a one month extension until December.  Well, if they can't force states to adopt these exchanges, eliminating the employer mandate may cause a lot of firms to move to states without the exchanges.

Jonathan Cohn in The New Republic has this:

. . . But some states with conservative leaders and lawmakers are refusing to create exchanges. Obamacare anticipates this possibility: When state officials opt not to create their own exchanges, the federal government steps in and does the job for them. But Obamacare critics think they’ve found a way to undermine that effort, because of some ambiguity in the text of the law: It says very clearly that the federal government can set up exchanges in lieu of the states, but the language is a little fuzzy when it comes to whether the federal government can also offer subsidies through those exchanges. 

Michael Cannon . . . has been pointing this out for months. In July, he published a paper with Jonathan Adler, of Case Western Law School, arguing that federal attempts to offer subsidies through the exchanges would actually be unconstitutional. Oklahoma has filed a lawsuit in federal court making the same argument. On Monday, conservative intellectuals James Capretta and Yuval Levin raised this argument in an op-ed in the Wall Street Journal. . . . 

As a legal matter, the argument strikes me as even more preposterous than the original lawsuits challenging the law. No sentient being following the health care debate could argue, in good faith, that Obamacare’s architects intended for the federal government to set up exchanges without subsidies. . . . .

I am not sure that unconstitutional is the right term here.  It seems like an issue of simple statutory interpretation.  I would also like to believe that intent of a law isn't enough if the law is not written properly.  Jonathan Adler and Michael Cannon dealt with what happens when states don't set up exchanges in a November 2011 WSJ piece.  Cohn doesn't really address their point that the law is clear regardless of what Democrats meant the law to read.

. . . ObamaCare authorizes premium assistance in state-run exchanges (Section 1311) but not federal ones (Section 1321). In other words, states that refuse to create an exchange can block much of ObamaCare's spending and practically force Congress to reopen the law for revisions.
The Obama administration wants to avoid that legislative debacle, so this summer it proposed an IRS rule to offer premium assistance in all exchanges "whether established under section 1311 or 1321." . . .  [But the] text of the law is perfectly clear. And without congressional authorization, the IRS lacks the power to dispense tax credits or spend money.What about congressional intent? Law professor Timothy Jost suggests that since ObamaCare requires all exchanges to report information about premium assistance, and it would be silly to impose that requirement on federal exchanges if their enrollees were not eligible, that shows Congress could not have intended anything but to provide assistance in federal exchanges. At least, he argues, there's enough ambiguity here about Congress's intent that federal courts will permit the administration to resolve it.. . . The Supreme Court has increasingly limited such deference to cases where the text of the law—rather than Congress's intent—is ambiguous. In this case the language of the law is clear, as even Mr. Jost admits.The health law's authors in Congress deliberately chose to pass the bill with known imperfections and to use the reconciliation process to make only limited amendments. Writing a perfect bill would have required too many votes and risked failure. . . . .

See also Adler and Cannon's paper here.  Jost's response to Adler and Cannon is shown next.  It seems to me that Jost is wrong, but there is enough smoke here that a sympathetic judge could find whatever he wants.

The term “exchange” is a defined term under the ACA, a point that Mr. Cannon does not mention in his article but that would surely be paid great attention by the courts.  Section 1563(b) of the ACA states: “The term ‘Exchange’ means an American Health Benefit Exchange established under section 1311 of the Patient Protection and Affordable Care Act.”   Section 1311 literally requires that the states “shall” establish an American Health Benefits Exchange by January 1, 2014.  Because the Constitution prohibits the federal government from literally requiring states to establish exchanges,  however, section 1321(c), provides that “the [HHS] Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State.”  Under the ACA’s definition of exchange, the term “Exchange” in section 1321 means a section 1311 exchange.  This is reinforced by section 1321 itself, in which the term “such Exchange,” refers to the “required exchange” mentioned in section 1321(c)(1)(B)(i), which is to say the 1311 exchange.  When section 1321 directs HHS to establish an “Exchange,” therefore, it means to establish a section 1311 exchange, which section 36B authorizes to provide premium tax credits.  Moreover, section 1311(d)(1) defines an exchange as an exchange established by the state, therefore by definition a section 1321 federally facilitated exchange is an exchange established by a state under section 1311. 

Section 36B is not the only section of the ACA that imposes duties on the state and federal exchanges relevant to premium tax credits.  Section 1311(d)(4)(G) requires exchanges to provide their enrollees with premium calculators that include a deduction for premium tax credits.  Section 1311(d)(4)(I), requires exchanges to forward to the IRS information about enrollees who are eligible for premium subsidies.  Section 1311(d)(4)(J), requires an exchange to notify employers if their employees are receiving premium tax credits.  Finally, section 1413 requires state and federal exchanges to use streamlined applications and eligibility assessments to help people qualify for “health subsidy programs,” which programs specifically include premium tax credits, see section 1413(e)(1).  All of these sections apply to federal as well as state exchanges. . . . 

The House bill contained only a federal exchange.  Section 1004 of HCERA adds to IRC section 36B, subsection 36B(f)(3) which requires both 1311 and 1321 exchanges to  provide certain information regarding premium tax credits to the IRS and to taxpayers.  Cannon and Adler admit the existence of this provision but simply say it is meaningless, as 1321 exchanges cannot authorize premium tax credits. . . .

I think that Jost's last sentence misdescribes what Adler and Cannon are saying.  Here is Adler and Cannon's point in their paper (pp. 27-28).

While PPACA supporters in the House and Senate closely scrutinized and repeatedly amended Section 1401 through the HCERA, they left intact the provisions restricting eligibility for tax credits to taxpayers purchasing coverage through state-run Exchanges.  Finally, even if all of the foregoing evidence demonstrating that section 1401 accurately reflects congressional intent did not exist, PPACA supporters’ actions reveal that their intent was indeed to enact a bill that restricts tax credits to state-run Exchanges. Professor Timothy Jost argues the provisions restricting tax credits to state-run Exchanges “clearly say what Congress clearly did not mean.”91 The reality is that the statute clearly says what its authors meant. . . .

From Capretta and Levin's piece makes a similar point to Adler and Cannon:

Congress didn't allocate money for administering federal exchanges, and the law as written seems to prohibit federally run exchanges from providing subsidies to individuals. The administration insists that it can provide those subsidies anyway. But if the courts read the plain words of the statute, then federal exchanges couldn't really function. 

Thus states that refuse to create their own exchanges would effectively be repealing a large part of the law—sparing their citizens from the job-killing employer mandate and from assaults on their religious liberty. In some cases people would even be spared from the individual mandate to buy coverage, since in the absence of exchange subsidies more families would qualify for exemptions from the mandate. . . . 

In refusing the Medicaid expansion, governors should notify Washington that doing so means freeing themselves of ObamaCare's "Maintenance of Effort" requirements. These would prohibit states participating in the Medicaid expansion from reforming their Medicaid systems to reduce costs. . . .

Cohn seems to believe that opposition to Obamacare proves "Republicans didn’t care about the financial struggles of poor or middle class Americans." Possibly he might consider that Republicans are worried that the whole health care system might be messed up as a result of these regulations.


Here is the claim that as of right now there are 17,000 plus pages of Obamacare regulations and they are reportedly only one third of the way through.

UPDATE: Even the left wing TPM has to acknowledge the obvious here.

There is, however, a complication in the administration’s fallback option: the money. The law fails to specify a set funding mechanism for a federally-established state exchange. So HHS would have to find the money in its budget or request additional funds through the regular appropriations process. And Congressional Republicans may be motivated to block that money in their efforts to derail the Affordable Care Act. . . . .  

In the long run, of course, the GOP quandary remains whether to utilize the available resources in the best interest of the states they govern or to try and botch federal implementation in an effort to make President Obama’s signature accomplishment look like a failure.

I think that Obamacare is going to be a disaster.  Republicans generally have to ask themselves whether Democrats should be the ones that bear primary blame for the problems created by the regulations.

UPDATE: The list of states that have rejected the state-based insurance exchange.  Arizona Gov. Jan Brewer has this:

"Though I am a steady advocate of local control, I have come to the conclusion that the State of Arizona would wield little actual authority over its ‘state’ Exchange," Brewer said. "The federal government would maintain oversight and control over virtually every aspect of our Exchange, limiting our ability to meet the unique needs of Arizonans and the Arizona insurance market." . . .