(Bloomberg) -- Delaware and Illinois have plans to work around a potential Supreme Court ruling that could block millions of Americans from receiving subsidies to buy health insurance, providing a potential road map for other states.
State officials around the country are formulating plans in case of a ruling next year against the Obama administration, which would eliminate billions of dollars in health insurance subsidies for more than 4 million people. The court said Nov. 7 it would hear a case arguing that insurance subsidies in the Patient Protection and Affordable Care Act should only be available in a handful of states.
A verdict against the Obama administration would largely unravel the law in as many as 37 states that don’t operate their own health insurance marketplaces. To keep subsidies intact, Delaware officials are contemplating a technical work-around, while Illinois’ outgoing governor is seeking to push through a legislative fix in the final months of his term.
The Supreme Court case turns on a four-word phrase in the Affordable Care Act. The law says people qualify for tax credits to help pay insurance premiums when they buy a plan on an exchange “established by the state.”
Democrats who wrote the law say it was never their intent to keep people in federally run exchanges from getting subsidies. The Congressional Budget Office, which analyzed the cost of the law including its subsidies before it was passed, always assumed tax credits would be available nationwide.
Delaware decided in 2010 it was too small to build its own exchange. In a phone interview today, the state’s health secretary, Rita Landgraf, said it shouldn’t lose the subsidies because it in effect controls the Delaware version of healthcare.gov, the federally run insurance exchange.
Using healthcare.gov is no different than hiring a contractor for a state-run marketplace, Landgraf said, and “actually brings down the cost.”
Delaware’s solution depends on a favorable definition of what constitutes a state-based exchange. Illinois Governor Pat Quinn is counting on the Democrat-controlled state legislature to act before Bruce Rauner, the incoming Republican, takes office in January.
Quinn said the state will submit an application this week for federal money to support a state-based exchange. He wants the legislature to authorize an exchange during its “veto session” that begins Nov. 19. Mike Schrimpf, a spokesman for Rauner, didn’t immediately respond to an e-mail seeking comment.
“The issue is in the hands of the General Assembly, which would need to pass legislation to create a governing structure for a state exchange,” Quinn’s spokesman, Mike Claffey, said in an e-mail. The application for additional federal money, he said, “would keep all options on the table.”
Other states with federally run exchanges have Republican governors who oppose the law, or may find it more difficult to argue that the state has sufficient control of its exchange.
Seven states including Delaware are considered to be in a “partnership” with the federal system because they handle some elements of insurance sales, such as deciding which plans will be available. Of the seven, Illinois, Iowa, Michigan and Arkansas will have Republican governors next year.
Figuring out which states qualify as running their own exchanges is a question the high court probably won’t answer, said Timothy Jost, a law professor at Washington and Lee University in Lexington, Virginia, who closely follows the health law.
No Easy Fix
Jost, who said he believes the court should uphold the subsidies in all states, thinks Delaware’s argument won’t work if the justices rule against the government. States probably will have to establish their own exchanges, either by legislation or executive orders from their governors, to keep the money coming, he said.
“I hope they can get away with it,” Jost said of Delaware. “I don’t think there’s an easy fix here.”
Landgraf said she believes Delaware’s governor, Democrat Jack Markell, is prepared to issue an executive order to establish an exchange if he needs to.
“We want to protect our citizens in retaining that level of subsidy so they can get their health care coverage and in turn get their health care,” she said.
Sixteen states, including Virginia, Pennsylvania and Mississippi, have said in a legal brief in a related case that they assumed insurance subsidies would be available even in a federally run exchange. Others, including Arkansas, Delaware and Iowa, said they set up their markets as partnerships with the U.S. with the same assumption.
At least six states have said they don’t want the subsidies for their citizens. Republican officials in Oklahoma, Alabama, Georgia, West Virginia, Nebraska and South Carolina filed a brief in the related case arguing that people in states with federally run exchanges, including theirs, shouldn’t get the subsidies.
The case before the Supreme Court is King v. Burwell, 14-114.
--With assistance from Greg Stohr in Washington, Tim Jones in Chicago and Mark Niquette in Columbus.
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