The Corner

The Obama Administration’s Backup Plan for King v. Burwell Isn’t Much of a Backup Plan

What is the federal government preparing to do in the event that the Supreme Court rules it illegal for Obamacare subsidies to be distributed via a federal health exchange, cutting off such subsidies in dozens of states? The Obama administration has said they don’t really have plans at all — leaving it up to the states and Congress to fix the problem — but sources tell Avik Roy that they do have plans, even if they’ve been quiet about it. The problem with these preparations, though, that they are unlikely to prevent serious disruption everywhere.

This summer, the Supreme Course will decide whether or not Obamacare authorizes the feds to distribute Obamacare subsidies in the thirty-something states that lack their own health exchanges. Much of the attention has been focused on what, if the subsidies are deemed invalid, will be done by a Republican Congress, which could reach a deal with the president to rewrite Obamacare, and by Republican governors, who control most of the states that are using federal exchanges and could just establish state exchanges. But the Obama administration has plans, too — just limited ones.

Avik reports that HHS might allow states currently using the federal exchange system, which would have had their subsidies cut off by the Supreme Court, to keep using the same system under the guise that it’s a state exchange, the running of which has been “contracted” to the federal government. Voila, the state doesn’t have to spend a dime, now it has its own exchange, and subsidies can keep flowing.

Well, it might not be that simple, because such a rubber-stamp process wouldn’t necessarily meet the strict reading of Obamacare that the Supreme Court could demand, as one of Avik’s readers noted. But let’s say it is feasible — two other health experts, Larry Levitt of Kaiser and Nicholas Bagley of the University of Michigan, think the administration indeed probably can just let states slap a “state exchange” label onto HealthCare.gov and keep distributing subsidies.

The problem: It seems likely that, say, the government of Texas will still refuse to sign on to save Obamacare in its state, even if it doesn’t cost a dime and would ensure that thousands of Texans don’t see their premiums spike. If states get to “contract” with the feds to establish an exchange without any effort at all, a governor or a legislature will presumably have to sign something that says they’re establishing an exchange. This means HHS’s contingency plan would address the disruption of an unfavorable court ruling in some places — some reddish states would leap at the opportunity to ensure subsidies keep flowing — but almost surely not all.

There’s no sign from Avik’s story that HHS is considering an even more extreme contingency plan, which would be the following: The feds could somehow pretend the federal exchange, HealthCare.gov, now was a state-based exchange, without any state involvement, and continuing to distribute subsidies in every state. At least one person who knows these issues well told me he could see them doing so. That seems like it would be breathtakingly lawless, but the Obama administration would be desperate to keep its law running without having to offer concessions to Republican governors or congressmen.

All that said, it’s very possible, even likely, that the above contingency will never come to pass, because the Supreme Court rules in favor of the Obama administration.

But if the case goes the other way, the mess will not be easily fixed. Said mess would, in some sense, be the Obama administration’s fault, because it was this administration that decided they would distribute subsidies that could be legally challenged. They can have some influence over whether Obamacare enrollees in states without exchanges keep getting their subsidies. But ultimately, two other parties — Republican governors and the Republican Congress — are going to get to have a say in how the situation gets resolved, too.

Patrick BrennanPatrick Brennan is a writer and policy analyst based in Washington, D.C. He was Director of Digital Content for Marco Rubio's presidential campaign, writing op-eds, policy content, and leading the ...

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