In the King v. Burwell case on federal premium subsidies in the federally-run health insurance exchanges, Congress, the White House, and States have a simple option should the Supreme Court rule in favor of King. This option is a simple legislative fix likely to be scored at no cost to the federal government.

As written, the Affordable Care Act (ACA) limits federal exchange subsidies to income-qualified enrollees in an “exchange established by the State.” The law defines “State” as the 50 states and DC.   This language is at issue in the King v. Burwell case. If the Supreme Court rules in favor of King, it will be because they determine this explicit language, and not the IRS construct of Congressional intent for the law as a whole, should govern. If so, then federal premium subsidies will no longer be available in States with federally-run exchanges (the healthcare.gov health insurance marketplace).

Waivers of the Affordable Care Act:

Under section 1332, the ACA includes broad authority for states to request and the HHS and Treasury Secretaries to grant waivers of key provisions of the ACA. This new discretionary federal waiver authority allows States to implement state-based alternatives to the federally mandated framework for health insurance exchanges, premium and cost sharing subsidies, health insurance market regulation, and the individual and employer mandates. States may request ACA section 1332 waivers now, alone or together with Medicaid or Medicare waivers, but State reform efforts under section 1332 may start no earlier than January 1, 2017.

ACA section 1332 waivers (42 U.S. Code § 18052) must meet be budget neutral to the federal government, cover at least as many people as the law without waivers, and provide a coverage package (benefits and cost sharing limits) at least as good as under the ACA statutes. Like other waivers, such as Medicaid section 1115 waivers, the Executive Branch solely determines whether these requirements are met. In the case of ACA section 1332 waiver requests, the key federal players will be the Centers for Medicare and Medicaid Services (CMS), Treasury, and the White House Office of Management and Budget (OMB). Congress has no role in waiver decisions and the Congressional Budget Office (CBO) does not score the cost of waiver-based demonstrations (although they could influence CBO’s projections for the budget baseline but that is no obstacle to granting of waivers).

Using ACA Section 1332 Waivers to Continue Federal Premium Subsidies:

Here is why ACA section 1332 waivers are relevant to King v. Burwell. The ACA provisions that may be waived under section 1332 include the “exchange established by the state” language at issue in King v. Burwell. Therefore, Congress could simply enact a simple bill changing the earliest effective date for ACA section 1332 waivers from January 1, 2017 to, say, July 1, 2015.

With such a date change, States with federally-run exchanges could then simply request a waiver that permits CMS to continue to operate the exchange and continue to provide the premium subsidies. This avoids the need for states to create their own exchanges or for Congress to enact legislation to permit federal subsidies for enrollees in the federal health insurance marketplace. The former option is costly and high risk for States, as well as politically difficult for most GOP-led States. The later option would likely be extremely expensive since CBO would have to re-score the ACA in light of a SCOTUS decision in favor of King. This would create the need for large offsetting budget savings (such as further cuts to Medicaid and Medicare), more complex legislative negotiations, lots of partisan finger pointing, and political maneuvering to overcome a Senate filibuster.

Advantages to Changing Effective Date for ACA Waivers:

A simple change to the effective date of ACA section 1332 waivers has several advantages:

  1. Since section 1332 waivers must be budget neutral, the Congressional Budget Office (CBO) would likely not score any federal budget cost to legislation simply changing the date. So no need for contentious offsetting budget cuts. With no official budget cost, adoption only requires majority votes in the House and Senate.
  2. Waivers projects are not scored by CBO like legislation. Waiver are administrative actions, with OMB determining whether the federal budget neutrality requirement is met. Yes, a strong argument could be made that in the event of a SCOTUS ruling for King a waiver allowing federal premium subsidies in federal exchange states would increase federal costs – that is, costs compared to post-ruling world as opposed to the pre-ruling baseline. However, there are no rules for determining federal budget neutrality for waivers. It is whatever CMS and OMB are willing to accept.
  3. For the use as I describe, the other requirements for an ACA section 1332 waiver are no problem since, prima facie, continuing federal subsidies would of course neither reduce the number of people insured nor reduce benefits.
  4. In prior budget requests, the President already indicated support for legislation to allow States to request and implement ACA section 1332 waivers earlier than 2017. Since a date change would, in effect, expand State flexibility and States may still separately request other, large scale waivers of ACA, a simple legislative fix to the date can be positioned as given earlier flexibility for States.
  5. Given how the Obama Administration is using renewal of certain Medicaid waivers to pressure States like Florida and Texas to expand Medicaid eligibility, States are naturally wary of federal assertiveness on waivers. However, because the Obama Administration will be eager to continue taxpayer-funded subsidies the federal exchange States, they will have no desire to link to Medicaid expansion to this quick fix to a SCOTUS decision.
  6. Using a simple template, HHS and Treasury could make it very easy for States to request a waiver to allow CMS to run the exchange as if it were established by the State and therefore continue federal premium subsidies. While it is unlikely many or any States would want to create their own exchange, States could still have the option to request a waiver for a year or two to given them enough time to decide or implement their own exchange.
  7. In many States, Governors have the authority to request ACA section 1332 waivers without approval of the State Legislature. And few State Legislatures will want to intervene or force a vote and go on record, especially if the alternative is thousands of State residents losing federal subsidies. The waiver approach also does not conflict with State laws prohibiting the State from operating an exchange.  While States must formally request waivers, for Governors the option described above would be far preferable to the alternatives of messier and uncertain federal legislation, creating a State-run exchange, or letting federal premium subsidies lapse.
  8. There is a standard process for requesting waivers and receiving public input on State waiver applications. However, the feds could allow a more expedited process.
  9. Waivers are time limited, with initial approvals for a maximum of five years. Subsequent renewals may be for up to three years. So the proposed waiver approach could be structured to punt the issue till after the next election, when there will be a new President and new Congress.
  10. There may be other administrative fixes – such as States contracting with CMS to run the exchange on behalf of the State. However, ACA language only allows States to contract out exchange operations to state agencies, state created quasi-public entities, and certain non-profits. The law does not contemplate States contracting out functions to CMS.  More importantly, few GOP-led States will likely the feeling or optics of the State formally contracting with CMS. Most will likely prefer to continue to wash their hands of the exchanges – which the waiver idea allows them to do.

For more about ACA section 1332 waivers, please see my earlier blog post where I kick around some more hypothetical uses of waivers and first raise the idea of using section 1332 to overcome a SCOTUS ruling in favor of King.