WHY THE “PLAN B” ADMINISTRATIVE FIXES TO OBAMACARE EXCHANGES ARE ILLEGAL: A new Federalist Society white paper by Josh Blackman: The Legality of Executive Action after King v. Burwell:
This article will assess the legality of executive actions that the Administration may take after King v. Burwell to continue paying subsidies in these thirty-four states. I will not discuss the merits of the case, predict how the Court should construe the statute or IRS rule, or propose congressional modifications to the ACA. Rather, this analysis is premised on potential administrative fixes HHS could employ following an adverse ruling in King v. Burwell.
There are two possible approaches HHS could take that would continue the payment of subsidies in some or all of the thirty-four states using the federally-facilitated exchange. First, HHS could unilaterally deem several of these states as having tacitly established an exchange, without the state’s subsequent cooperation. Specifically, HHS could construe the fact that fourteen states perform certain functions that overlap with the ACA—what is known as “plan management”—as evidence that they in fact intended to establish an exchange. This post-hoc recognition of an establishment would drastically alter the terms on which states accepted certain responsibilities. Each of the fourteen states at issue notified HHS that it was only performing certain limited functions, and expressly declined to establish a state-based exchange. Retroactively and unilaterally declaring that these states in fact established a state exchange would distort political accountability, and disregard the considered judgments of the sovereign states, in violation of the principles of federalism. If HHS issued this interim rule without notice and comment, litigation would likely immediately follow by the King plaintiffs and the states. These suits, however, would face an uphill battle to stop the unlawful payment of subsidies. The administration could also attempt to limit the judgment in King v. Burwell to the four named plaintiffs, but that effort to evade the Court’s judgment would be met with further litigation.
Second, HHS can streamline the process to fast-track the process for states seeking to establish an exchange. The threshold inquiry is whether a state has the appropriate authority to establish an exchange. The ACA requires that before a state can elect to establish an exchange, the state shall “adopt and have in effect . . . a state law or regulation that the Secretary determines implements the standards within the State.” Eighteen of the thirty-four states enacted the “Healthcare Freedom Act,” which would require an act of the legislature, or even a constitutional amendment, in order to allow the creation of an exchange. In the remaining exchanges, it is feasible that a governor’s executive order would satisfy the Secretary of HHS that the state has established an exchange. Even with this speculative authority, it is unlikely that the state would be able to complete all of the necessary steps to establish an exchange in 2015. However, a state could possibly deem the federally-facilitated exchange as state-established. This approach would be inconsistent with the text and history of the ACA, and would likely be challenged by further litigation.
A ruling against the federal government in King v. Burwell, even if stayed until the end of the tax year, would leave the Administration and the states with very limited options of how to respond quickly. Resorting to dubious administrative fixes to continue the payment of subsidies would invite an immediate court challenge. The path to amend the ACA must go through Congress.
This is not a blog post and does not argue the merits of King. It is a detailed and technical examination of what the statute says about the establishment of exchanges, made accessible to serious readers. Anyone covering this case in the press or blogosphere should read it before the spin begins.
Assuming, of course, that the Court in King holds that what the statute says actually matters.