UPDATED x3: Another potential #Halbig/#King workaround: "The State Exchange Two-Step"

Back in early July, I made a simple proposition which could conceivably mitigate the otherwise severe damage to the Affordable Care Act (as well as to the lives of millions of Americans, the entire healthcare industry and, indirectly, the entire U.S. economy) in the event that the Supreme Court ultimately rules for the plaintiffs in the federal Halbig/King cases.

I called it the "Denny's Grand Slam" solution (alternately the "$360 Solution" or the "GoDaddy Solution"...take your pick), which basically involved states which are currently having enrollments run through the federal exchange set up a bare-bones "exchange" of their own by essentially filing some simple paperwork, registering a domain name for $9.95 with a basic splashpage and then repointing the whole damned thing right back to Healthcare.Gov for the actual enrollment process.

Very Serious People are taking this idea quite seriously (it's a wee bit more complicated than I describe, but not necessarily by that much), but it has one fatal flaw: It would only work for some of the 36 states being run through HC.gov; I figure perhaps a dozen or so might be willing to do so, including Delaware, New Jersey, Illinois and Michigan. New Jersey's state legislature is Democratically controlled; Republican Chris Christie is the Governor, and he's probably running for President in 2016--agreeing to a state exchange might hurt his chances of winning the GOP nomination, but it would help in the general. Illinois just elected a Republican Governor, but again, the legislature is Democratically controlled. Republicans have a lock on Michigan for another 2 years (gah!!), but they did (finally) expand Medicaid, and Rick Snyder has occasional moments of decency; they might be willing to revisit the idea (in fact, at least one Republican state Senator has flat-out said so).

However, there'd be a good 20 or so Republican-run states which would be unlikely to play ball no matter how much sense it makes or how much not doing so would hurt (or even murder) their own citizens. I can't fathom Oklahoma, Alabama, Texas or Mississippi being willing to do so, no matter how simple the process would be.

Therefore, in addition to Plan A (hope the SCOTUS rules against the plaintiffs) and Plan B (my "Denny's" solution), there's also a need for a Plan C to cover the Deep Red states.

Fortunately, one of my regular readers, "secretadvocate", has brought up another fascinating possible workaround which I'm calling "The State Exchange Two-Step".

Rather than try to explain it myself, he's given me permission to repost the idea verbatim:

Therefore, I think that, depending on how the Supreme Court rules, a different solution would be better. It involves the portion of the D.C. Circuit's opinion in Halbig in which the majority said that a person does not have to be a resident of a particular state — a "qualified individual" under the language of the law — in order to apply for health coverage on the exchange of a particular place.

The portion is at pages 26-28 of this PDF version of the court's set of opinions in the case.

Therein lies the solution. If the Supreme Court accepts that interpretation of the law (including that portion of the Halbig panel majority's opinion), then the federal government could then arrange with the states that DO have exchanges to handle applicants from states that don't.

It could work as follows:

  1. A resident of, say, Mississippi, could go to Healthcare.gov, and then be forwarded to the exchange of another state, say, California (or a randomly selected state).
  2.  At the California exchange, the Mississippi resident would be asked whether he or she is a resident of California.
  3. When the Mississippi resident answers no, the California exchange would ask what state he or she is from.
  4. When the applicant selects "Mississippi" as the answer, the California exchange would then either (1) have the information for Mississippi plans on the site itself, or (2) send the applicant back to Healthcare.gov.

The Mississippi applicant, by applying for coverage on the California exchange, would then be applying for coverage "an Exchange established by the State under [section 1311] of the Patient Protection and Affordable Care Act."

The problem would then be solved. I am simply following that the Halbig panel majority said. It said that a person does not have to be a "qualified individual" in order to apply to coverage on an exchange.

Of course, if this proposal ends up being adopted, the Right would go bananas and the word "impeachment" would fly. The Department of Health and Human Services should just coolly respond: "That's what we're going to do. If you don't like it, file another one of your lawsuits and we'll see you back at the Supreme Court in three years."

The above is that best that I can do. It would be tragedy if this law came undone because of a drafting goof.

How about it, legal scholars? Does this pass the smell test? If so, I think it's brilliant, if a bit cumbersome.

UPDATE: I do have a few additional thoughts about this possibility, if it ever comes to it:

  • The "Two Step" idea is presented as an "either-or" scenario, but I see no reason why it couldn't be some of both--14 (or 16?) states have their own exchange already; figure perhaps a dozen more would set up a "shell" exchange repointing to HC.gov (the "Denny's Solution"). That would leave about 24 states (basically, the non-Medicaid expansion ones, imagine that!)
  • Thus, you'd end up with half the states running their own exchanges (to whatever extent), and the other half "buying insurance across state lines", so to speak :)
  • How would the insurance companies operating in those states (Texas, Oklahoma, etc.) feel about people going out of state to buy? Hmmm...
  • How would the insurance companies in the exchange states feel about out-of-state customers?
  • How many Republican heads would explode if this came to pass?

UPDATE x2: An anonymous writer claims:

Two-Step workaround won't work. Yes you don't need to be a resident of a state to apply for coverage. However, you do need to be a resident to be eligible and receive benefits - especially for Medicaid which is reimbursed at the state level.

Hmmm...the second point isn't really an issue, since a) the same states which would be using this workaround would almost certainly be the same ones refusing to expand Medicaid benefits anyway, and b) even the ones which do have Medicaid expansion don't need an exchange to apply for it anyway; the residents of those states can apply for Medicaid the old-fashioned way.

However, the first point may be accurate. I don't know nearly enough about the law (or the DC Circuit ruling) to say one way or the other.

Again, any legal scholars out there are free to chime in below...

UPDATE x3: Hmmmm...perhaps, perhaps not. From secretadvocate in the comments:

In 42 U.S.C. § 18032 (the statute to which I linked above), paragraph (a)(1) provides: "A qualified individual may enroll in any qualified health plan available to such individual and for which such individual is eligible."

Subsection (f) of the statute then defines "qualified individual." Subparagraph (f)(1)(A) provides:

"The term 'qualified individual' means, with respect to an Exchange, an individual who— 
(i) is seeking to enroll in a qualified health plan in the individual market offered through the Exchange; and 
(Emphasis supplied.)

So, a "qualified individual," within the general definition, must "reside[] in the State that established the Exchange."

In Halbig, King, and related cases, the federal government has argued that this statute supports its position that the federal exchange constitutes, for states that have not set up exchanges, "the Exchange established by the State under [section] 1311 of" the ACA within the meaning of the phrase in the subsidy statute (26 U.S.C. § 36B(b)(2)(A)) which has caused all of this upset. The federal government has argued that, otherwise, the federal exchange would have no customers because there would be no "qualified individuals" that could use it. Congress could not have intended that result.

The Halbig panel majority rejected the argument, snidely saying that the government was "tilt[ing] at windmills." The panel majority said that § 18032 did not say that "only" "qualified individuals" can use an exchange. Therefore, the majority said that the federal exchange would indeed have customers even though a state did not establish it. According to the court, a person does not have to be a "qualified individual" to use an exchange.

Well, if that is true, then a person does not have to a resident of a state that established a particular exchange — one of the elements of being a "qualified individual" — in order to use the exchange. A resident of Texas can apply for coverage on the exchange of Connecticut. A resident of Maine can apply for coverage on the exchange of Kentucky.

As I said before, I'm just going by what the Halbig panel majority said.

HOWEVER, according to Jonathan Ingram, the research director at the Foundation for Government Accountability (a Libertarian think tank), via a series of tweets:

  • @charles_gaba Statute expressly states that subsidy tied to *enrollment* "through an Exchange established by the State under section 1311."
  • @charles_gaba Also ties subsidy calculation to second-cheapest Silver plan "offered through the same Exchange."
  • @charles_gaba And that plan must be "in the rating area in which the taxpayer resides."
  • @charles_gaba Subsidy tied to QHPs *offered* "within a State" AND enrolled in "through an Exchange established by the [same] State"

Again, I have no idea whether this "Two-Step" idea would be workable or not, but it's an interesting idea to bop around.