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Major Obamacare Ruling Just a Month Away
By Katherine Restrepo

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May. 22nd, 2015

RALEIGH — In just one month, the U.S. Supreme Court will decide whether health insurance subsidies issued under the Affordable Care Act should be distributed only to insurance companies in state-based exchanges.

While there is mounting political pressure for federal exchange states like North Carolina to switch to state exchanges so individual marketplace customers will not lose their taxpayer-funded health plans, there also could be consequences for federal exchange states’ Medicaid programs. As written in the federal health law, federal Medicaid funding is contingent upon states creating their own exchanges.

Modern Healthcare columnists Virgil Dickson and Lisa Schencker explain how current Medicaid enrollees in federal exchange states could end up being on the budgetary chopping block:

The first is a section of the law that says federal Medicaid funding is contingent on a state ensuring coordination and secure communication between its Medicaid program, its Children’s Health Insurance Program, and ‘an exchange established by the state.’

‘The Medicaid and CHIP programs in all 34 states relying on the federal exchange would be at risk if the court buys the (King challengers’) argument,’ said Tim Jost, a law professor at Washington and Lee University and supporter of the law. ‘This demonstrates how crazy and how dangerous their argument is.’

Another issue is an ACA provision known as the Maintenance of Effort. That part of the law dictates states must maintain the eligibility and enrollment policies and procedures that were in effect on March 23, 2010, until an exchange established by the state is up and operational. Since, HHS reportedly has allowed some reduction in eligibility in Illinois, Indiana, Louisiana, Maine, Nebraska, Ohio, Oklahoma, South Dakota, and Wisconsin. Those states have not established their own exchanges.

‘If the government loses and Congress does not revise the ACA, HHS might tell the states that they have to return to their former eligibility rules or lose future federal funding for their Medicaid programs,’ said Jesse Witten, a partner at Drinker Biddle in Washington.

In the case of a ruling favoring the plaintiffs, lawsuits would certainly arise questioning these provisions’ constitutionality. Redacting federal Medicaid funds from a federal exchange state’s traditional Medicaid program sounds a bit coercive, and would probably be deemed as such, much like when Congress deemed Obamacare’s original Medicaid expansion provision unconstitutional in a 7-2 ruling back in 2012. Essentially, Congress was effectively holding states at gunpoint — either expand medical assistance eligibility or lose all federal program dollars.

Yet transitioning to a state exchange would not only further entrench Obamacare, but could very well turn into a financial nightmare. The seed money needed to establish a state exchange is no longer available. North Carolina was once set on establishing its own exchange under then-Gov. Beverly Perdue, but more than $70 million in startup grants were returned to the feds once Republicans took control of the legislature. State lawmakers also passed Senate Bill 4 into law — an act that negates the decision to opt for a state exchange along with expanding Medicaid.

In addition, state exchanges such as those in Massachusetts, Oregon, Minnesota, Vermont, Hawaii, and Rhode Island are failing or have already failed to be self-sustaining, since planning and establishment grants awarded by the federal government expired at the beginning of the year.

The Washington Post has the scoop as to why operating budgets are collapsing:

Most exchanges are independent or quasi-independent entities. For most, the main source of income is fees imposed on insurers, which typically are passed on to consumers. Because those fees are based on how many people have signed up (a larger enrollee pool means lower individual costs), strong enrollment is critical to an exchange’s fiscal success.

Most exchanges have operating budgets of $28 million to $32 million. One of the biggest cost drivers is call centers, where operators answer questions and can sign people up. Enrollment can be a lengthy process — and in several states, contractors are paid by the minute. An even bigger cost involves IT work to correct defective software that might, for example, make mistakes in calculating subsidies.

Observers from all sides of the debate will watch the Supreme Court closely as its term winds down.

Katherine Restrepo is Health and Human Services Policy Analyst for the John Locke Foundation

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