Report: Obamacare Backup Plan Is To ‘Declare’ A Contractor For States

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The Obama administration is denying it has any backup plan if the Supreme Court restricts Obamacare subsidies to state-run exchanges, but a new report claims they’re looking at an easy fix.

Avik Roy reports at Forbes that according to two sources, the administration will just ask the 37 states that would be impacted to “declare” that they do have exchanges and have merely contracted out their management to the Department of Health and Human Services. Such an arrangement would change little, if anything at all, about the day-to-day operation of the exchanges.

The King v. Burwell case hinges on whether the requirement that subsidies be distributed through an “exchange established by the State under Section 1311” makes the subsidies currently being given to federal customers illegal.

President Obama himself has said there is no backup plan. “If they rule against us, we’ll have to take a look at what our options are,” Obama told Reuters in an interview this month. “But I’m not going to anticipate that.”

HHS Secretary Sylvia Burwell has also repeatedly denied they have a contingency plan if they lose the case. Pennsylvania Republican Rep. Joe Pitts pressed her during a February House hearing about the allied existence of a 100-page document which laying out options if the court ruled against them, but Burwell said she wasn’t aware of it. The secretary maintained that the agency “know[s] of no administrative actions that could” restore subsidies to states with federally-run exchanges. (RELATED: HHS Claims It’s Got No Plan To Save Obamacare)

Health care experts and states have floated the idea of HHS as a contractor before. When the Supreme Court announced it would hear the subsidies case, a state official in Delaware told Bloomberg that the state considers its Obamacare exchange to be state-run, simply contracted with

It’s not clear whether it would pass muster with the court. If the Supreme Court does rule against the administration, the justices may decide to define what an “exchange established by the State” means.

Maybe that definition will allows states to subcontract to HHS in order to limit the disruption to the health care law, which Obamacare supporters have tried to emphasize in order to dissuade justices from ruling against them.

But it’s also possible such a fix may not even fulfill Obamacare’s own requirements. Section 1311 of the Affordable Care Act says states may contract with an “eligible entity” to run their exchanges, but lists a number of requirements for the contractor in question. The Foundation for Government Accountability’s Jonathan Ingram suggests that HHS may not actually qualify for contractor status under the law.

University of Michigan Law School professor Nicholas Bagley addressed that potential problem in a blog post last July.

“A state could, for example, establish an exchange and appoint a state-incorporated entity to oversee and manage it. That state-incorporated entity could then contract with to operate the exchange,” Bagley wrote at The Incidental Economist. “On the ground, nothing would change. But tax credits would be available where they weren’t before.”

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