Working around Halbig

Suppose the D.C. Circuit’s decision in Halbig becomes the law of the land. If that happens, the states with federally established exchanges will come under enormous pressure to establish their own exchanges. In turn, the federal government would want to make it as easy as possible for those states to convert to state-established exchanges.

Ideally, HHS would also want to relieve states of the need to develop new exchange infrastructure. Rollout challenges in Oregon and Massachusetts, not to mention, suggest that getting a website up and running isn’t such a simple task. What if the refusal states could just enact laws (or sign executive orders) saying they’ve “established” their exchanges, but let continue to run them?

Pointing to the text of the ACA, some critics have said that this wouldn’t work. The ACA provides that an exchange must operate through an “eligible entity.” Among other things, an entity is eligible only if it is incorporated under the laws of “1 or more States.” Because the entity that runs is federally chartered, it wouldn’t qualify.

That’s true, so far as it goes. But the text of the ACA leaves enough room for a workaround. 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. On the ground, nothing would change. But tax credits would be available where they weren’t before.

I don’t see any legal obstacle to that approach. Larry Levitt doesn’t either; as he wrote on Twitter, “If Halbig stands, the administration could try to make it easy for states to set up state exchanges with a back-end.” Switching would be pretty painless.

True, not every state would accept the invitation to establish its own exchange, even if doing so were more or less a formality. But lots of states would, especially as voters started to howl about losing their tax credits. If so, even a bad outcome in Halbig might not matter that much in the end.


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