Could new state exchanges qualify for subsidies?

If the Supreme Court rules for the plaintiffs in King v. Burwell, the thirty-four states without their own exchanges will come under immense pressure to create them. But there’s a catch, one that so far has gone unmentioned in the debate over King. Could residents of the states with new state-based exchanges even qualify for subsidies?

The question may seem surprising. The governing assumption has been that, after the Supreme Court decides King, the states could restore subsidies to their residents by setting up their own exchanges. As Justice Alito said at oral argument, “it’s not too late for a state to establish an exchange if we were to adopt [plaintiffs’] interpretation of the statute. So going forward, there would be no harm.”

But look closely at the statute. The fight in King is about the meaning of a provision of the Internal Revenue Code linking the subsidies to the cost of a plan purchased on “an Exchange established by the State under 1311.” Section 1311, in turn, says that “[e]ach State shall, not later than January 1, 2014, establish an American Health Benefit Exchange.”

Did the states have to hit that January 2014 deadline in order to establish exchanges “under 1311”? If so, exchanges established post-King could never be established under 1311. On that view, it would seem to follow that subsidies would be forever unavailable in thirty-four states.

Fortunately, basic rules of statutory construction suggest that the statute can’t be read to support that conclusion. As I explore in a forthcoming paper with David K. Jones in the Yale Law Journal Forum, the Supreme Court has consistently said that it will not “constru[e] a provision that the Government ‘shall’ act within a specified time, without more, as a jurisdictional limit precluding action later.” Indeed, reading the ACA to disable the states from ever reconsidering their exchange decisions would raise acute federalism concerns.

Instead, the Court will ask whether the statute contains “less drastic remedies” for failing to hit a deadline. And the ACA does include a less drastic remedy: in those states that failed to establish their own exchanges by January 2014, HHS was told to create a fallback exchange. The deadline is thus best understood not to limit subsidies, but as an instruction to HHS about when to act on the state’s behalf.

The argument I’ve sketched out here isn’t unassailable. If the Supreme Court sides with the plaintiffs, it will have taken a highly literal approach to the ACA—an approach that might give juice to the argument that post-King exchanges haven’t been properly established “under 1311.” And a new batch of plaintiffs could always insist (contrary to fact) that Congress must have used the 2014 deadline to put even more pressure on states to establish exchanges.

So far, King’s proponents haven’t made this argument. But they haven’t disavowed it, either. Their conspicuous silence makes me fear that they hope to press the argument once the dust settles on King. If so, I could well imagine another ugly round in the endless litigation over the ACA.


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