The Affordable Care Act offered the states the opportunity to create health insurance exchanges, but then set up barriers to states actually creating such exchanges insurance. To create its’ own exchange, a state had to create a new state-paid staff to set up and operate the exchange: run a call center to explain the plans, regulate the plans offered by the private insurance companies, and set up the web-site through which people select their insurance. All this would cost money[1] and require some horse-trading in the legislature that could mess up other deals. Recognizing this, the federal government created a pool of money to subsidize the creation of state exchanges. The continuing costs would fall on the states. Moreover, many state legislatures were in the hands of Republicans who were opposed to the whole thing to begin with. It should surprise no one that thirty-four–about two thirds–of state legislatures opted to let the federal government carry the weight. Thus, most people buy their insurance through federal exchanges, rather than through state exchanges.[2]

Recently, the Supreme Court has agreed to hear a challenge to one provision of the ACA. The case of King v. Burwell turns on the meaning of the language in the ACA regarding subsidies for people who purchase insurance through the exchanges. Do subsidies go only to people who purchase insurance on state-created exchanges or do they go to all exchanges, state and federal alike?[3] The Supreme Court will issue an opinion on the case in June 2015.

In a subtle bit of propagandizing the court, Margot Sanger-Katz recently penned a story in the New York Times that explains the likely consequences of a Court decision restricting the subsidies to state-created exchanges.[4] First, subsidies would end in the thirty-four federal government-created exchanges. This would drive up the cost for many insurance consumers beyond what they could afford. The individual mandate to purchase health insurance, a corner-stone of the ACA, could not be maintained if insurance costs rose dramatically. Second, any effort to replace the federal exchanges with state exchanges would involve an immense amount of work in a restricted period of time.

The Court will probably issue its opinion in June 2015. October is the enrollment month, so states would have from June to October (about four months) to create exchanges. Only eight states will have legislatures in session in June. This may cut down the time for legislative action to the extent that is necessary. It took three years to create the original exchanges. They turned out to be plagued with what the Obama Administration is pleased to call “glitches.” Doubtless people have learned a lot from the first round of experiences. The trouble is that one of those lessons is that it isn’t possible to create an exchange over-night. States will have to hire teams of people to create and manage the exchanges. They will have to find the additional money (see fn. 1 below) somewhere in the middle of a fiscal year. They will have to find the people somewhere. (I foresee a big money harvest for Massachusetts health insurance professionals.) Then computer programs will have to be purchased and adapted to suit the needs of each new state exchange. There is a good chance that chaos will reign for a time if the Court overturns subsidies for federal exchanges.

This leads me to believe that Chief Justice John Roberts will side with the Democratic appointees on the Court and against the four Justices who have always opposed the ACA.

Or, already existing state exchanges could start enrolling residents of other states as well. You can go to another state’s public colleges and universities if you pay out-of-state tuition. Why can’t insurance customers pay out-of-state premiums? Not a lot higher. Just enough to create a positive revenue stream.

[1] One current estimate of the cost to establish a single state exchange is about $40 to $60 million. Then the annual operating cost would be added on that. Obviously not the end of the world, but a hard sell to state legislatures in the middle of a recession.

[2] President Obama’s unilateral abandonment of the “public option” looks worse and worse all the time—in retrospect. Lots of human decisions look worse in retrospect.

[3] To an ignorant—Republican—layman like myself, the answer is clear. Congress did not pass an enormous and complicated piece of legislation with the intent that it should fail. Congress did not intend that subsidies be restricted to the state-created exchanges when it was creating the federal exchanges as a back-up system. Congress intended both forms of exchanges to receive subsidies. End of story.

[4] Margot Sanger-Katz, “Many States Unprepared to Set Up Health Exchanges,” NYT, 11 December 2014.