States never thought insurance subsidies depended on building an exchange

Federal, state officials assumed subsidies were universal, Huffington Post investigation found

The oral arguments in King v. Burwell brought up the case of federalism--specifically, whether states were unconstitutionally coerced into establishing their own health insurance exchanges. But what if states really did not know the consequences of not setting up their own exchanges?

Huffington Post filed public records requests to obtain documents about exchange discussions between federal and state officials between Affordable Care Act implementation in March 2010 and August 2011, when the Internal Revenue Service ruled that subsidies were universal to both state and federal insurance exchanges.

[Related Special Report: King v. Burwell Supreme Court ruling: What you need to know.]

Huffington Post examined emails from several states that untimately did not establish their own exchanges. Specifically, the website looked for conversations about whether residents of those states would not be able to purchase subsidized insurance if states did not set up their own exchanges. 

The Huffington Post found "not a single instance of an administration official warning that if states decided not to run their own health care exchanges, their citizens would not be eligible for the tax credit subsidies," according to the article summarizing its investigation. Here are three specific examples.

Former Virginia Gov. Bob McDonnell (R) wrote a letter to then-Department of Health and Human Services (HHS) Secretary Kathleen Sebelius on Feb. 7, 2011, expressing concerns about operating a state-run exchange. McDonnell said he was torn between relying on the federal government or setting up an exchange, citing budgetary uncertainties. His letter never mentioned subsidies. 

Republican governors in multiple states wrote a letter to Sebelius also on Feb. 7, 2011, to discuss the possibility of overpayments of subsidies. The governors wanted HHS to issue a plan for verifying individuals' incomes. This letter never mentioned the legality of federal subsidies but, rather, implied that the governors imagined subsidies would be universal. Sebelius responded on Feb. 24, 2011; thanks to the new exchanges, she wrote, "states have the power to build on this foundation." She never mentioned that subsidies would be conditional, Huffington Post noted.

Weaning through some 50,000 emails from the governor's office in Oklahoma, Huffington Post found several discussions about the possibility of running a state exchange that did not mention federal subsidies. However, on Nov. 16, 2011, the staff of Gov. Mary Fallin (R) received an email from a District of Columbia lobbyist with a link to a Wall Street Journal op-ed titled, "Another ObamaCare Glitch." From that point, emails about the legality of subsidies flooded staffs' inboxes. Nearly a year later, after Oklahoma Attorney General Scott Pruitt inform Fallin that he was bringing a lawsuit against the federal government over the matter of subsidies, Fallin announced the state would not establish its own exchange.

For more:
- here's the Huffington Post article

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King v. Burwell Supreme Court case: What you need to know [Special Report]
Beyond King v. Burwell: Payers brace for 'death spiral'
Supreme Court hears King v. Burwell arguments
King v. Burwell: Implications of federalism could save Obama administration's case
Did Justice Anthony Kennedy hint at how he voted in King v. Burwell?