How States Can Save Obamacare

Be a hero, state lawmakers.

Photographer: Andrew Harrer/Bloomberg

It's possible that the congressional Democrats who drafted Obamacare five years ago purposely sabotaged their signature accomplishment, failed to tell anyone and are now lying about it. More likely, they just made a mistake -- and the states can easily address it.

Some background: The Affordable Care Act provides federal subsidies for eligible people who buy insurance on a government-run insurance exchange. Opponents of the law say those subsidies are only available to those who buy insurance from an exchange run by a state, and have filed suit to block people in the 36 states where exchanges are run by the federal government from receiving any subsidy.

The case is both tendentious and frivolous, based on a single reference to subsidies for those enrolled in an "exchange established by the state." It is also headed to the Supreme Court, which means that governments and businesses need to take it seriously.

This is especially true for states that decided to let the federal government run their exchanges. If they instead build their own exchanges, the case will be made moot. Any state that wants to set up its own exchange for the 2016 plan year only needs to submit an application to the federal government by June of next year.

So what is stopping them from doing so? Part of the answer is political, part is practical.

Republicans, it has been widely noted, do not like Obamacare. Until last week, refusing to build a state exchange was an easy way for state Republicans to demonstrate opposition to Obamacare without actually incurring any cost to their constituents.

That calculus has now changed. If the court rules that subsidies are illegal in states that use the federal exchange, insurance will become unaffordable for the almost 5 million people who now get those subsidies. That includes almost 900,000 people in Florida, 615,000 in Texas, 325,000 in North Carolina and more than a quarter-million in both Georgia and Pennsylvania.

Those are numbers that no self-interested politician can ignore. These are people, remember, who already have insurance and could lose it if their state governments don't act. That makes the decision on exchanges different from a refusal to accept federal subsidies to expand Medicaid to provide health insurance to more people. It is easier to deny constituents a possible future benefit than it is to take away a benefit they are already using.

The practical objections have even less force. In the first year of Obamacare, it may have made sense for states to be wary of setting up their own exchanges and let the federal government run them. Now, however, their design and operation is well understood. They are not free, though the costs are not great. The federal government even offers states grants to set up exchanges -- but the deadline to apply is this week. The Department of Health and Human Services has been flexible (sometimes to a fault) with the law's deadlines in the past, and it should be again.

Meanwhile, in states without federal subsidies, hospitals and other health-care providers will lose billions in revenue, while insurance companies may face the collapse of the individual market. Those businesses don't want the uncertainty of waiting for the court's ruling, to say nothing of the turmoil that could follow it.

Many governors and state legislators will still oppose the law on ideological grounds, of course. But every ideology has its costs -- and in this case the costs to their constituents and business environment would be considerable, and entirely unnecessary.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.