GOP attacks on health law’s subsidies could backfire on Medicaid

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The Supreme Court’s decision upholding the Affordable Care Act (ACA) has sent conservatives searching for new avenues of attack, and a new whitepaper suggests lawsuits attacking the measure’s insurance subsidies.

Republicans, including Sen. Orrin Hatch (Utah), have said the Obama administration broke the law with a proposal to offer subsidies in every state.

Subsidies will be available to people who get their coverage through insurance exchanges — new marketplaces where individuals and small businesses can buy coverage. The ACA directs each state to set up an exchange and authorizes a federally run fallback in any state that doesn’t establish its own exchange.

The IRS intends to provide subsidies in both state-run and federal exchanges, but Hatch and other conservatives say that’s an illegal policy. They note that the text of the ACA refers to exchanges “established by the state,” and say subsidies can’t be offered in the federal exchange.

Two conservative healthcare experts — Jonathan Adler, a professor at Case Western Reserve University, and Michael Cannon, a scholar at the Cato Institute — released a whitepaper Monday advocating lawsuits against subsidies in the federal exchange, citing the law’s “state exchange” text.

The federal government might have to operate at least part of the exchanges in as many as 30 states, at least initially. If subsidies aren’t available in those states, the law’s reach would be severely limited.

It seems like a strong strategy for Republican governors who are already opposed to implementing “ObamaCare” by establishing an exchange.

But if conservatives’ view of a “state exchange” prevails in court, Republican governors could be saddled with Medicaid requirements they strongly oppose.

The healthcare law expands Medicaid eligibility beginning in 2014. It also includes a “maintenance of effort” (MOE) provision that prevents states from cutting their existing Medicaid rolls ahead of the expansion.

As shorthand, most people say the MOE lasts until 2014. Technically, though, it expires once the Health and Human Services Department certifies that an insurance exchange “established by the state … is fully operational” — the same language used to describe exchange subsidies.

In short, Republican governors could be stuck with the MOE forever if conservatives win their argument about the law’s insurance subsidies.

Cannon did not respond to a question about whether his approach to the subsidies would also carry implications for Medicaid. But supporters of the law who reviewed the relevant language said the two provisions would have to work the same way.

Tim Jost, a law professor at Washington & Lee University who supports the health law, said the two provisions are indeed identical. If a “state exchange” is read narrowly to limit federal subsidies, he said, the same reading would mean that states can’t purge their Medicaid rolls.

The law’s supporters agree with the Obama administration, which has said subsidies are available in both state-run and federal exchanges.

A spokeswoman for Hatch, however, said that if the conservative interpretation of a state exchange versus a federal exchange is applied to Medicaid, the Obama administration would be to be blame.

“Sen. Hatch strongly believes that the Medicaid Maintenance of Effort requirement must be pulled back,” the spokeswoman said. “Threatening to keep MOE in place if states do not set up exchanges would be an act of hypocrisy from the Obama administration as they’ve defined 'state exchanges' as a 'federal exchange' in order to implement their $2.6 trillion health spending law.”

Republicans, both in statehouses and in Congress, have assailed the MOE requirements as a strain on state budgets. House Republicans passed a bill last year to repeal the MOE, and the Republican Governors Association has urged the Obama administration to relax the mandate.

“The effect of the federal requirements is unconscionable; the federal requirements force governors to cut other critical state programs, such as education, in order to fund a ‘one-size-fits-all’ approach to Medicaid,” Republican governors said in a letter last year.