-PJ
Financial IncentivesFurther evidence of this preference is that the PPACA’s authors created large financial incentives to encourage states to establish Exchanges. The Act authorizes the Secretary of Health and Human Services to provide unlimited funding for states to cover the start-up costs of establishing Exchanges. As of January 2013, the Secretary had issued a total of $3.526 billion in Exchange grants to states. The Secretary has announced these ‘‘start-up’’ grants will be available through 2019. In contrast, the PPACA’s authors failed to authorize any funding for HHS to create federal Exchanges. Unlimited start-up grants and a lack of funding for federal Exchanges appear not only in the PPACA but also in both antecedent bills reported by the Finance and HELP committees.
Making credits and subsidies available solely through state-run Exchanges is consistent with the PPACA’s modus operandi of using financial incentives to elicit a desired behavior. Under the Act, individuals who fail to obtain health insurance must pay a penalty. Large employers that fail to offer required health benefits likewise must pay a penalty.
Many statutes seek to encourage state cooperation by threatening to cut off funding to recalcitrant states. The PPACA contains this feature in other provisions such as the Medicaid expansion. Under the Act as passed, states that failed to expand their Medicaid programs to those below 138 percent of the federal poverty level would have lost all federal Medicaid grants, which account for 12 percent of state revenues. The Act imposes a ‘‘maintenance of effort’’ requirement on states’ Medicaid programs that only lifts upon certification of an Exchange ‘‘established by the State under section 1311.’’
States that opt to establish an Exchange may receive unlimited start-up funds from HHS if, ‘‘as determined by the Secretary,’’ the state makes adequate progress toward establishing an Exchange, implements other parts of the Act, and ‘‘meet[s] such other benchmarks as the Secretary may establish.’’ This feature------conditioning the continued availability of start-up funds on state cooperation------appears in the HELP committee bill as well. It is hardly a departure for the Act to condition the availability of tax credits and cost-sharing subsidies on state cooperation.
The language in Sections 1401 and 1402 restricting credits and subsidies to state-created Exchanges is more than just consistent with the rest of the Act. It is integral to Section 1311’s directive that states ‘‘shall’’ create an Exchange. Because it likely creates a larger financial incentive than the Medicaid ‘‘maintenance of effort’’ requirement, it is the primary sanction imposed on states that do not establish Exchanges. It thus animates Section 1311’s ‘‘shall.’’ To ignore it as the IRS has would sap that directive of most of its force.
As noted above, the federal government cannot actually force states to create Exchanges, as this would constitute unconstitutional commandeering. The federal government can, however, utilize a combination of positive and negative incentives to induce state cooperation------in this case, subsidies for creating Exchanges and the threat of a federally run Exchange if a state does not create its own.
Such incentives are common. Various federal programs, including Medicaid, condition the receipt of federal funding on state acceptance of the federal government’s conditions. In this context, limiting the availability of tax credits to insurance purchased in state-run Exchanges can be seen as just one more inducement for state cooperation: the PPACA threatens states with the loss of tax credits for state residents if they do not create an Exchange.
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Antecedent BillsBoth the Finance bill and the HELP bill withheld subsidies from taxpayers whose state governments failed to establish an Exchange or otherwise failed to implement the bills’ requirements.
The PPACA’s closest antecedent was the Finance Committee- reported ‘‘America’s Healthy Future Act of 2009’’ (S. 1796). The relevant language in the PPACA is nearly identical to that of the Finance bill. Indeed, the four ways Section 1401 confines tax credits to state-run Exchanges appear almost verbatim in the Finance bill. The HELP bill even more explicitly withheld credits in states that failed to implement its requirements, and it employed that strategy to encourage state cooperation even if the federal government created the Exchange. If a state sought to establish its own ‘‘Gateway’’ (i.e., Exchange) then the HELP bill provided that ‘‘any resident of that State who is an eligible individual shall be eligible for credits’’------but only after the Secretary determined that the state had (1) created a qualified Gateway, (2) enacted legislation imposing various health insurance regulations on the state’s individual and small-group markets, and (3) enacted legislation subjecting its state and local governments to the bill’s employer mandate. If a state failed to meet these criteria, its residents would be ineligible for credits. When an ‘‘establishing state’’ fell out of compliance, the HELP bill went so far as to revoke credits that state residents had already been receiving.