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How states could avert a Supreme Court Obamacare disaster

The stage is set for another Obamacare showdown at the Supreme Court. (AP Photo/Alex Brandon)

If the Supreme Court rules next spring against insurance subsidies in states that have refused to run their own marketplaces, these states will face a decision with implications for millions of people who'd suddenly lose subsidies: Do they cave and set up their own health insurance marketplaces, after all?

When most Republican-led states rejected the chance to set up their own marketplaces, or exchanges, two years ago, many offered a few similar reasons: They didn't want to do anything that can be viewed as helping to implement the Affordable Care Act, it would be too expensive to run and they didn't see any difference between state and federal control. That last factor suddenly changes if the Supreme Court rules against subsidies in federal-run exchanges.

The latest Obamacare case accepted by the Supreme Court on Friday revolves around whether the Congress intended for residents to receive financial assistance to purchase health coverage in states that didn't set up their own insurance marketplaces, or exchanges. Subsidies in state-run exchanges aren't at stake in the case, King. v. Burwell.

If millions of people lose their subsidies overnight, though, there could be pressure on states that don't run their own marketplaces to set one up. So what would it take, at this point, for a state to set up their own marketplace? There is a way, and it isn't probably all that expensive to do, according to Kevin Lucia and Justin Giovannelli, insurance experts at Georgetown University's Health Policy Institute.

States looking to take ownership of their marketplace would have to establish a legal authority for operating the marketplace; detail a plan to the feds how they'd make sure it works; and set up a governing body to oversee the marketplace. According to the Georgetown researchers, the state-run exchanges have to handle certain functions like overseeing health plans and consumer outreach, but they could still rely on for enrollment — which means states wouldn't have to bear the major cost of setting up that technical infrastructure. That's the approach taken by states like Oregon, Nevada and New Mexico in the upcoming enrollment period.

The following map from the Kaiser Family Foundation shows how control of the exchanges is split across the country as things stand now:

There are state-run exchanges in 13 states and the District of Columbia. There are another seven "partnership" states —Arkansas, Iowa, Illinois, Michigan, West Virginia, Delaware and New Hampshire — that regulate health plans and handle consumer outreach while relying on the enrollment portal. They'd seem to be the likeliest candidates to establish a state-run marketplace if the Supreme Court rules against the Obama administration.

"They're already most of the way there," said Georgetown's Giovannelli. "You do need to have legal authority, you need to have some sort of governance structure under the regulations. So there are things a given state might need to do."

Officials in one state, Delaware, specifically chose the partnership model because they didn't think the state was big enough to sustain the funding necessary for maintaining its own enrollment portal. But the politics would be tricky in most of these other partnership states, since they didn't have the political support in the first place to set up a fully state-run exchange.

Governors in states like Kentucky and New York had used executive orders to establish their state-run marketplaces. Others may look to follow that approach if the Supreme Court overturns subsidies in federal-run marketplaces, but that depends on what powers are available to the governors in each of those states.

Going through state legislatures would be tougher. Last week's elections solidified Republican control in statehouses across the country, and as Harvard School of Public Health professor Robert Blendon said last week, state lawmakers will take that as a vote against doing anything to implement Obamacare in their states.

Of course, Congress could also choose to pass a law clarifying that residents of any state are eligible for insurance subsidies. But that seems like a leap right now.