Justice Kennedy’s questions yesterday about coercion were favorable to a government win for the following scenario:
Both sides agree that the feds really wanted states to establish exchanges. The feds were dangling lots of HHS money and significant regulatory autonomy to states that said yes. The question is how the law deals with states that say no.
The government’s position is that there is a fully functional backup federal exchange. The state loses some regulatory flexibility that it can regain by establishing a state exchange at some future date. The state insurance market is functional as the three legged stool of community rating, mandate and as subsidies works. No harm, no foul.
The asshat and sadist argument by the plaintiffs is that the subsidies can not flow to residents of the refusal state. However other federal regulations such as community rating still applies. Therefore a refusal to establish a state exchange destroys the state insurance market for individuals.
The blowing up the state insurance market is the coercion that Kennedy was questioning as that is an absurd result of anuncommunicated threat.