No one — outside an inner circle of Obama advisors — knows who snuck those four little words, “established by the state,” into Obamacare when it was being crafted. Nobody’s owning up.
But at least one person was writing about withholding subsidies in non-cooperative states while the bill was being created.
In a 2009 paper titled “Health Insurance Exchanges: Legal Issues,” Professor Jost proposed options for creating health insurance exchanges under national health care reform. And he obviously didn’t believe the second option was unconstitutionally coercive.
Congress might attempt to implement a federal exchange program through the states, thus taking advantage of the insurance regulation institutions and experience of the states. In doing so, it would need to be mindful of the limitations the Constitution places on the power of the federal government to control the states. The Constitution has been interpreted to preclude Congress from passing laws that “commandeer” the authority of the states for federal regulatory purposes. That is, Congress cannot require the states to participate in a federal insurance exchange program by simple fiat. This limitation, however, would not necessarily block Congress from establishing insurance exchanges. Congress could invite state participation in a federal program, and provide a federal fallback program to administer exchanges in states that refused to establish complying exchanges. Alternatively it could exercise its Constitutional authority to spend money for the public welfare (the “spending power”), either by offering tax subsidies for insurance only in states that complied with federal requirements (as it has done with respect to tax subsidies for health savings accounts) or by offering explicit payments to states that establish exchanges conforming to federal requirements.