Anthony F. Shelley
Member
(202) 626-5924
ashelley@milchev.com

February 22, 2018
By Hand Delivery
The Honorable Alex M. Azar
Secretary, U.S. Department of Health and Human Services
The Hubert H. Humphrey Building
200 Independence Avenue, SW
Washington, DC 20201
Re: Legal Analysis of Idaho’s Authority to Approve State-Based Individual Insurance
Plans
Dear Secretary Azar:
I am outside counsel to Blue Cross of Idaho Health Service, Inc. (“Blue Cross of Idaho”)
and write on its behalf respectfully to relay our view that the new “State-based plan” initiative
pursued by the State of Idaho for its individual insurance market comports with the Affordable
Care Act (“ACA”) and other governing legal principles and, therefore, is entirely legal. As you
may know, Blue Cross of Idaho has submitted, for State approval, plans that it believes meet the
requirements of Idaho’s initiative, though the State has not yet approved those offerings; Blue
Cross of Idaho, therefore, has a strong interest in the success of Idaho’s initiative, the benefits of
which have been emphasized in a recent letter to you from Idaho Governor Butch Otter. As you
may also know, however, some national press reports – though not local ones from Idaho – have
unabashedly asserted that the Idaho initiative is unlawful. To the same effect, you have received
letters from a group of Democratic Congresspersons and Senators and from certain industry
organizations focused on patients (such as the American Cancer Society, American Diabetes
Association, etc.) impugning the legality of Idaho’s approach. We seek, with this letter, to show
that the opposite is true: the case for the legality of Idaho’s initiative is superior to the
superficial, categorical statements from opponents that it is unlawful.
A. Factual Background
The legal issues cannot properly be addressed without some brief factual background
regarding the current state of the Idaho individual insurance market and the nature of Idaho’s
initiative. The individual insurance market in Idaho is not healthy currently, a clear contrast to
pre-ACA times when Idaho had one of the Nation’s best-functioning individual insurance
markets. Since the advent of the Exchange in 2014, premium prices on the Exchange have
increased more than 70%, nearly 30% last year alone, and all options on the Exchange are well
Miller & Chevalier Chartered . 900 16th Street NW . Washington, DC 20006
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 Secretary Alex M. Azar
February 22, 2018
Page 2
more than $1,000 per month (with some more than $2,000 per month). The number of covered
lives in the individual market (collectively through the Exchange and off-Exchange) has
decreased since 2014. Indeed, there are now in Idaho roughly 250,000 persons with no health
insurance. The number of uninsureds increased by 66,000 from 2015 to 2016 (a year for which
Idaho collected statistics). Carriers have collectively lost massive amounts of money in the
individual market since 2014 – roughly $47 million in 2015, $178 million in 2015, and $69
million in 2016. Not surprisingly, given those losses, the number of carriers on the Exchange
has decreased since 2014, with very few options in all counties and just Blue Cross of Idaho and
one of the precarious ACA CO-OPs remaining in many counties.
Responding to the serious situation in Idaho, the State fashioned State-based plans. They
are known as “State-based plans” because the new products would comply with all applicable
State-law requirements, but not necessarily all ACA requirements; previously, Idaho had not
incorporated by statute or rule (unlike other States may have done) ACA requirements as part of
its State-law mandates. These products might be up to 50% cheaper than Exchange coverage;
yet, they are significantly richer in benefits than so-called “grandmothered” plans that States and
the federal government alike currently allow, and certainly far more expansive in their benefits
than short-duration plans (which, as now proposed, might be issued for just short of twelve
months) or faith-based plans, both currently permitted by States and the federal government.
Idaho’s Governor and Insurance Director have emphasized that the goal of allowing the offering
of State-based plans is to bring into the individual market an affordable option for those
individuals currently on the insurance sidelines. That group comprises mostly middle-class
individuals, too prosperous to qualify for ACA premium subsidies, but not rich enough to afford
the current coverage available on the individual market. These are largely healthy lives not in
the Exchange, because of the price of Exchange coverage, and soon not subject to any tax
penalty for non-compliance with the individual mandate (in light of the recent tax legislation).
In addition to seeking to bring into the insurance market the increasing numbers of
middle-class persons outside of it, Idaho also has carefully structured State-based plans in order
to complement and, in fact, bolster the Exchange. In this respect, critics of Idaho’s approach
have overlooked two critical and indispensable features of State-based plans. First, Idaho has
directed that only issuers offering Exchange coverage may offer State-based plans. The obvious
point is to seek to increase (or at least not further decrease) the number of carriers, and thus
competition, on the Exchange by offering them an opportunity to provide an additional product
in the market. Second, Idaho has instructed that State-based plans and Exchange coverage must
be part of a common risk pool. That requirement ensures that the healthy lives now entering the
insurance market will help stabilize and potentially reduce the premiums for Exchange coverage
by improving the risk pool. In light of these features, it is head-scratching, and frankly ignorant,
that the patient-industry letter to you states: “Idaho’s action – if it is permitted to stand – would
seriously injure Idaho patients and consumers and significantly destabilize Idaho’s entire health
insurance market.” Letter from American Cancer Society Action Network, et al., to Hon. Alex
Azar at 2 (Feb 14, 2018). Quite to the contrary, and actually in keeping with what one would
think is the patient industry’s goal of delivering insurance coverage to more people, Idaho’s
action – because it links State-based plans to carrier participation on the Exchange and demands

 Secretary Alex M. Azar
February 22, 2018
Page 3
a common risk pool that includes the potentially incoming healthy lives – is a significant positive
step toward both increasing the number of insureds and improving the viability of the Exchange.
Put another way, the alternative to Idaho’s initiative is not that those individuals now boxed out
of coverage will join the individual market, for they are priced-out now and are increasingly
leaving it; rather, the alternative is a continuing downward spiral in the individual market’s
stability as fewer, sicker individuals continue to buy insurance and more and more healthier
individuals choose to go uninsured, which in industry parlance is referred to as a market “death
spiral.” Also of note, by having the effect of helping to lower any future increases in Exchange
premium rates (due to improving the risk pool and potentially enhancing carrier participation and
thus competition on the Exchange), the Idaho initiative would have a positive effect on the
federal Treasury through premium subsidies being lower than otherwise.
B. Legal Analysis
The legal case for State-based plans can be divided into four parts: (1) support within the
Public Health Service Act (“PHSA”) and the ACA itself; (2) other legal considerations,
including constitutional ones, reinforcing that State-based plans are legal; (3) the weakness of
any preemption arguments; and (4) federal non-enforcement for Idaho’s State-based plans. I
review each of these matters in turn.
1. PHSA and ACA Support for Idaho’s Initiative on State-Based Plans
State-based plans are legal because Congress left to the States the power to enforce the
ACA in the first instance, including some leeway to relax ACA requirements in appropriate
circumstances. The PHSA’s enforcement scheme, as amended by the ACA, respects the States’
traditional and primary role as the regulator of State health-insurance markets, even after
enactment of the ACA. Specifically, in its key enforcement provision, the PHSA, with the
ACA’s amendment, provides that the States “may require that health insurance issuers that issue,
sell, renew, or offer health insurance coverage in the State in the individual or group market meet
the [market-reform] requirements of [the ACA].” 42 U.S.C. § 300gg-22(a)(1) (emphasis added).
The statute then provides that, where a State does elect to take on the ACA enforcement role, its
authority is inviolate, unless the U.S. Department of Health and Human Services (“HHS”)
determines that the State fails “to substantially enforce” the ACA’s provisions. Id. § 300gg22(a)(2) (emphasis added). More fully, the latter subsection states: “In the case of a
determination by the Secretary [of HHS] that a State has failed to substantially enforce a
provision (or provisions) in this part with respect to health insurance issuers in the State, the
Secretary shall enforce such provision (or provisions) . . . .” Id. The same section thereafter lays
out HHS’s enforcement obligations where a State fails to substantially enforce the ACA. As
relevant here, Congress there said that the federal government may take on that enforcement role
“only” if HHS finds that a State falls below the substantial-enforcement standard. Id. § 300gg22(b)(1)(A).
This enforcement provision is most reasonably read as affording the States discretion to
relax some ACA provisions’ application, where they view it as necessary. That is, by using the

 Secretary Alex M. Azar
February 22, 2018
Page 4
terminology “substantially enforce,” Congress implicitly left leeway for a State to decide
sometimes not to enforce. The word “substantial” means “being largely but not wholly that
which is specified” (“Substantial,” Merriam-Webster’s Collegiate Dictionary (11th ed. 2003));
and in one case in a different context where it was necessary to define “substantially,” the
Supreme Court said it means “in the main” and rejected the notion that the word means “to a
high degree.” Pierce v. Underwood, 487 U.S. 552, 565 (1988) (internal quotation marks and
citation omitted) (interpreting “substantially justified” in the Equal Access to Justice Act).
Stated in terms of the PHSA’s and ACA’s assignment of enforcement authority to the States
(where the State accepts the assignment), Congress empowered the States, then, to enforce the
ACA in large measure or in the main, but did not contemplate them enforcing it to a high degree
or completely or rigidly. Moreover, the fact that the initial delegation to the States is placed in
permissive terms – i.e., they “may” enforce the statute – only further emphasizes that Congress
did not seek to hamstring the States. They “may” enforce the statute, and, if they enforce it for
the most part (i.e., in the main), that is the end of the matter; no HHS determination of failure “to
substantially enforce” should then occur, under the very text of the PHSA, as amended by the
ACA.
Indeed, to view the States as having no discretion to decide when to enforce, and when
not to enforce, would be to read the term “substantially” out of the statute. If Congress had
anticipated a State applying and enforcing the ACA in all instances and for all individual-market
products when it elects to be the ACA’s enforcer, then Congress would have called for the
triggering of federal enforcement whenever HHS finds that the State simply fails “to enforce” the
ACA or fails “to completely enforce” the ACA. Having used the words it did – “substantially
enforce” – Congress defined a flexible enforcement realm for the States who elect the
enforcement role. The specific language used, in fact, signals Congressional recognition of a
realm of State flexibility long acknowledged by the courts, which have ascribed to executivebranch officials who are tasked with enforcing laws broad discretion on decisions of when and
how to enforce. See Heckler v. Chaney, 470 U.S. 821, 831, 834 (1985). State flexibility is also
congruous with well-recognized notions of federalism. See Ariz. State Legis. v. Ariz. Indep.
Redistricting Comm’n, 135 S. Ct. 2652, 2673 (2015) (“Deference to state lawmaking allows
local policies more sensitive to the diverse needs of a heterogeneous society, permits innovation
and experimentation, enables greater citizen involvement in democratic processes, and makes
government more responsive by putting the States in competition for a mobile citizenry.”). One
court described the ACA’s enforcement scheme – with its delegation of power to the States and
prohibition against federal interference with a State’s authority absent the State’s failure to
substantially enforce the ACA’s provisions – as a “regime of cooperative federalism.” W. Va. v.
United States HHS, 145 F. Supp. 3d 94, 97 (D.D.C. 2015), aff’d, 827 F.3d 81 (D.C. Cir. 2016),
cert. denied, 137 S. Ct. 1614 (2017) (internal quotation marks omitted). Interpreting the ACA as
instituting some State flexibility in enforcement to account for local vagaries best comports with
a cooperative State-federal approach.
Furthermore, HHS already has read the ACA exactly to give the States (and even the
federal government) discretion to allow some non-compliance with the statute in appropriate
instances. A chief example is grandmothered plans. They plainly are non-compliant with many
ACA provisions and are not anywhere specifically authorized in the ACA (unlike grandfathered

 Secretary Alex M. Azar
February 22, 2018
Page 5
plans). Nonetheless, in order to keep a promise President Obama made to the public when
signing the ACA (i.e., that “if you like your health plan, you can keep it”), HHS issued guidance
in 2013 (that continues to be renewed) encouraging the States to allow grandmothered plans. See
Letter from CMS to State Ins. Comm’rs at 3 (Nov. 14, 2013). Idaho and many other States have,
consistent with the HHS recommendation, authorized grandmothered plans. The fact that HHS
left it to the States, who are the first-line enforcers under the ACA, to approve grandmothered
plans, and then found no problems with State enforcement once they did approve them, helps
prove that States have latitude to allow some non-compliance with the ACA, as the statutory
language “substantially enforce” facially connotes. See W. Va. v. United States HHS, 145 F.
Supp. 3d at 108 (noting that HHS’s encouragement of grandmothered plans “neither require[d]
nor [forbade] any action on the part of the States”; rather, “the State [was] asked to make a
voluntary choice whether or not to enforce the ACA’s market requirements, with the certain
consequence that the decision not to enforce will enable non-compliant plans to be sold within
the State’s borders”) (internal quotation marks and citation omitted; brackets in original).
The question, then, is whether, in light of the Idaho Department of Insurance’s directives
regarding State-based plans, the State is “substantially” enforcing the ACA; if so, then Idaho has
exercised its powers in accordance with the authorization provided in the PHSA-ACA
enforcement provision (namely, § 300gg-22). Idaho here satisfies that standard. State-based
plans are compliant with many ACA standards, although not all, and Idaho otherwise requires
compliance with all ACA standards in the individual market if the plan is on the Exchange or not
approved as a State-based plan (other than grandmothered plans, short-duration plans, or faithbased options). The majority of coverage in the State in the individual market, therefore, will –
even after the offering of State-based plans – remain compliant with the ACA. Additionally, the
State has identified State-based plans as necessary in order to shore up the Exchange. By
increasing the individual-market risk pool with healthy lives that are currently uninsured, and
with the risk pool for State-based plans tied to the Exchange plans’ risk pool, the State’s
approach promises to keep Exchange rates lower than they otherwise would be. Further, Idaho’s
requirement that issuers of State-based plans also offer an ACA-compliant plan on the Exchange
helps ensure insurer participation on the Exchange, which otherwise is waning. Under these
circumstances, where the majority of individual coverage in the State remains ACA-compliant
and where State-based plans are designed to (and do) facilitate, rather than hinder, Exchange
coverage, Idaho properly is seen as “substantially” enforcing the ACA provisions overall.
Nor does the PHSA-ACA enforcement provision require a product-specific analysis of
whether the State is substantially enforcing an ACA provision. Instead, the provision asks
whether the State “has failed to substantially enforce a provision (or provisions) in this part with
respect to health insurance issuers in the State.” 42 U.S.C. § 300gg-22(a)(2) (emphasis added).
That language indicates HHS’s determination – so as to take the draconian measure of divesting
a State of enforcement authority – centers on whether a State has failed substantially to enforce a
particular market requirement with respect to the industry generally or, possibly, for a particular
issuer in the totality of that issuer’s insured business. Cf. id. § 300gg-22(b)(2)(A) (suggesting
that, in the event HHS takes over the enforcement role, enforcement is at an issuer level, not
product-specific level). In this instance, even when considering each market reform individually,
Idaho is substantially enforcing the ACA provision at an industry level when it requires all

 Secretary Alex M. Azar
February 22, 2018
Page 6
issuers of Exchange products, state-regulated group insurance, and remaining individual-market
products, other than State-based plans, to be ACA-compliant. And it cannot be said that Idaho is
not substantially enforcing a market provision with respect to a particular issuer, when Idaho
requires adherence to all ACA provisions in the insurance products that the issuer sells other than
State-based plans.
In sum, the PHSA-ACA enforcement scheme itself, in the terms Congress used, denotes
that States have room to exercise some discretion in determining the extent to which to enforce
the ACA, without jeopardizing their choice to substantially enforce the ACA for the States’
individual markets. Here, with the ties between State-based plans and Exchange coverage and
Idaho’s overarching demand that other plans (i.e., non-State-based plans) comply with applicable
ACA requirements, Idaho continues to “substantially enforce” the ACA in its individual market.
Accordingly, it has done all that the ACA mandates from a State.
2. Additional Legal Principles Supplying Support for Idaho’s Initiative on
State-Based Plans
In addition to the PHSA-ACA enforcement provision evincing, on its face, that the States
have power to relax ACA standards to some extent (so long as they continue to “substantially”
enforce the ACA), other legal considerations – one concerning administrative discretion and the
other being a constitutional issue – help establish the legality of Idaho’s State-based plans.
These considerations on their own provide a separate legal basis for Idaho’s initiative; at a
minimum, they reinforce the correctness of a reading of the PHSA-ACA enforcement provision
that enshrines State flexibility to relax ACA requirements in necessary instances.
a. Rule Favoring Administrative Discretion to Deviate from Statutory
Terms to Further Congress’s Goals
As noted already, the Supreme Court, in the Heckler case, recognized that executive
branch officials tasked with enforcing a law generally enjoy broad discretion as to when and how
to enforce a statute. See Heckler, 470 U.S. at 831 (“an agency’s decision not to prosecute or
enforce, whether through civil or criminal process, is a decision generally committed to an
agency’s absolute discretion”). In fact, it was the Heckler-type of discretion that animated
HHS’s conclusion that States could authorize non-ACA-compliant grandmothered plans. See
Greg Sargent, The Plum Line, “White House defends legality of Obamacare fix” (Nov. 14, 2013)
(available at https://perma.cc/KBZ5-Z8YB). Since Congress wished for States in the first
instance to elect to enforce the ACA, and they are in the best position to know which priorities
should be most pursued in their locale, they should be ascribed the same administrative
enforcement discretion as any other enforcer of federal law. See id. at 831 (“agency decision not
to enforce often involves a complicated balancing of a number of factors which are peculiarly
within its expertise”). State enforcers should have that discretion even if the PHSA and ACA
had no indication of express incorporation of such discretion; nonetheless, the case for State
enforcement flexibility is far stronger here, where the PHSA-ACA enforcement provision
already recognizes a level of State discretion (as States are to “substantially” enforce the ACA,
not absolutely enforce it).

 Secretary Alex M. Azar
February 22, 2018
Page 7
Even more closely analogous to this situation, courts have recognized that administrators
have discretion to suspend enforcement of a statute in part or altogether when there are
unforeseen circumstances. As some D.C. Circuit decisions have put it, an administrator can
deviate from a statute under “unanticipated circumstances,” if the administrator has reason to
believe that strict enforcement of the statute “is frustrating the policies he is obligated to serve.”
Pa. v. Lynn, 501 F.2d 848, 857 (D.C. Cir. 1974); accord W. Coal Traffic League v. Surface
Transp. Bd., 216 F.3d 1168, 1174-75 (D.C. Cir. 2000). Importantly, “[t]here was no indication
on the face of the statutes [involved in those cases] that the Secretary could suspend operation of
the programs” (W. Coal Traffic League, 216 F.3d at 1174 (citing Lynn, 501. F.2d at 854)) in the
event the administrator believed the statutes were failing to “effectuate[] the policies to which
Congress was committed.” Lynn, 501 F.2d at 857. Still, “[w]hen Congress establishes a new
program, however novel or untested, it does not normally express itself on th[at] question.” Id.
An administrator’s discretion to deviate from the statute is warranted, among other instances,
when the state of affairs in the regulated industry deteriorates from the time Congress enacted the
relevant statute. See W. Coal Traffic League, 216 F.3d at 1175 (finding that “[t]he present state
of the railroad industry [is an] . . . ‘unanticipated circumstance[]’”) (quoting Lynn, 501 F.2d at
857).
This principle – i.e., that regulators can decline to enforce statutory terms where
enforcement would defeat Congressional goals – has particular salience in the ACA context,
given the Supreme Court’s admonition already that application of the strict wording of the ACA
can lead to untoward results and might necessarily need to be avoided. As Chief Justice Roberts
wrote for the Court in King v. Burwell, 135 S. Ct. 2480, 2496 (2015): “Congress passed the
Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible,
we must interpret the Act in a way that is consistent with the former, and avoids the latter.”
Here, Idaho has concluded that application of the ACA to the letter for all products in the
individual market has had the perverse consequence of subverting, rather than furthering,
Congress’s goal of covering the uninsured and that – after five years of experience with its
Exchange and the deteriorating conditions in its individual health insurance market (both for
consumers and carriers) – special measures must be taken both to allow the ACA to achieve its
goals and to save the Exchange. These are exactly the sorts of circumstances that allow for
“reasonable” measures by an administrator to allow some non-compliance with the ACA in order
to achieve its overarching goals and to avoid the statute – through rigid enforcement – destroying
itself. Lynn, 501 F.2d at 862. Again, because the States are Congress’s enforcer of choice in the
first instance under the enforcement scheme Congress devised, they should have – just as much
as federal regulators – the ability to lift statutory requirements to deal with unanticipated
circumstances.
b. Constitutional Necessity to Deviate from a Statute’s Strict Terms
State flexibility to relax ACA standards also follows from a constitutional consideration:
the need to enforce the ACA in a manner that avoids unconstitutional confiscation of insurer
property. As two commentators at the time of the ACA’s initial implementation suggested might
eventually become the case, the ACA’s market reforms are nearing the point that, as applied,

 Secretary Alex M. Azar
February 22, 2018
Page 8
they become unconstitutional under the Due Process and Takings Clauses of the Fifth
Amendment to the U.S. Constitution and, therefore, are unenforceable absent some relaxation of
them. See Richard A. Epstein & Paula M. Stannard, “Constitutional Ratemaking and the
Affordable Care Act: A New Source of Vulnerability,” 38 Am. J. of L. & Med. 243 (2012). The
set-up for the argument comes, again, from King v. Burwell. The Supreme Court there held that
premium subsidies are available to qualifying insureds on both State Exchanges and federallyfacilitated Exchanges. In that case, the Court emphasized that the ACA has three “closely
intertwined” parts (that is, parts intended “to work together to expand insurance coverage”): (1)
various market-reform measures applicable to insurers; (2) a mandate that all individuals
purchase health insurance at pain of a penalty; and (3) subsidies to reduce consumer out-ofpocket expenses. 135 S. Ct. at 2487, 2493 (emphasis added). “Congress found that the
guaranteed issue and community rating requirements would not work without the coverage
requirement. And the coverage requirement would not work without the tax credits.” Id. at
2487. Because the effectiveness of each relies on the others, the absence of any of the three
elements “could well push a State’s individual insurance market into a death spiral.” Id. at 2493.
At this juncture, two of the three parts of the equation are unworkable. The individual
mandate has proven to be an ineffective means for expansion of the volume of insureds
necessary to ensure a reasonable risk pool to support the market reforms, and tax penalties
associated with it have been repealed effective January 1, 2019. Moreover, Congress never
correctly funded some of the subsidy programs (such as cost-sharing reduction subsidies),
leaving the current Administration with the obligation, consistent with governing Congressional
appropriations legal principles, to halt payment of those subsidies. The result is that rigid
enforcement of the market reforms (the one ACA pillar left standing) risks further deteriorating
financial conditions for insurers in the individual market and the overall implosion of State
individual insurance markets (the “death spiral”), since the mechanisms for subsidizing the costs
sustained by insurers to comply – namely, expanded insurance pools resulting from the
individual mandate, with subsidy support for insureds joining the pool – are increasingly absent.
The situation takes on constitutional dimension because of a line of cases holding that
regulators, such as utility boards, must ensure to a regulated entity a rate of return “sufficient to
assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to
attract capital”; otherwise, the regulators violate the Due Process and Takings Clauses. Fed.
Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944); accord Mich. Bell Tel. Co.
v. Engler, 257 F.3d 587, 593(6th Cir. 2001); Jersey Cent. Power & Light Co. v. FERC, 810 F.2d
1168, 1179 (D.C. Cir. 1987) (en banc) (Bork, J.). In this vein, the Ninth Circuit has struck down
insurance rates for insufficiency in guaranteeing a reasonable rate of return. See Guar. Nat’l Ins.
Co. v. Gates, 916 F.2d 508, 513 (9th Cir. 1990).
Idaho’s State-based plan initiative seeks to ameliorate the harsh effects the ACA
currently is having in Idaho. The hobbled ACA has left insurers facing repeated losses in the
individual market, when the increasing uncertainty under the ACA necessitates an even higher
rate of return (to attract capital) than previously. In this situation, uncompromising enforcement
of the ACA market reforms (in light of the other, not severable “broken” parts of the ACA)

 Secretary Alex M. Azar
February 22, 2018
Page 9
threatens an unconstitutional “confiscation” of insurer property by way of unjustifiably low rates
of return. Id. To avoid this result, Idaho is directing approval of State-based plans that will
potentially increase subscribership for insurers and provide related financial benefits for insurers.
The Ninth Circuit particularly has chided regulators that they must adopt some sort of “rate
adjustment mechanism . . . permit[ting] relief from confiscatory rates” in order to save a statute
from unconstitutionality, if the statute’s regulatory requirements otherwise result in less than just
and reasonable return rates for the regulated entities. Id. Ultimately, then, the Constitution
provides an independent basis for Idaho (as the first-line enforcer of the ACA in Idaho’s
individual market) to adopt “adjustment[s]” to the ACA regime to avoid taking insurer property
through regulatory requirements. Id. And the constitutional considerations also, once more, add
to the arguments for interpreting the ACA itself to permit State flexibility (under the obligation
simply “to substantially enforce” the ACA’s provisions), since statutory constructions that avoid
constitutional problems are always favored. See Skilling v. United States, 561 U.S. 358, 405-06
(2010).
3.

The Preemption Arguments Are Unpersuasive

When critics have contended that Idaho supposedly is flouting federal law by allowing
State-based plans, they appear to be invoking preemption doctrine. Preemption is the concept
whereby federal law overrides contrary state law, a principle stated in the Constitution’s
Supremacy Clause. See U.S. Const. art. VI (the federal Constitution and federal laws and treaties
“shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any
Thing in the Constitution or Laws of any State to the Contrary notwithstanding”). Preemption
exists expressly when Congress has stated in a federal statutory provision the extent of
supersession of State law; the ACA contains an express preemption provision stating that ACA
standards “shall not be construed to supersede any provision of State law which establishes,
implements, or continues in effect any standard or requirement solely relating to health insurance
issuers in connection with individual or group health insurance coverage except to the extent that
such standard or requirement prevents the application of [an ACA] requirement.” 42 U.S.C.
§ 300gg-23(a)(1). Preemption also exists impliedly when “‘compliance with both federal and
state regulations is a physical impossibility,’ Florida Lime & Avocado Growers, Inc. v. Paul,
373 U.S. 132, 142-143 (1963), or when state law ‘stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of Congress.’ Hines v. Davidowitz, 312 U.S.
52, 67 (1941).” Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 153 (1982).
Either way, the strong presumption is against preemption of State measures, especially in areas
of traditional regulation, including healthcare and insurance. See generally Wyeth v. Levine, 555
U.S. 555, 565 (2009).
As a threshold matter, preemption here is tempered from the start because of Congress’s
recognition of discretion in the States to enforce the ACA, so that they are required only to
“substantially” enforce the ACA. That statutory directive in the PHSA-ACA enforcement
provision acts as a type of “savings” clause overriding typical preemption – i.e., that a State may,
without consequence, “substantially” rather than totally enforce the ACA necessarily implies that
the State may elect to enforce certain State laws in preference to certain ACA requirements. It

 Secretary Alex M. Azar
February 22, 2018
Page 10
follows, as a matter of logic, that any State law the State chooses to enforce in preference to an
ACA requirement cannot be preempted by the ACA, in deference to the authority recognized in
the enforcement provision. Congress too seems to have anticipated the coexistence of the State’s
authority to apply some State laws and general preemption standards, as it cross-referenced the
ACA’s preemption provision just before noting that the States need only “substantially” enforce
the ACA. See 42 U.S.C. § 300gg-22(a)(1) (“Subject to section 2723,” which is the ACA’s
preemption provision allowing for the application of State laws that do not prevent the
application of federal standards, the States “may” enforce the ACA’s standards).
Aside from the notion that preemption should not apply in full force here, Idaho’s actions
do not frustrate the accomplishment of the ACA scheme because Idaho has structured its
approach in a manner designed to bolster the Exchanges where ACA-compliant coverage reigns,
through the combined risk pool and the requirement that insurers offering State-based plans also
offer Exchange coverage. As to the idea that compliance with State and federal law is
impossible, or that (to use the ACA’s preemption provision’s terms) State law “prevents” the
application of ACA standards, Idaho’s initiative passes muster under either test. In reality,
nothing Idaho is doing with respect to State-based plans is precluding satisfaction of the ACA’s
standards with respect to the targeted market. The ACA itself has made the application of its
standards to the currently uninsured population impossible, as the economic reality of the cost of
ACA-compliant coverage results in Idahoans of modest means (but too rich to qualify for federal
premium subsidies) being unable to purchase insurance. The State has here, laudably, sought to
fill the void where the ACA has misfired and prevented its own application, and Idaho has done
so in a manner that furthers the ACA’s overarching objective of facilitating affordable coverage.
Preemption should not have any greater appeal under a theory that supposedly large
numbers of healthy individuals will leave the Exchange in order to purchase State-based
coverage, so as to harm an Exchange plan’s risk profile and increase the Exchange plan’s price.
The draining of healthy risks is not possible, because those purchasing State-based coverage are
expected to be the vast uninsured population in Idaho, not those currently on the Exchange; and
this is a reasonable expectation, as the majority of individuals on Idaho’s Exchange obtain
subsidized coverage, no subsidies would be available for State-based plans, and it would
therefore usually be more expensive for most current Exchange-covered individuals to switch to
a State-based plan (despite the overall lower price-point of the State-based plan). In addition,
State-based plans could not negatively affect the Exchange plans’ risk pool, so as to raise
Exchange-plan prices, since the pools are to be combined under the Idaho Department of
Insurance’s guidance.
Finally, even if there were a preemption problem, HHS’s acquiescence to Idaho’s
initiative would fix that. HHS’s action concerning grandmothered plans again provides a useful
precedent. There, HHS encouraged States to allow grandmothered plans that do not comply with
the ACA. When States then did so, no one contended the States were preempted from acting,
probably because federal authorities had taken the same view of the necessity of grandmothered
plans as the States.

 Secretary Alex M. Azar
February 22, 2018
Page 11
4. Federal Non-Enforcement with Respect to State-Based Plans
Though State-based plans are, as explained, legal even without HHS sanction, and
certainly we believe there is no basis for HHS to make any determination that Idaho is failing to
substantially enforce ACA provisions, it would, of course, solidify the legal position of Statebased plans if HHS informally indicated that it believes Idaho’s initiative is unobjectionable
from a federal perspective. In fact, an informal statement of federal non-enforcement in this
situation is the result most in sync with HHS’s stance in prior situations, where it has authorized
limited offerings that otherwise are short of ACA requirements. Federal agencies must not act
“inconsistently” and should “treat similar cases similarly.” Green Country Mobilephone, Inc. v.
FCC, 765 F.2d 235, 237 (D.C. Cir. 1985).
HHS has already made numerous exceptions to the ACA’s requirements. Again to
reference grandmothered plans, after the Obama Administration encouraged States to approve
grandmothered plans that are non-compliant with the ACA, many States have approved them for
the last five years. Likewise, just after the ACA’s enactment, the Obama Administration granted
informal waivers for a lengthy period to numerous insurers, employers, and unions to continue
offering “mini-med plans,” many of which did not satisfy the ACA’s benefit requirements. And
just this week, HHS announced proposed rules to permit short-duration plans non-compliant with
the ACA for just less than twelve-month periods. See Proposed Rule on Short-Term, LimitedDuration Insurance, 83 Fed. Reg. 7437 (Feb. 21, 2018). While the latter are not technically
governed by the ACA, the authorization of them may, at least in the short-term, provide an
alternative choice to ACA-compliant coverage.
If anything, State-based plans are more worthy of HHS’s approval than these other
exceptions already permitted or proposed. State-based plans have the effect of bolstering the
Exchange, whereas grandmothered plans and the other federally-sanctioned products arguably
harm the Exchange because they divert individuals from Exchange products, with no possible
benefits to the Exchange (i.e., the risk pools for these other products are separate, and an issuer
of those products need not participate on the Exchange). Federal approval of Idaho’s initiative
also would follow from President Trump’s Executive Order 13813 issued just after his
inauguration instructing federal regulators affirmatively to pursue various measures to increase
options for affordable coverage.
It is worth noting that an informal statement of federal non-enforcement with respect to
State-based plans is not subject to judicial review. In situations involving enforcement schemes
where a State is the primary enforcer (but even had less leeway than under the PHSA-ACA
enforcement provision), subject only to a federal determination of failure to enforce, the courts
have found to be unreviewable, as an application of federal agency discretion, federal decisions
not to exercise the authority to intervene to upset the State’s enforcement priorities. See Nat’l
Wildlife Fed’n v. U.S. EPA, 980 F.2d 765, 771, 774 (D.C. Cir. 1992).

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 Secretary Alex M. Azar
February 22, 2018
Page 12
Secretary Azar, I am pleased to have provided this analysis on behalf of Blue Cross of
Idaho, and thank you for your consideration.
Sincerely,

Anthony F. Shelley