by Timothy S. Jost, the Robert L. Willett Family Professor of Law, Washington and Lee University School of Law.
*This piece originally appeared on The Huffington Post.
One of the Red Herring flopping about on the deck of King v. Burwell is the analogy of the territorial exchanges. The central legal question of King v. Burwell is whether the federally facilitated fallback exchanges created by section 1321 of the Affordable Care Act can be the "Exchange established by the State under section 1311" mentioned in section 1401 of the ACA, which authorizes the grant of premium tax credits. The plaintiffs say it cannot be--only a state-operated exchange can be an "Exchange established by the State." The federal government, on the other hand, asserts that under section 1321, if a state that elects not to establish the Exchange it is required to establish under section 1311, the federally facilitated exchange becomes "such Exchange" with all the powers and authorities of the state exchange, including the authority to grant premium tax credits.
Section 1323 of the ACA creates a third kind of exchange, the territorial exchange. This section provides:
(a) IN GENERAL.--A territory that--(1) elects consistent with subsection (b) to establish an Exchange in accordance with part II of this subtitle and establishes such an Exchange in accordance with such part shall be treated as a State for purposes of such part and shall be entitled to payment from the amount allocated to the territory under subsection (c) . . .
The plaintiffs argue that 1) this section demonstrates that Congress knew how to explicitly state its intention when it meant for an exchange that was not a state exchange to be treated like a state exchange (and explicitly did not do so when it authorized federally facilitated exchanges), and 2) that the phrase "such Exchange" in 1321 did not make the federally facilitated exchange into a state exchange for purposes of section 1401, just as the phrase "such an Exchange" did not make the territorial exchanges into state exchanges.
This all sounds neat, but in fact shows a profound lack of understanding as to how the Affordable Care Act works, and in particular its provision for the territories.
The territories--for these purposes Puerto Rico, The U.S. Virgin Islands, American Samoa, Guam, and the Northern Mariana Islands--have a unique status. For some purposes they are treated like states under American law, for other purposes like foreign countries. This is true under the ACA.