Editor’s note: This is the third and final part of a Heath Affairs Blog series of case studies examining how states are preparing for the possibility that the Supreme Court will, in its King v. Burwell decision later this month, prohibit premium tax credits under the Affordable Care Act in states using the federally facilitated Marketplace. Part one of the series laid out some overall themes from the case studies and examined Florida’s preparations for the King decision. Part two focused on Michigan and New Hampshire. Part three, below, looks at North Carolina and Utah and offers some concluding thoughts. The research described in this series was supported by the Commonwealth Fund.

North Carolina

To date, more than a half-million people in North Carolina have purchased health insurance through HealthCare.gov. About 90 percent of those enrollees receive tax credits to help them afford coverage. The ACA has nonetheless proven enormously controversial in North Carolina. Indeed, the political blowback from its 2010 enactment contributed to a transformative political reorientation.

For the entire twentieth century, Democrats had controlled at least one of two houses of the General Assembly, and usually both. In the fall elections of 2010, however, Republicans swept both houses of the legislature. Two years later, Pat McCrory’s election as governor allowed Republicans to secure unified control of North Carolina government for the first time in more than a hundred years.

Before McCrory took office, North Carolina appeared ready to work with the Obama administration to create a state-based exchange. Then-Governor Perdue—a Democrat—first pushed for an exchange during the 2011 legislative session, and she garnered substantial support from Republicans in the General Assembly. She even signed a bill announcing North Carolina’s intent to move ahead with a state-based exchange. The legislature failed to reach consensus on operational details, however, and three bills to establish a state-based exchange failed to make it through the General Assembly.

By the time McCrory took office in early 2012, Republican opposition to an exchange had hardened. Within months, McCrory had signed Senate Bill 4, which states unequivocally that “[n]o department, agency, or institution of this State shall take any actions not authorized by the General Assembly toward the formation of a State-run Health Benefit Exchange.” Senate Bill 4 also provides that North Carolina will not expand its Medicaid program under the ACA.

Given the political climate and Senate Bill 4’s prohibition, very little work has been done to plan for an adverse decision in King. As late as March 2015, many legislators were unaware that subsidies were at risk. Awareness of the issue has percolated within the legislature following oral arguments in King, but legislators have not publicly discussed contingency plans. As Governor McCrory recently said, “There’s no B plan by either the federal government or the states.”

Preparation at the agency level has been minimal. Our interviews with legislators and stakeholders confirmed that the state’s primary health agency, the Department of Health and Human Services, has only recently begun to consider its options. Many of our interviewees suggested that the Department of Insurance might be in a better position to establish an exchange on short order. Prior to the adoption of Senate Bill 4, the department worked closely with the federal government to draft detailed plans for a state-based exchange. Those plans could provide a template for moving forward.

The lack of preparation notwithstanding, our interviewees were somewhat optimistic that North Carolina would move to create a state-based exchange. Although McCrory is an opponent of the ACA, he is not an orthodox conservative, having run for governor as the moderate former mayor of Charlotte, where he enjoyed bipartisan support. McCrory has at times suggested openness to the Medicaid expansion, suggesting that he might also be flexible on whether to establish a state-based exchange. Most significantly, McCrory is up for reelection in 2016 and faces a strong potential challenger in the Democratic Attorney General, Roy Cooper. A failure to respond to King could be a serious political liability in what is expected to be a close race. Although Senate Bill 4 precludes McCrory from moving ahead on his own, his support would be crucial in softening legislative resistance.

In the General Assembly, moderate Republicans, particularly in the House, may be open to the possibility of creating a state-based exchange. A stark urban-rural divide runs through North Carolina politics; Democrats are aligned with the cities and Republicans with rural areas. A major source of resistance to the ACA’s Medicaid expansion is the perception that it would mainly benefit urban residents. Although exchange enrollment is somewhat higher in urban than rural areas, the disparity is not enormous. (Approximately 23 percent of exchange-eligible residents in urban areas enroll, as compared to about 15 percent in rural areas.) Rural Republicans may be unable to sustain resistance to the exchanges if their own constituents are clamoring for tax credits.

According to our interviewees, there’s an emerging (but still quiet) consensus that the House could be persuaded to support a move to establish a state-supported exchange that used HealthCare.gov to run enrollment. The harder political question is whether the Senate would remain opposed. Phil Berger, the Senate leader, has so far remained conspicuously silent. His spokesperson said in March that “we wouldn’t feel comfortable speculating on what might happen at this very early stage.”

Utah

Utah created one of the nation’s first health-care exchanges a full two years before the ACA’s enactment. Indeed, the state’s exchange was held up during the early stages of the ACA’s implementation as a model for conservative states. But because Utah’s exchange focused primarily on small businesses and did little for the individual market, the Obama administration concluded that the exchange was not fully compliant with the ACA. Rather than force Utah to re-vamp its program, the Centers for Medicare and  Medicaid Services (CMS) allowed Utah to have a “bifurcated” exchange: The state would operate the small-business exchange but default to the federal government for the individual market.

Utah’s early endorsement of exchanges notwithstanding, state leaders have no contingency plans in place if the Supreme Court rules for King. For now, policymakers do not want to spend too much time on a matter they might never need to address. In any event, they say, King is a federal problem that requires a federal solution.

Although the Utah policymakers we spoke with say they do not want state residents to lose coverage, many key leaders say they would welcome a ruling for King as an opportunity to push for broader reforms, such as limiting subsidies to people up to 250 percent of the federal poverty level. They also believe the post-ruling dynamic would give Utah greater leverage in its negotiations with the federal government over whether to expand Medicaid under the ACA. Many consider this the bigger fight, with leaders saying that the debate over the Medicaid expansion has been “bloody.”

Even so, preliminary conversations around King are quietly taking place. Because Utah has enacted legislation barring “a state agency or department from implementing” the ACA, the Republican-dominated legislature will be at the center of post-King steps to restore subsidies. Private consulting firms such as Connecture and Leavitt Partners have thus been reaching out to legislative leadership to discuss contingency plans.

Although the legislature adjourned at the end of March and is not scheduled to sit again until 2016, the ongoing Medicaid debate might create an opportunity for the legislature to consider post-King options. Special sessions for the Utah legislature have been common during the administration of Governor Gary Herbert; there were three in 2011, one in 2012, and two in 2013. And plans are already underway to call a special session to vote on the Medicaid expansion. After the legislature was unable to reach an expansion compromise during the regular session, the House, Senate, and Governor’s office committed to reach agreement on an expansion plan by July 31, to be followed by a vote in special session shortly thereafter. That special session could perhaps afford the legislature a chance to consider a state-based exchange.

Herbert will wield considerable influence in any debate over exchange legislation. Although he will not commit to any plans until after the Supreme Court’s ruling, he is widely expected to push for a solution that will prevent people from losing coverage. It is far from obvious, however, that the so-called “gang of six”—key policymakers from the governor’s office, the House, and the Senate—will be able to reach agreement to create an exchange. Among other problems, the relationship between the offices of Herbert and House Speaker Gregory Hughes was described to us as “vitriolic.”

A government defeat in King would complicate the ongoing negotiations over Utah’s Medicaid expansion. The plan preferred by the governor and the Senate would expand coverage up to 138 percent of the federal poverty level, while the House plan would only go up to 100 percent. Under the House plan, people in the gap between 100 to 138 percent would use subsidies to purchase insurance on the exchange. As one leader described, “If the subsidies go away, then it changes the calculus of the two plans.”

The complications with Medicaid notwithstanding, timing may be the biggest challenge for state leaders. “If the government loses the case,” we were told, “the ground will move under the feet of all of the legislatures…These are generational decisions and should not be made quickly or without much planning or forethought.” For now, however, policymakers in Utah feel there is little they can do but wait for the Supreme Court’s decision and the response from Congress and the Obama administration.

Summing Up

If the Supreme Court eliminates subsidies on the federally established exchanges, none of the five states that we surveyed is positioned to respond quickly. According to our interviewees, the primary obstacle to restoring subsidies is political. With the full-throated support of elected officials, the states might be able to expeditiously create state-based exchanges, perhaps by leasing the HealthCare.gov platform from the federal government. In each of our surveyed states, however, the post-King debates are expected to be both intense and difficult. Ongoing political contestation will make it difficult or impossible to overcome the operational challenges to establishing a state-based exchange for 2016.

The picture becomes somewhat less grim a year or two out. In each of the states, with the possible exception of Florida, our interviewees were guardedly optimistic that the political establishment would eventually reach some kind of agreement to transition to state-based exchanges.

In the meantime, however, the states are likely to face substantial turmoil in their insurance markets. The lack of advance planning will foster considerable uncertainty about the future of the ACA if the government loses in King.