The ACA delegated primary responsibility for establishing the Exchanges to individual states. However, because the U.S. Congress cannot require states to implement federal laws, the ACA provides that HHS will operate the FFE in any state that refuses or is unable to set up an Exchange.
For 2014, only 16 states and the District of Columbia established their own Exchanges. HHS operates the FFEs in the remaining 34 states (in some cases with state assistance, but in most cases not).
Of the approximately 8 million people who selected private health plans from October through mid-April, over 5 million obtained coverage through an FFE. In addition, more than 4.5 million people have been determined eligible for subsidized insurance in the FFE.
On July 22, 2014, two federal appeals courts—the District of Columbia Circuit Court and the 4th U.S. Circuit Court—issued inconsistent rulings on the availability of subsidies in states with FFEs.
In Halbig v. Burwell, the D.C. Circuit Court held that the IRS rule authorizing subsidies in states with FFEs is invalid. In a 2-1 opinion, the court ruled that the text of the ACA clearly restricts the subsidies to individuals in states that established their own Exchanges.
In King v. Burwell, the 4th Circuit Court unanimously upheld the availability of the ACA’s subsidies in states with their own Exchanges and in states with FFEs.