No Insurance Subsidies Through ObamaCare's Federal Health Exchanges?


If the federal government sets up its own health insurance exchange under ObamaCare, can it dole out subsidies? Thanks to a bug in the legislation, perhaps not.

Obama cares.

Last year's health care overhaul calls for the creation of federally regulated health exchanges in every state. And in states that decline to set up those exchanges—like Florida, Louisiana, Texas, and Kansas so far—the federal government will step in to create and run the exchanges. Individuals earning between 100 and 400 percent of the federal poverty line will be able to purchase subsidized health insurance through the state-run exchanges. But as David Hogberg reports at Investor's Business Daily, thanks to an error in the legislation, the law may not actually allow individuals who purchase insurance through federally run exchanges to receive subsidies. Here's Hogberg:

Section 1311 of ObamaCare instructs state governments to set up an exchange. If a state refuses, Section 1321 lets the federal government establish an exchange in the state.

Yet ObamaCare states that the tax credit is available to people who are enrolled in an "an exchange established by the state under (Section) 1311." It makes no mention of people enrolled in federal exchanges being eligible for the tax credit.

"There is this technical problem in the law," said James Blumstein, a professor at Vanderbilt Law School. "I don't see how you get around that."

In an interview, Blumstein blamed the glitch on unusually shoddy legislative drafting and told me that in theory, it would be easy to insert a quick fix into the legislative code. Of course, that would probably require Republican approval, and it's not clear that GOP legislators would be amenable to "fixing" a provision that would make it easier for the federal government to run exchanges.

For now, however, Hogberg notes that the Internal Revenue Service, which administrates the subsidies—they're tax credits—seems to be ignoring the problem:

The Internal Revenue Service appears to be overlooking the problem. In a proposed regulation, the IRS states that a taxpayer is eligible for the tax credit if he or a member of his family "is enrolled in one or more qualified health plans through an exchange established under Section 1311 or 1321."

Blumstein also tells me that it's not clear who might have standing to challenge the decision to ignore the law's precise subsidy language. But if someone did successfully go after it in court, this newest glitch in the law has the potential to seriously complicate implementation of ObamaCare: Even if a state opts not to set up an exchange, its residents are still bound the individual mandate to purchase health insurance. But if they can't get access to the subsidies, they're going to be a lot less likely to apply—especially given that, without those subsidies, individual market insurance premiums are projected to rise thanks to ObamaCare.


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  1. Oh, you know what we mean.

  2. You have to pass the bill to see what’s in it . . . . . . .

  3. Bah. This so-called glitch is premised on the notion that the government is bound by the law. Please. The law only binds the little people.

  4. So? The Fed’ll grant themselves a waiver.

  5. But the issue of who has standing to challenge those subsidies is important. Clearly the IRS has decided not to challenge those subsidies, even though it is the IRS’s job to execute the law as written. Who’s left? The people recieving the subsidies? I doubt they will complain now that they are getting “free” stuff. I suppose someone could challenge, not the subsidy, but the fact that the IRS is not executing the law faithfully.

    1. I suppose someone could challenge, not the subsidy, but the fact that the IRS is not executing the law faithfully.


  6. “”and it’s not clear that GOP legislators would be amenable to “fixing” a provision that would make it easier for the federal government to run exchanges.””

    President Romney will fix it.

  7. Just in case anybody hasn’t been paying attention: PPACA is intended to fail; it was designed to fail. And when it fails, the folks will clamor for single payer universal health care … because health care is a right.

    1. Just got a letter today from HR. Apparently I have been enjoying a “Cadillac” plan and the company will get fines if it continues.

      In other words, the FAIL is here, prepare to bend over next month when open enrollment starts.

  8. President Obama may not be president when the subsidies become available, and that might mean the IRS might decide to read the law a little more closely.

  9. Didn’t realize Obama was so tall, but then again, most basketball players are.

  10. Let’s correct the record. The fact that PPACA has no subsidy for federal exchanges is not a “bug”, “error”, or “a glitch”. The law was written this way purposefully to persuade the States to set up their own exchanges or get no subsidy. This is not a scrivener’s error and cannot be “fixed” with regulations. Ignoring the written law and the intent of the law would be unconstitutional. Unfortunately, this has not stopped this administration, yet.

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