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.

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.