Federal Government’s Ability to Provide Health Insurance Subsidies Being Challenged

Starting in 2014, the Affordable Care Act requires most Americans have health insurance and offers subsidies to help people pay for insurance bought through markets known as insurance exchanges.

Critics say the law only provides subsidies for people who obtain their coverage through state-run exchanges but the White House says the law can be read to allow subsidies for people who get coverage in federal exchanges as well.

The law says that “each state shall” set up an exchange but officials in one third to half of the states have either been slow to or flat out refused to set them up. Washington may have to set up federally run exchanges to ensure people are covered.

The Congressional Budget Office predicts that 23 million uninsured people will gain coverage through exchanges and that all but five million of them will qualify for subsidies, averaging more than $6,000 a year per person. Subsidies, in the form of tax credits, will be available to people with incomes from the poverty level up to four times that amount ($23,050 to $92,200 for a family of four).

Some supporters of the law say Congress may have made a mistake in drafting this section. But, they add, the intent of Congress is clear: subsidies should be available in federal as well as state exchanges.

The Obama administration issued a rule that allows tax credits for insurance bought in either a state or a federal exchange.

Representative Phil Roe, (R) Tennessee, said the rule on premium subsidies “contradicts the explicit statutory language” of the Patient Protection and Affordable Care Act. Roe and another Tennessee Republican, Scott DesJarlais, have introduced a bill to nullify the rule, issued by the Internal Revenue Service.

Douglas H. Shulman, the I.R.S. commissioner said “The statute includes language that indicates that individuals are eligible for tax credits whether they are enrolled through a state-based exchange or a federally facilitated exchange.”

However, Senator Orrin G. Hatch, (R) Utah, of the Senate Finance Committee, said the Obama administration was usurping the role of Congress and rewriting the law to provide tax credits through federal exchanges.

James F. Blumstein, a professor of constitutional and health law at Vanderbilt University, said the dispute over subsidies involved a serious legal issue.

“The language of the statute is explicit,” Mr. Blumstein said. “Subsidies accrue to people who obtain coverage through state-run exchanges. The I.R.S. tries to get around that by providing subsidies for all insurance exchanges. That interpretation will almost certainly be challenged by someone.”

The most likely challenger, Mr. Blumstein said, is an employer penalized because one or more of its employees receive subsidies through a federal exchange. Employers may be subject to financial penalties if they offer no coverage or inadequate coverage and at least one of their full-time employees receives subsidies.

Michael F. Cannon, director of health policy studies at the libertarian Cato Institute, said the link between subsidies and penalties was a crucial part of the law.

“Those tax credits trigger the penalties against employers,” Mr. Cannon said. If workers cannot receive subsidies in states with a federal exchange, their employers cannot be penalized, he said. That, in turn, would hobble federal efforts to get employers to offer coverage in those states, Mr. Cannon said.

Prof. Timothy S. Jost, an expert on health law at Washington and Lee University, said Congress had made “a drafting error” that should be obvious to anyone who understands the new health care law.

“There is no coherent policy reason why Congress would have refused premium tax credits to the citizens of states that end up with a federal exchange,” said Mr. Jost, who supports the law.


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