Thursday, September 8, 2011

Obamacare's Exchanges Are Well and Truly Dead on Arrival

Yesterday, I sort of suggested that we could finally dispose of the matter of health insurance exchanges. 

Well, today, courtesy of Investors' Business Daily's David Hogberg and the Cato Institute's Michael Cannon, we learn that federal exchanges will not be able to funnel the gusher of refundable tax credits to indviduals who enrol in them.

The gist of the argument is that the law only allows state-established exchanges to funnel the tax credits.  If a state fails to establish an exchange, and the federal government steps in, that exchange is not eligible for the tax credits.

Neither Hogberg or Cannon cite it, but it appears that they are referring to section 1401 of PPACA (on page 110 of this version), which clearly refers to section 1311 (state-based exchanges) as eligible for the tax credits, and does not mention setion 1321 (federal exchanges).

Please read the section yourself.  I hate to play barrack-room lawyer, but I'm 80% to 90% sure that Hogberg and Cannon are right (although I do see some wriggle room, in that the government could argue that a section 1321 exchange is a type of section 1311 exchange, established because a state failed to establish one).

As I noted in a recent article, states can also stop federal exchanges by threatening to pull the licences of health insurers which intend to participate in them, because the law only allows the federal government to allow state-licensed carriers to participate in federal exchanges.

So, federal exchanges have a double whammy against them.  States which resist exchanges need not fear that the federal government will step in and operate one for them.

Unfortunately, as Cannon notes, the IRS has recently written proposed regulations that violate the law by asserting that tax credits are available through federal exchanges.  Hogberg's article raises the question of who would have standing to sue the U.S. government to force it to stop funneling tax credits through federal exchanges, if the IRS executes the proposed rule.

My take? Any taxpayer should have standing!

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