`

Subsidies might hang in the balance of state's exchange decision

August 27, 2012

There’s more than political philosophy at stake as Indiana’s candidates for governor wrestle over whether the state should start its own health insurance exchange. There’s potentially a lot of money for low- and moderate-income Hoosiers at stake, too.

President Obama’s 2010 health reform law called for each state to start an online marketplace where individuals and employees of small businesses could easily shop for health insurance. In Indiana, the exchanges are predicted to cover one in every six Hoosiers.

Also, the exchanges will be the only place where those individuals can receive taxpayer-funded subsidies to help them buy insurance coverage. The subsidies would average $5,000 for a family of four with household income of $70,000.

If any state chooses not to set up an exchange, its citizens will be able to shop in an exchange run by the federal government.

Only there might be a problem with that. The subsidies may not be available in the federal exchange because the law, known as the Patient Protection & Affordable Care Act, never says explicitly that subsidies will be available through federally run exchanges.

In a forthcoming paper, two conservative scholars argue that the Obama administration is breaking the law by saying that the insurance subsidies also apply to the federal exchanges.

“The plain text of the Act only authorizes premium-assistance tax credits and cost-sharing subsidies for those who purchase plans on state-run Exchanges, and the IRS rule’s attempt to offer them to other individuals cannot be legally justified on other grounds,” wrote Jonathan Adler, a constitution law professor at Case Western Reserve University, and Michael Cannon, a health policy scholar at the libertarian Cato Institute.

Some have countered that the language in the law that speaks of subsidies only in relation to state-run exchanges is merely a drafting error and clearly not the intent of the law’s authors.

But given the controversy—and the lawsuit likely to emerge from it—Indiana should make sure to start its own exchange, said Dr. David Orentlicher, a former Democrat state representative who is now co-director of the Hall Center for Law and Health at the Indiana University McKinney School of Law.

“This would be another reason for the state to run its own exchange,” Orentlicher told a meeting of the Indiana Medical Group Management Association on Aug. 21. “Because you don’t want to lose those subsidies.”

But Mike Pence, the Republican candidate for governor, doesn’t see it that way.

“The Internal Revenue Service recently issued an interpretive rule attempting to clarify that subsidies which clearly apply to purchases made on state-based exchanges also apply to purchases made on federal exchanges, which makes it all the more likely that the issue will be litigated at some point in the future,” Pence wrote in an Aug. 21 letter to Gov. Mitch Daniels, urging Daniels not to launch a state-run exchange.

After also discussing his many other objections to the health law, Pence added, “All told, this is entirely too much regulatory uncertainty to justify moving forward at this time.”

Pence’s Democratic opponent, John Gregg, said Monday he is "leaning" toward a hybrid exchange that would governed by Indiana offcials but operated by the federal government. Libertarian candidate Rupert Boneham came out with a similar position on Friday. He objected to the estimated $50 million to $65 million that the Daniels administration has estimated for running an exchange. But he obliquely criticized Pence for walking away entirely from the exchanges.

“By doing nothing, in hopes that Congress repealed the Affordable Care Act, we would be essentially handing it over,” Boneham wrote in his Aug. 24 letter to Daniels.

So instead, he recommends a hybrid state-federal exchange that would leave the state with some control but spare it from some of the financial burdens.

“In a Hybrid exchange,” Boneham wrote, “Indiana would retain control over plan management and customer assistance. We would also be able to set requirements and regulations, as needed, for consumer councilors and insurance brokers.”

 

ADVERTISEMENT

Recent Articles by J.K. Wall

Comments powered by Disqus