Another Glitch in the Health Reform Law

November 18, 2011

Even if the health reform law survives Supreme Court scrutiny next spring, its trials will be far from over.  That's because the law has a major glitch that threatens its basic functioning, say Jonathan H. Adler, professor of law and director of the Center for Business Law and Regulation at Case Western Reserve University, and Michael F. Cannon, director of health policy studies at the Cato Institute.

The Patient Protection and Affordable Care Act (PPACA) offers "premium assistance" -- tax credits and subsidies -- to households purchasing coverage through new health insurance exchanges.  The intent of this assistance was to offset increases in premiums that would come about through the implementation of the PPACA, yet it is in helping people to qualify for this assistance that the administration will find itself in trouble.

  • The PPACA encourages states to establish health insurance exchanges in which consumers can find health care plans, and it allows the federal government to create an exchange if a state fails to do so.
  • Yet the law also stipulates that the aforementioned assistance can only be granted in state-run exchanges, to the exclusion of those run by the federal government.
  • Given that only 17 states to-date have passed exchanges, it would seem that many states will require the creation of federally-run systems that will not allow for premium assistance.

The Obama administration, seeking to avoid this end but also not wanting to have to work with the Republican-controlled House, proposed an IRS rule that would offer assistance in both types of exchanges.  A Treasury Department spokeswoman expressed confidence that the debacle could be side-stepped.

However, this confidence may easily be misplaced.  While Congress' intent is arguably ambiguous as to whether it intended for assistance to be offered in both types of exchanges, the letter of the law is extremely clear.  Furthermore, while some experts claim that a case will not be brought because no one would have standing for such an endeavor, this also does not seem to be true.  Because the law imposes a fine on employers whose employees receive premium assistance, any major employer who suffers substantial costs because its employees are receiving assistance when they shouldn't (as through a federal exchange) could be party to a suit.  For these reasons, it seems President Obama has several more obstacles to overcome before his signature legislation can get off the ground.

Source: Jonathan H. Adler and Michael F. Cannon, "Another ObamaCare Glitch," Wall Street Journal, November 16, 2011.

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