Full implementation of Obamacare relies largely on the states. One key provision is the implementation of health insurance exchanges. A health insurance exchange, commonly referred to in the media as an "exchange," is an online marketplace where employers and individuals shop for heavily regulated health plans. The Obama Administration compares the online set-up to Amazon.com.
There are primarily two types of exchanges: state exchanges and federal exchanges. If a state decides to opt out of creating its own online health insurance marketplace, then the federal government must take on the task of implementing a federally run exchange for that state.
All exchanges, both state and federal, must be implemented by January 1, 2014. The enrollment period begins October 1 of this year. Currently, 34 states have decided to leave the mess up to the feds.
Why So Unpopular?
As an incentive for states to comply with the unpopular federal health law, the Obama Administration decentralized power among states to create and establish their own exchanges. It was assumed that a majority of the states would choose this option, allowing them to remain "in control" so long as their frameworks fell within federal boundaries.
This scheme has backfired. Because a state must include a multitude of federal requirements within its own exchange and must receive approval from Health and Human Services Secretary Kathleen Sebelius, a state exchange is essentially a federal exchange. This is why 34 states (including North Carolina) have become the gang of "no."
The Argument That May Defeat Obamacare
The federal health law’s exchange provision contains a major loophole that may lead to its own demise.
The point of implementing exchanges is to reduce the number of uninsured and offer affordable, quality health care coverage to all. The Obama Administration aims to execute the affordability measure by reallocating sliding-scale tax subsidies to people who live in households with incomes between 100-400% of the Federal Poverty Level. These tax subsidies will help individuals pay for the health insurance that they purchase via the exchanges.
The American Legislative Exchange Council (ALEC) states,
These exchanges are essentially the vehicle through which much of the health care law is carried out, from the imposition of federal insurance regulations, to the distribution of tax subsidies exceeding $1 trillion, which then triggers the individual and employer mandates to buy insurance.
It is absolutely critical to note that these subsidies can only be redistributed to states that have signed up to create their own health exchanges.
If you dig through the 2,700 pages of the Patient Protection and Affordable Care Act, section 1311 and section 1321 explain it all. Under section 1311, a state "shall" create an exchange and grants authority to the Secretary of the Treasury to issue tax-credits through exchanges established by a state.
Meanwhile, section 1321 directs HHS Secretary Sebelius to establish and operate an exchange in states that do not create one. Section 1321 refers to the implementation of a federal exchange. The legislation does not express that a federal fallback receives authorization for the reallocation of premium assistance subsidies.
What Happens Now?
In the 34 states that have fallen back on federal exchanges, individuals and employers will be exempt from the mandate.
Under the employer mandate, an employer who offers health coverage to employees must cover 60% of the health plan’s cost. In a firm of more than 50 employees, the employer is taxed $3,000 for every employee who cannot afford the employer’s health benefits (defined as a premium that exceeds 9.5% of the employee’s income) and becomes eligible to receive a premium assistance subsidy. However, this is only the case in states with their own state exchanges. It would not apply in North Carolina, where we have opted for the federal exchange.
The individual mandate requires that each American purchase a federally qualified health plan or pay a penalty in the form of a tax. However, again, this only applies to individuals living in states with their own exchanges. Since North Carolina has opted for the federal exchange, an estimated 400,000 low and middle-income residents who would have been subject to the individual mandate under a state exchange, will be exempt.
The IRS, who are responsible for imposing fines and distributing subsidies, are seeking to extend the subsidies, which would trigger individual and employer mandate penalties, to those in the federal exchange. I will discuss this further in next week’s newsletter.
