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3 Reasons Why Oklahoma Decision Is Wrong About Health Subsidies

October 1, 2014 at 1:14 PM

A central piece of health reform authorizes the federal government to provide tax credits to help low- and moderate-income people buy coverage in the new health insurance marketplaces.  A federal district court judge in Oklahoma ruled yesterday that the law only authorizes the tax credits in states that have set up their own exchanges, not in states with a federally operated exchange.  (Other federal courts have split on the issue, which may eventually reach the Supreme Court.)  But this argument rests on a distorted reading of the law.  As I’ve explained:

  1. Section 1321 of health reform (the Affordable Care Act or ACA) says that if a state does not establish its own exchange or won’t be ready to operate its exchange in 2014, “the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State” (emphasis added).   In other words, the federal government will essentially “stand in the shoes” of a state that elects not to operate an exchange by establishing and operating the exchange on the state’s behalf.  That’s what the federal government has done in Oklahoma and other states that chose not to create their own exchange.
  2. Section 36B of the Internal Revenue Code, which section 1401 of the ACA added to the Code, specifically refers to federal exchanges in requiring all exchanges — state and federally operated — to report to the federal government on the amount of advance payments of premium credits that taxpayers receive.  That provision would make no sense if people buying coverage through a federally operated exchange weren’t eligible for credits.
  3. To help residents of states with state-run exchanges buy coverage but not residents of other states would clearly conflict with the ACA’s purpose, which is to ensure that all Americans have a path to affordable coverage, regardless of where they live.  As Chief Justice John Roberts noted in referring to the ACA’s Medicaid expansion, the exchanges are “an element of a comprehensive national plan to provide universal health insurance coverage.”

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