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Why Health Reform Provides Subsidies in All States

Two CBPP board members — Henry Aaron and Robert Reischauer — and I are among the 48 economists who filed a brief in federal court yesterday explaining why health reform authorizes the provision of premium subsidies, an essential part of health reform, in all states.

Some opponents of health reform have filed a lawsuit claiming that the premium tax credits to help low- and moderate-income people buy coverage through the new health insurance exchanges are only available in states that have set up their own exchanges, not in states with a federally operated exchange.  But, as Judith Solomon has explained, this argument rests on a distorted reading of the health reform law.

Last month the U.S. District Court for the District of Columbia soundly rejected the plaintiffs’ claim.  The case is on appeal to the U.S. Court of Appeals for the D.C. Circuit, which is where we filed our brief.

The economists’ letter explains that health reform is premised on three interrelated reforms: requiring insurers to offer coverage to all eligible applicants irrespective of health status, an individual mandate to buy insurance, and premium subsidies for participants in all exchanges.  “Economic analysis confirms what Congress understood: the [Affordable Care Act] cannot function without premium subsidies,” we write.

Other signers of the friend-of-the-court brief include Nobel laureates Peter Diamond and Eric Maskin, former Congressional Budget Office Director Alice Rivlin, and former Treasury Secretary Lawrence Summers.