Under the Patient Protection and Affordable Care Act by President Obama, states must have at least one functional health insurance exchange by January 1, 2014. Failure to do so would mean that the federal government would run it for them.
The state-based health insurance exchanges were created to make health care more affordable and available to uninsured individuals and small business owners looking for health care coverage. By 2014, almost all Americans MUST have a health insurance plan or face paying tax penalties. The penalty increases for every year that you skip getting health care coverage.
Those who decide to buy from the state exchanges will be given federal tax credits and subsidies. The tax credits and subsidies are the motivators to get people to actually buy a plan from the exchange. However, there seems to be a problem with this particular clause in the health care reform law.
The law does not indicate that tax credits and subsidies will be provided for a federally-run health insurance exchange. States that do skip creating the exchange will have to settle with a federal exchange. Meaning, if the federal government will run the exchange, those who buy health care coverage will not receive any tax credits and subsidies. If this is the case, what will motivate consumers to buy from the exchange?
According to Timothy Jost of Washington & Lee University, this was just a “drafting error.” Drafting error or not, this still means no tax credits and subsidies for federal exchanges. That is because the administration did not anticipate that most of the states would oppose creating their own health insurance exchange. So far, only 14 states have agreed to create their own exchange. According to Kathleen Sebelius, the Department of Health and Human Services Secretary, they will probably have to run as many as 30 federal exchanges. Unless this “glitch” in the rule is fixed, this will become a major problem for the Obama administration.