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March 2013 Policy Study, Number 13-3


Just Say NO – and Keep Saying NO – to Federal Health Care Exchanges and Medicaid Expansion


Federal Health Care Exchanges



A key part of the PPACA is the establishment of statewide health care “exchanges” or government organizations set up to oversee the sale and purchase of health insurance. The exchanges were supposed to help individuals outside of the employer-sponsored insurance market purchase insurance by providing a clearinghouse of standard information. One of the main complaints about individual insurance has been that plans and costs are too complicated to understand and compare “apples to apples.”


As determined by the U.S. Supreme Court last summer, states are not required to create these exchanges, but various “carrots” were included in PPACA to induce them to do so. They were supposed to decide by December 2012 what they were going to do – even without clear implementation plans and directions from the federal government. The deadline was pushed back to February 15 for several states, including Iowa.[14]


There have basically been three responses – set up a fully state-run exchange, refuse to set up an exchange and leave the responsibility with the federal government, or to do a partnership exchange with joint state and federal management. Each option has complicated additional decisions and financial commitments. The exchanges are supposed to be fully up and running by January 1, 2014.


As of March 2013, twenty-six states are refusing to create exchanges and are instead allowing the federal government to do so. Seventeen states and the District of Columbia have received conditional approval to set up their own exchange. Mississippi’s application was turned down, and Utah’s is still under review. Seven states, including Iowa, have proposed doing a federal-state partnership.[15] Arkansas, Delaware, and Illinois, in addition to Iowa, have been given conditional approval for their partnership exchanges.


According to Secretary of Health and Human Services (HHS) Kathleen Sebelius, “Conditional approval means HHS has found that the states are likely to be ready to open the online health insurance markets for enrollment by October 1 to sell individual and small group plans that take effect January 1, 2014.”[16]


The main functions of these exchanges will be to monitor and rate the types of plans available, manage the tax credits and subsidies for people in different income levels, and issue non-compliance penalties to consumers and providers. Mainly, it appears, they will be top-heavy bureaucracies, controlling every aspect of health care and reducing competition, limiting individual choices, and stifling innovation.


Another aspect of Obamacare was that applying for health care was supposed to be easier. Unfortunately, this doesn’t seem to be the case. The draft application, released on March 14, is 21 pages long for a family of four, and will be reviewed by at least five federal agencies, including the IRS.[17]


The feel of the application is much like that for the Free Application for Federal Student Assistance (FAFSA), the form to apply for loans for college. In many cases the college reviewing your FAFSA and awarding the student loans also requires a complete, paper copy of your IRS Form 1040, with all schedules.


Full tax reporting is basically a requirement of Obamacare, as taxpayers at different income levels, up to 400 percent of the Federal Poverty Level (FPL), are to receive different subsidy amounts. Further, employers are limited in the employee contribution they can require based on an employee’s federal taxable Modified Adjusted Gross Income (MAGI).


Thus employers must take into consideration income earned by an employee at a second job and by other family members, as well as changes in the number of family members. If even one employee purchases a policy through the exchanges which costs them more than the allowable amount, the company they work for will be fined – though the company had no input into the plan chosen and no control over the costs.[18]



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