Is this what they used to write H.R. 3590? Source: Ohio Art Co. via Bloomberg
Is this what they used to write H.R. 3590? Source: Ohio Art Co. via Bloomberg

The Barack Obama administration is sounding a bit more upbeat today on the state of the health insurance exchanges. At the same time, it's also clearly preparing a backup plan: allowing customers to buy policies directly from insurers.

Now, the law never forbade direct purchases; it says you can buy a policy off the exchange, as long as it’s either grandfathered from 2010, or in compliance with the new requirements for minimum coverage. But you don’t want to do this if your income qualifies you for a subsidy, because subsidies are only available for policies purchased on the exchanges.

Or they were only available. Now, the administration seems to be saying that it will allow people to qualify for subsidies for policies purchased direct from insurers:

It’s hard to see, however, how this can be legal. The language of the statute is quite clear:

"(2) PREMIUM ASSISTANCE AMOUNT.--The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of--

"(A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act, or

"(B) the excess (if any) of--


"(i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over

"(ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.

There is some provision to appoint agents. But the law specifically notes that those agents may not be health insurers:

(A) IN GENERAL.--A State may elect to authorize an Exchange established by the State under this section to enter into an agreement with an eligible entity to carry out 1 or more responsibilities of the Exchange.

(B)ELIGIBLE ENTITY.--In this paragraph, the term ``eligible entity'' means--

(i) a person--

(I) incorporated under, and subject to the laws of, 1 or more States;

(II) that has demonstrated experience on a State or regional basis in the individual and small group health insurance markets and in benefits coverage; and

(III) that is not a health insurance issuer or that is treated under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986 as a member of the same controlled group of corporations (or under common control with) as a health insurance issuer; or

(ii) the State medicaid agency under title XIX of the Social Security Act.

This is not the first time the administration has suggested that it's going to go against the plain text of the law, either. Why is the administration taking such a careless attitude toward a law it spent a year crafting?

Understanding Health Insurance Exchanges

It’s hard to come up with a reason that bodes well. Lawsuits seem inevitable, and unwinnable. At best, the White House is buying some time to try to get things up and working; at worst, it hasn't even thought that far ahead.