Obamacare: no state exchange -> no tax credits -> no penalties

Ponnuru writing at Bloomberg - read the whole thing.

Obama’s plan makes tax credits available to people who get health insurance from exchanges set up by state governments. If states don’t establish those exchanges, the federal government will do so for them. The federal exchanges, however, don’t come with tax credits: The law authorizes credits only for people who get insurance from state-established exchanges. And that creates some problems the administration didn’t foresee, and now hopes to wish away.

Many states are determined in their opposition, and few of them have set up exchanges. If they don’t do so, the tax credits don’t go into effect and the federally established exchanges won’t work: People won’t be able to afford the insurance available on them without the subsidy.

States have another incentive to refrain from setting up exchanges under the health-care law: It protects companies and individuals in the state from tax increases. The law introduces penalties of as much as $3,000 per employee for firms that don’t provide insurance -- but only if an employee is getting coverage with the help of a tax credit. No state exchanges means no tax credits and thus no employer penalties. The law also notoriously penalizes many people for not buying insurance. In some cases, being eligible for a tax credit and still not buying insurance subjects you to the penalty. So, again, no state exchange means no tax credit and thus fewer people hit by the penalty.