Experts argue Obamacare mistake could doom key part of law

— -- States could dodge a key part of the health care reform law because of a little-noticed mistake in the lengthy bill, according to a white paper by conservative health care experts Michael Cannon and Jonathan Adler.

A missing word in the law's definition of a health insurance exchange could prevent the federal government from doling out crucial subsidies to aid middle class and lower-income people in buying insurance in states that refuse to set up their own exchanges. (Only 14 states are close to setting up exchanges so far. The federal government will set up back-up exchanges in states that don't have their own by 2014.) If Cannon and Adler are right, the federal government would also not be able to fine large employers in states without exchanges if their lack of coverage leads employees to buy insurance in a federal exchange.

The law defines a health insurance exchange as a "governmental agency or nonprofit entity that is established by a state" in one section of the law, and then says later that individuals who participate in exchanges under that definition are eligible for subsidies. Because the law only says a "state" and not "a state or the federal government," Cannon and Adler argue that the federal government cannot legally dole out subsidies or tax breaks to people who buy insurance from federal exchanges.

The Obama administration has said that the intention of the law is clear, and that they fully plan on handing out subsidies when they set up federal exchanges in states that do not set up their own. (Other legal experts agree. Tim Jost, a law professor at William and Lee University, told Yahoo News the pair's thesis is "wishful thinking.") But Cannon and Adler argue the "mistake" was an intentional choice to push states to set up exchanges, and that the administration must deal with the consequences.

If the law's opponents sue over the missing language and win (both big hypotheticals), it would mean considerably fewer people will gain health insurance under the law than was planned--because the lack of subsidies means those without insurance would not be forced to purchase coverage. (If the cheapest plan available costs more than 8 percent of a person's income, that person is no longer penalized under the law if he or she remains uninsured.)

But, there may be a compelling reason for opponents of the law to hold their fire. Another part of the law says that no state can cut their existing Medicaid rolls until an exchange is up and running in their state. Under the new, narrower definition pushed by Adler and Cannon, that would mean that no state could ever tighten up its eligibility requirements for Medicaid unless it first sets up a health care exchange of its own.

House Republicans have tried to repeal this part of the bill to no avail. But Adler told Yahoo News that because of the Supreme Court's decision on the health care law--which specifically held that the federal government isn't allowed to take away existing Medicaid funds as punishment for lack of implementation--the entire section should be called into question. The court would frown on the government imposing "new conditions on existing Medicaid funding that are contingent on participation in a new program," Adler said. Jost said that's a misreading of the decision, which only applies in the case of the Medicaid expansion.