Oops: Obamacare Architect in 2012 – “States Without Exchanges Won’t Get Tax Credits”

Obamacare has been in and out of courtrooms since it’s inception, but two recent cases are especially significant because they deal with the tax credits, or “subsidies” given under the law.

Those subsidies – with the federal government paying up to 100% of the premiums for certain insurance plans for people with low incomes – were the core of coverage expansion under the ACA.

The part of the law that is in question applies to whether or not citizens who sign up for Obamacare under the federal exchange are eligible for subsidies.

Only 14 states ran their own exchanges. The federal government took over for the 36 states that opted out of operating their own exchanges.

Two recent court cases regarding the subsidies resulted in opposite decisions.

Writing for Forbes, Michael Cannon of the Cato Institute explains the basis for the cases:

The central issue is whether the PPACA allows the IRS to issue tax credits through health-insurance Exchanges established by the federal government. Said government argues it’s implausible that Congress intended to withhold tax credits in states that don’t establish Exchanges.

Legal Insurrection summarizes the court decisions:

In the D.C. Circuit Court of Appeals decision in the Halbig case, the court held that under Obamacare as drafted, federal subsidies in the form of tax credits only are available to individuals who purchase on state exchanges, not on the federal exchange.

The Court in Halbig relied on the wording of the statute and its plain meaning. The 4th Circuit Court of Appeals, however, found that there might be an ambiguity, and that there were possible other interpretations.

Naturally, supporters of the law are explaining the ambiguity as a “legislative typo” and are saying the law was poorly drafted. They believe the courts should look to the intent of the law – to provide subsidies for everyone who qualified, no matter how they signed up for coverage.

Enter Jonathan Gruber.

Gruber, an economist, is a professor at MIT. He’s also one of the major architects of Obamacare.

From Forbes:

Gruber was an architect of both the PPACA and its Massachusetts precursor, “RomneyCare.” In 2009 and 2010, he was a highly paid advisor to the Obama administration during the congressional debate that produced the PPACA. According to the New York Times, “the White House lent him to Capitol Hill to help Congressional staff members draft the specifics of the legislation.”

He boasts to the Times, “I know more about this law than any other economist.”

In 2012, Gruber gave a speech in which he stated that the law clearly provided for tax credits only if the individual purchased on a state exchange:

“I think what’s important to remember politically about this is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits.”

Here’s video of that speech, during which Gruber states unequivocally that subsidies are NOT available in states that do not set up their own exchanges:

Oops.

Here’s the transcript of that portion of this speech:

Questioner: You mentioned the health-information Exchanges for the states, and it is my understanding that if states don’t provide them, then the federal government will provide them for the states.

Gruber: Yeah, so these health-insurance Exchanges, you can go on ma.healthconnector.org and see ours in Massachusetts, will be these new shopping places and they’ll be the place that people go to get their subsidies for health insurance. In the law, it says if the states don’t provide them, the federal backstop will. The federal government has been sort of slow in putting out its backstop, I think partly because they want to sort of squeeze the states to do it. I think what’s important to remember politically about this, is if you’re a state and you don’t set up an Exchange, that means your citizens don’t get their tax credits. But your citizens still pay the taxes that support this bill. So you’re essentially saying to your citizens, you’re going to pay all the taxes to help all the other states in the country. I hope that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these Exchanges, and that they’ll do it. But you know, once again, the politics can get ugly around this. (source)

This commentary supports the plaintiff in the Halbig case. As Cannon points out, Gruber’s speech doesn’t simply acknowledge the existence of the conditions that apply to the tax credits – but explains the purpose of those conditions:

He describes the mechanism by which this provision achieves that purpose (taxpayers will pressure their state officials to create Exchanges so they can receive tax credits). He acknowledges that the conditional nature of the tax credits sits perfectly well alongside the law’s requirement that the federal government establish an Exchange within states that do not. He even explains why the Obama administration might try to ignore this part of the law (the politics of the PPACA “can get ugly,” and the lure of tax credits might not be enough to induce states to cooperate).

Here is Gruber’s speech in its entirety, for those who are interested:

Three days ago, Gruber appeared on Hardball with Chris Matthews.

Here’s what he had to say about the controversy over the state-based exchanges:

Here’s the transcript of his comments. Note how different his stance is now:

“Chris [Matthews], it is unambiguous this is a typo. Literally every single person involved in the crafting of this law has said that it’s a typo, that they had no intention of excluding the federal states. And why would they? Look, the law says that people are only subject to the mandate if they can afford insurance, if it’s less than 8 percent of their income. If you get rid of these subsidies, 99 percent of the people who would get subsidies can no longer afford insurance, so you destroy the mandate. Why would Congress set up the mandate and go through all that political battle to allow it to be destroyed? It’s just simply a typo, and it’s really criminal that this has even made it as far as it has.”

A typo, he says.

Interesting, especially considering that experts predicted this “typo” would be a problem for Obamacare.

Back in 2011, Avik Roy explained the section of the ACA that covers the difference between the state-run and federally-operated healthcare exchanges:

Under Obamacare, if a state hasn’t made significant progress in setting up its exchange by 2013, Section 1321 of the law allows HHS Secretary Kathleen Sebelius to come into that state and set up a federally-sponsored exchange instead.

But that’s where the glitch comes in. Section 1401 of the law, along with numerous other sections, refers to the “premium assistance” subsidy as being available only to taxpayers “which were enrolled in through an Exchange established by the State under [section] 1311 of the Patient Protection and Affordable Care Act.” There’s no mention of subsidies being available to individuals who participate in exchanges established by the federal government.

What this means is that lower-income individuals in states without certified exchanges will be forced to buy insurance, via the individual mandate, but won’t get the subsidies designed to help make that coverage affordable for them.

(For more in-depth legal analysis of this provision of the ACA, read Jonathan Adler’s piece titled The IRS Wants to Give Tax Credits for Health Insurance Purchases Beyond Those Provided for in the ACA.)

Reason reports that Jonathan Cohn of The New Republic spoke to Gruber about his 2012 speech.

Here’s what he had to say about it:

I honestly don’t remember why I said that. I was speaking off-the-cuff. It was just a mistake. People make mistakes. Congress made a mistake drafting the law and I made a mistake talking about it.

During this era, at this time, the federal government was trying to encourage as many states as possible to set up their exchanges. …

At this time, there was also substantial uncertainty about whether the federal backstop would be ready on time for 2014. I might have been thinking that if the federal backstop wasn’t ready by 2014, and states hadn’t set up their own exchange, there was a risk that citizens couldn’t get the tax credits right away. …

But there was never any intention to literally withhold money, to withhold tax credits, from the states that didn’t take that step. That’s clear in the intent of the law and if you talk to anybody who worked on the law. My subsequent statement was just a speak-o—you know, like a typo.

Some experts believe this issue will make it to the Supreme Court.

If the Supreme Court upholds the Halbig decision, will the states that don’t currently have exchanges simply create them so their residents can get subsidies?

And if they do, how much will they cost to build? How long will it take? Will the sites even work properly? The states don’t have a good track record when it comes to establishing ACA exchanges.

Is this just another bump in the road for Obamacare, or will it be the problem that finally causes the ACA to implode?

Time will tell.

(H/T to RedState)