An ACA Subsidy Smoking Gun?

An ACA Subsidy Smoking Gun?

Up until this point -- see here and here -- I've said two things about the Obamacare text at issue in the subsidy cases: The formula quite clearly states that the subsidies are calculated based on the premiums charged in an "Exchange established by the State," but it's unclear whether this was an intentional restriction (designed to withhold subsidies from states that don't set up exchanges) or just a mistake. Under precedent, if the text doesn't make Congress's intent clear, courts can investigate the law's history to determine what Congress meant or defer to the bureaucracy's interpretation.

Well, now we have good evidence that the law's architects -- or, as Incidental Economist blogger Bill Gardner pointed out to me on Twitter this morning, at least some of the law's architects -- in fact intended to withhold subsidies. Via a commenter at the Volokh Conspiracy, the Competitive Enterprise Institute's Ryan Radia (who's contributed to RealClearPolicy) stumbled upon this 2012 video of an address by Jonathan Gruber, one of the law's driving forces:

At 31:25, Gruber says:

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 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. But, you know, once again the politics can get ugly around this.

Again, this doesn't necessarily mean that all of the law's architects understood the text this way, and if different drafters thought the text meant different things, courts could simply defer to the administration's interpretation. The drafters who've come forward all swear that they meant the subsidies to be available everywhere -- and the law is so poorly written that a wide variety of readings are possible. For example, as discussed in the D.C. Circuit ruling and dissent, you could read the text to mean that federal exchanges can't have customers at all, because people in states without exchanges are not considered "qualified individuals" and the law quite arguably only authorizes exchanges to serve qualified individuals.

But at the very least, this statement ought to lay to rest the notion, popular among some on the left, that this setup is so far-fetched and ridiculous that Congress couldn't possibly have intended it. My favorite example here is from Ezra Klein, who used an analogy to federal highway funding to demonstrate how crazy it would be to create a program and then deny access to states that don't cooperate. The federal government hasn't followed his analogy exactly -- it hasn't built highways and then refused to let anyone drive on them -- but it has in fact, in a textbook example of "if you don't like the strings, don't take the money" federal policymaking, used highway funds to force compliance on state alcohol laws, just as some say Congress planned to use ACA subsidies to force states to create exchanges. 

This video might not make the ultimate outcome of these lawsuits easier to predict. But it certainly will make the debate in the months ahead a lot more interesting.

[Update: Peter Suderman found a TV appearance from this week in which Gruber claimed it was "unambiguous that (the wording of the law) was a typo." John Sexton found another 2012 speech in which Gruber also talked about subsidies being withheld. In an interview with Jonathan Cohn, Gruber explained:

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. ...

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.

There are few people who worked as closely with Obama administration and Congress as I did, and at no point was it ever even implied that there'd be differential tax credits based on whether the states set up their own exchange. And that was the basis of all the modeling I did, and that was the basis of any sensible analysis of this law that's been done by any expert, left and right.

I didn't assume every state would set up its own exchanges but I assumed that subsidies would be available in every state. It was never contemplated by anybody who modeled or worked on this law that availability of subsides would be conditional of who ran the exchanges.

]

Robert VerBruggen is editor of RealClearPolicy. Twitter: RAVerBruggen

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