“A Blatant Enough Political Reality”: Key Obamacare Consultant Shown On Video Acknowledging Key Statutory Link Between Tax Credits and State Exchanges

Screen Shot 2014-07-25 at 9.17.22 AMThere is an interesting twist this morning on the controversy over the Halbig decision that we have previously discussed. As I have stated in testimony before Congress and columns, I do not view the law as ambiguous and agree with the conclusion in Halbig as a matter of statutory interpretation, even though I think that the change ordered by the Obama Administration makes sense. Nevertheless, the White House and various supporters have insisted that the key language in the law linking tax credits to exchanges “established by a State” was a typo and nothing more. One of those voices has been Jonathan Gruber, a Massachusetts Institute of Technology economist who played a major role in the drafting of the law and was paid almost half of a million dollars to consult with the Administration on the law. He told MSNBC recently that “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.” However, a libertarian group just uncovered a video showing Gruber saying quite clearly after the passage of the law that this provision was a quid pro quo device: state exchanges for tax credits. Conservative sites have lit up over the video below showing Gruber essentially describing the very tradeoff identified in Halbig.

As I explained in my testimony, at issue is the express language of the statute that ties the creation of state (as opposed to federal) exchanges to the availability of tax credits. Congress established the authority of states to create their own exchanges under Section 1311. If states failed to do so, federal exchanges could be established under Section 1321 of the Act. However, in Section 1401, Congress established Section 36B of the Internal Revenue Code to authorize tax credits to help qualifying individuals purchase health insurance. However, Section 1401 expressly links tax credits to qualifying insurance plans purchased “through an Exchange
established by the State under 1311.” The language that the qualifying exchange is “established by the State” seems quite clear, but the Administration faced a serious threat to the viability of the Act when 34 states opted not to create exchanges. The Administration responded with an interpretation that mandates: any exchange – state or federal – would now be a basis for tax credits. In adopting the statutory construction, the Administration committed potentially billions in tax credits that were not approved by Congress. The size of this financial commitment without congressional approval also strikes at the essence of congressional control over appropriation and budgetary matters.

Around the 31 minutes mark on the video below, Gruber addresses the issue:

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.

Critics have called out Gruber for later joining the counter spin from the White House and denouncing that very interpretation as “nutty.”

I can understand Gruber changing his views on the issue and there is no need to pummel him. He is quoted on one site in explaining that “I was speaking off-the-cuff. It was just a mistake.” However, in fairness, it does show that even supporters at the time viewed the language as meaning exactly what it said. The import is that there was a carrot and stick approach to exchanges. In crafting the act, Congress created incentives for states to set up health insurance exchanges and disincentives for them to opt out. The law, for example, made the subsidies available only to those enrolled in insurance plans through exchanges “established by the state.” However, to the great surprise of the administration — some 34 states opted not to establish their own exchanges, leaving it to the federal government to do so. This left the White House with a dilemma: If only those enrollees in states that created exchanges were eligible for subsidies, a huge pool of people would be unable to afford coverage, and the entire program would be in danger of collapse.

In the end, this issue will not be decided by spin but statutory interpretation. It will be interesting to see if both the Fourth Circuit and D.C. Circuit opinions go to en banc review. You could have the D.C. Circuit flip the result in favor of the Administration and the Fourth Circuit flip in favor of the challengers — preserving the split in the circuits. Even without such a split, however, there is a strong argument for Supreme Court review. It will be equally interesting to see if briefs bring in Gruber’s statement since he has signed amicus briefs in favor of the Administration’s interpretation.

191 thoughts on ““A Blatant Enough Political Reality”: Key Obamacare Consultant Shown On Video Acknowledging Key Statutory Link Between Tax Credits and State Exchanges”

  1. Dave S.
    Sorry to disappoint the accuracy of your rant, but I never said the GI Bill saved my family. You must have someone else in mind.

    And, in case you were referring to me when you said I support the ACA, well, wrong again. I said I was prepared to side with them “on this topic”.

    It would be intellectually dishonest to believe this point of the statute was one way or another without so much as a review of the statute and without allowing for the possibility I was wrong. If more people would focus on that rather than character assassinations, then I doubt we would see JT scrubbing the stains off of his blog.

  2. ron

    Intellectually dishonest people thrive because they lack integrity.
    The right is hamstrung by logic and integrity….
    Wrong on both counts, ron. Intellectual dishonesty thrives because it’s rarely called out and shouted down in the public square. It thrives because of ignorance, bias, laziness,or lack of concern among the citizen’s.

    The right has been pioneering in intellectual dishonesty since Teddy Roosevelt left office. For the last thirty years they have made a science out of it, and since the advent of Fox News, the rightwing junta has fulfilled Goebbel’s dream.

  3. Paul C. Schulte

    Every whore has a price!!!
    Apparently. How ironic of you to say.

  4. It’s a bit hard to reconcile Johns opinion of good governance at times. He’s pro ACA but pro civil liberty? It seems like a contradiction on it’s face. I guess I just don’t buy into liberal socialist thinking, despite history, smart men like John agree with policies that are a detriment to people. I just read a comment about John Oliver above and how the GI bill saved his family, patent nonsense, your family would have relied on friends, family & work, yes work you social gooders to make ends meet. Do we not understand that these absurd programs never existed in the past & people still got by? I love Mr. Turleys stands on the constitution & civil liberties but then he throws it away with support for fascist stupidity like the ACA, the Halbig decision is meaning except in terms of fascism. I’m not sure how one comes to these seemingly opposed notions of social good in their own mind, I’d be confused by this muddled thinking.

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