“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. John Oliver,
    While I did not grow up on welfare, we lived on Social Security and VA survivor benefits through my dad. I know what it is like to not have much and I would not have made it without those benefits. Nor would my three sisters and my brother. It is entirely likely that without the GI bill benefits I may not have been able to go to college.

  2. By the way Mespo, I wanted to clean up a minor error of yours. I never said I “regretted” living within the welfare system. I am the sum total of my life experiences and who knows what type of person I would have become had it been any different. I might have become an egotistical, insecure, socialist, pathological liar. Maybe even President.

  3. Annie,
    The system was and still is necessary. I was unaware of any oversight with regard to what we received. The market I went to was a small, corner market and the people knew us by name. They sold the usual food products as well as beer and smokes. Not only would they accept food stamps for my mom’s Viceroy’s, they didn’t seem concerned when I asked for Salem’s. That’s what I smoked.

  4. Squeekers, people do cheat, but the vast majority don’t. I think perhaps John O. was trying to make the argument that food assistance and other social safety nets didn’t help him as a child, so they arent worth it, but I think he doesn’t realize that his situation wasn’t one that happens to most recipients.

  5. John Oliver, That is the sense of humor that helped you overcome a horrible childhood. It is a proven fact a good sense of humor leads to not just an emotionally better life, but also a physically better and longer one. My old man taught me to always be wary of humorless people.

  6. John Oliver:

    I just think you’re a libertarian looking for a good story to tell. You like this one so carry on. Dont expect any questioning mind to buy it.

  7. Annie:

    Irony, yes, but something more:

    “What makes it so plausible to assume that hypocrisy is the vice of vices is that integrity can indeed exist under the cover of all other vices except this one. Only crime and the criminal, it is true, confront us with the perplexity of radical evil; but only the hypocrite is really rotten to the core.”
    ~ Hannah Arendt

  8. Nick,
    If Mespo or Annie believe they know my history better than I do then who am I to argue with them. Before you know it, I’ll have actually been raised in Beverly Hills and had a Porsche for my first car. I’m actually beginning to like their version better. Let them go.

  9. Annie:

    I learned about that Italian phrase “Morta sei per me” a long time ago. I rather prefer the Roman saying “”Multi famam, conscientiam pauci verentur” which translates “Many fear for their reputation, few their conscience.” I’m in the latter category not the former.

    1. Mespo, I have deleted a couple of comments under the civility rule.

  10. Folks, Stay above the nastiness. JT deserves a break. We can bounce comments off each other and simply ignore the instigators for the evening. But, I’m headed to bed soon. Just don’t get sucked in by trolls and malcontents. Some are always that, some are just in a bad space right now. Keep it positive and civil. Our host deserves that. He’s not getting any help from his support staff this weekend.

  11. Mespo, you’ve joined the long list of commenters who are “dead” to him, lol. It’s a monthly occurrence it seems.

Comments are closed.