The Senate HELP Bill Limited Exchange Subsidies to Compliant States (but No One Mentioned It)
The details of a 2009 draft of health care reform have become relevant again this month. Here's what the so-called HELP bill said and why it matters now.
The Halbig case is the one about whether or not tax subsidies can be delivered to people who enrolled on a federal exchange. Last week two courts ruled on the issue in two different directions. The case is being appealed and is expected (though not guaranteed) to end up before the Supreme Court. In the meantime the administration is keeping the subsidies flowing.
One of the issues in Halbig is whether Congress might withhold subsidies from states that refuse to set up exchanges. Why would they do that? Because the federal government is not allowed to order sovereign states to participate in any federal scheme. That's called commandeering. The federal government can offer incentives (such as money or subsidies) but states have to willingly go along.
Plaintiffs in the Halbig case argue that lawmakers worried about commandeering intended the health reform tax subsidies to be just such an inducement. Indeed, that's exactly the position Jonathan Gruber put forward in his two "speak-o"s about the law in 2012. As Gruber said, state implementation was a threat to the law and withholding subsidies was a way to press states to get in line.
One of the data points in the Halbig debate is a version of health reform known as the HELP bill (because is came out of the Senate Committee on Health, Education, Labor & Pensions). The HELP bill is significant because it explicitly denied subsidies to states which refuse to set up a federally compliant exchange. More specifically, the bill outlines a three step process for states. They can a) agree to set up their own exchange and comply with all the new regulations, b) ask HHS to set one up and comply or c) not comply.
For those states who don't comply, there is a four year waiting period before the feds step in. During that time, residents of the state not in compliance are not eligible for subsidies. Here is the relevant portion of the bill as released in June 2009(note that the draft used the term "Gateways" for what we now call exchanges):
ELIGIBILITY OF INDIVIDUALS FOR CREDITS.
—With respect to a State that makes the election described in subsection (a)(3), the residents of such State shall not be eligible for credits under section 3111 until such State becomes a participating State under paragraph (1).
A summary of the bill from a few months later describes the subsidy issue (though it says it is six years not four):
States have three options regarding their participation in the Gateway. An “establishing state” is one that proactively seeks such status to launch its Gateway as early as possible and which meets the requirements of the law. A “participating state” requests that the Secretary establish an initial Gateway once all necessary insurance market reforms have been enacted by the state into law, and other requirements have been met. In a state that does not act to conform to the new requirements, the Secretary shall establish and operate a Gateway in the state after a period of six years, and such state will become a “participating state.” Until a state becomes either an establishing or participating state, the residents of that state will not be eligible for premium credits, an expanded Medicaid match, or small business credits.
There's also this document (pdf) from June 2009 which presents the various options for lawmakers. There are four options listed relating to health exchanges. Option A appears to be something like the House version of the bill, i.e. a plan with a single national exchange. Option B is the HELP bill. Option B reads, "States have the first option to establish Gateways or to request that HHS do so. If they fail to act, the Federal government steps in. Premium credits are available only to residents of states that have enacted insurance reforms and established Gateways."
I offer all of this detail to clarify that Democrats in the Senate led by Ted Kennedy and Chris Dodd did draft a version of health care in which subsidies were withheld, apparently in order to pressure states into compliance with reforms. And yet, today Greg Sargent quotes three former HELP staffers saying it was never anyone's intent to deny subsidies. Here's David Bowen as quoted by Greg Sargent:
It was clear both in the legislative language in both committees and
in the intent of the Senators supporting the bill that the credits
would be available in all states, regardless of whether the state or the
federal government operated the Gateway. That intent certainly didn’t
change during the merger process.
Who are we to believe, these staffers or our lying eyes? The intent may have been to eventually offer subsidies to everyone, but there's no doubt that withholding subsidies for a significant number of years was a conspicuous feature of the HELP bill. That bill was merged with the version from the Finance committee and became the ACA, aka Obamacare.
Speaking of conspicuous features. Another charge supporters of Obamacare have made regarding Halbig is that it's silly to think such a thing could have gone unmentioned. If such a feature were really present in the bill, they claim, it would have been big news and everyone would know about it. That sounds reasonable except for the fact that it was in the HELP bill and, apparently, no one reported on it. Here's health policy wonk Ezra Klein reporting on the HELP bill in July 2009:
The Health Insurance Exchanges: States would run them.
They would be available for the uninsured, people on the non-group
market, and small businesses. There would be a so-called "firewall"
preventing larger employers from using the exchanges. In the scenario
where employees of a large employer are not offered coverage
meeting the minimum standards and costing less than 12.5 percent of
their income, then and only then can they go to the exchange.
Notice what he doesn't mention at all? There's nothing about cutting off subsidies to states that don't comply. Perhaps he mentioned it somewhere but if so I haven't found it yet. Klein wasn't the only one to miss it. Here's the NY Times reporting on various reform efforts in July 2009. The piece mentions the exchange and subsidies but doesn't point out that some states might not get them under the HELP bill.
Here's another piece on reform proposals by Kaiser Health News from July 2009. Again, there is lots of talk about exchanges and subsidies in the HELP bill but no mention that some states might be excluded. Here's a story from CNN Money which doesn't mention it. Here's one from PBS Newshour. Here's a CBS story comparing the different proposals. Again, withholding subsidies is not mentioned.
The bottom line here is that language to withhold subsidies from non-compliant states was included in the HELP bill and yet it seems almost no one noticed this significant feature or, if they did, thought it was worth mentioning.