Since July 22, when a federal appeals court panel dealt a potentially major blow to Obamacare by ruling that participants in health exchanges run by the federal government in 34 states are not eligible for billions of dollars in tax subsidies, several facts have emerged which call into question Jonathan Gruber, an MIT economist and chief architect of Obamacare, and his views on whether the intent of Obamacare was that subsidies should only be available for state-run Obamacare exchanges.
This raises an important question: what was the view of the Department of Health and Human Services (“HHS”), the department charged with implementing Obamacare? On January 20, 2011, HHS released the Cooperative Agreement to Support Establishment of State-Operated Health Insurance Exchange. As the title suggests, this document was the governing agreement related to establishing “state-operated” health insurance exchanges and provides significant insight into HHS’s views.
This January Agreement clearly specified “state-based” or “state-operated” exchanges; in the agreement, the term “state-based” or “state-operated” health insurance exchanges is listed 17 times. The term “federally-facilitated exchange” is never used. The agreement also specifically references Section 1321 – a federal ”fallback” provision for states that do not create exchanges of their own.
Obamacare specifically differentiates between state-operated and HHS-operated exchanges – A spring 2013 publication of Health Matrix, a report by Jonathan H. Adler and Michael F. Cannon, explains how conditioning subsidies on states establishing exchanges was not only consistent with Obamacare but also a necessary feature targeted at giving states an incentive to create exchanges. Their report states:
The starting point for statutory interpretation is the statute’s text. As noted above, the PPACA authorizes two methods for establishing an Exchange within a state. Section 1311 provides that ‘Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an ‘Exchange’)’ and provides rules for state-run Exchanges. For purposes of Section 1311, the Act specifically requires that an Exchange must be ‘a governmental agency or nonprofit entity that is established by a State.’ Section 1304(d) clarifies, ‘In this title, the term ‘State’ means each of the 50 States and the District of Columbia.’ Section 1321 requires the federal government to create an Exchange in states that elect not to create their own. Specifically, if a state either fails to create an Exchange or fails to implement the PPACA’s health insurance regulations to the Secretary’s satisfaction, Section 1321 requires the HHS Secretary to ‘establish and operate such Exchange.’ Section 1321 thus requires a federal ‘fallback’ for states that do not create Exchanges of their own. State-run Exchanges created under Section 1311 and federal fallback exchanges created under Section 1321 are distinct.
Obamacare law specified only established-by-state exchanges get subsidies – The Adler and Cannon report goes on to explain:
Section 1401 authorizes premium-assistance tax credits and makes them available only through state-run Exchanges. This section specifies that taxpayers may receive a tax credit only during a qualifying ”coverage month,” which occurs only when ‘the taxpayer is covered by a qualified health plan . . . that was enrolled in through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act.’ By its express terms, this provision only applies to Exchanges ‘established by a state’ and ‘established . . . under Section 1311.’ Section 1401 further emphasizes that tax credits are available only through Section 1311 Exchanges when it details the two methods for calculating the amount of the credit.
House Committees’ report is highly critical of IRS and Treasury – On February 5, 2014, the House Committees on Oversight and Government Reform and Ways and Means delivered a highly critical report of the IRS and Treasury regarding their handling of this issue. Specifically, the report stated:
- IRS Failed to Conduct a Serious Analysis Prior to the Proposed Rule
- IRS Solicited HHS’s Help When the Explicit Statutory Language Proved Problematic
- IRS Did Not Consider the Availability of Subsidies in Federal Exchanges To Be A Significant Issue
- Treasury Failed to Conduct a Serious Analysis of the Issue Between the Proposed and Final Rule
- Final Rule Provided No Evidence Supporting the Administration’s Interpretation
- IRS Failed to Examine the Entire Statute
- Treasury Failed to Consider Whether Congress Structured the Premium Subsidies to Elicit State Cooperation
- Treasury Failed to Consider PPACA’s Appropriate Legislative History
- Treasury Relied on Statements Made by House Members About Bills Other Than PPACA
- Treasury Did Not Consider the Senate’s Preference for State Exchanges
- Treasury’s Review of the Legislative History Was Incomplete
Furthermore, in its conclusion, the House report stated, “The Committees’ investigation, which focused on the rulemaking process and not the merits of IRS and Treasury’s interpretation, has concluded that despite claims to the contrary, neither IRS nor Treasury engaged in reasoned decision-making of this important issue prior to issuing the final rule that extended PPACA’s premium subsidies to federal exchanges.”
The November 2011 Agreement deliberately deleted references to “state-based” – On November 29, 2011, HHS released an amended version of this agreement (hat tip to Rich Weinstein). The most enlightening changes are the six or more deletions of the phrase “state-based” and “stated-operated” when describing exchanges. HHS rationalized these deletions with a single paltry comment: “Striking the phrase State-operated provides clarity that Exchange Establishment cooperative agreement funds may be used for State activities that support the establishment of a Federally-facilitated Exchange.”
This agreement is not an “off-the-cuff” comment made by single non-governmental representative. This is an 89-page agreement written almost a year after Obamacare had been passed. In addition, it was written by one of the largest departments in government and the department that was charged with implementing the law. Contrary to the IRS and Treasury treatment, this was a very significant issue.
Every week more and more evidence surfaces. The evidence raises the question, were these also just “typos” or “clarifications?” Was HHS acting as the House Committees’ report claims – without “reasoned decision-making of this important issue?” Or was it something even more? If it was, this is one large step toward Oblimination – the reversal of Obama’s failed policies.