Explicating exchanges

Following up on Paul Mirengoff’s series of posts on the DC Circuit’s Halbig decision, I want to draw attention to Kim Strassel’s weekly Wall Street Journal column exploring “The Obamacare-IRS nexus” (behind the Journal’s subscription paywall but accessible via Google). Strassel exposes the role played by the IRS at the behest of the White House in promulgating regulations ignoring the limitation of Obamacare subsidies to exchanges established by states. Democrats had assumed that the limitation would be sufficient to coerce states into establishing Obamacare exchanges, but that the calculation behind the assumption failed. What happened next? Strassel writes:

[T]he White House was faced with the prospect that citizens in 36 states—two-thirds of the country—would be exposed to the full cost of ObamaCare’s overpriced insurance. The backlash would have been horrific, potentially forcing Democrats to reopen the law, or even costing President Obama re-election.

The White House viewed it as imperative, therefore, that IRS bureaucrats ignore the law’s text and come up with a politically helpful rule. The evidence shows that career officials at the IRS did indeed do as Treasury Department and Health and Human Services Department officials told them. This, despite the fact that the IRS is supposed to be insulated from political meddling.

We know this thanks to a largely overlooked joint investigation and February report by the House Oversight and Ways and Means committees into the history of the IRS subsidy rule. We know that in the late summer of 2010, after ObamaCare was signed into law, the IRS assembled a working group—made up of career IRS and Treasury employees—to develop regulations around ObamaCare subsidies. And we know that this working group initially decided to follow the text of the law. An early draft of its rule about subsidies explained that they were for “Exchanges established by the State.”

Yet in March 2011, Emily McMahon, the acting assistant secretary for tax policy at the Treasury Department (a political hire), saw a news article that noted a growing legal focus on the meaning of that text. She forwarded it to the working group, which in turn decided to elevate the issue—according to Congress’s report—to “senior IRS and Treasury officials.” The office of the IRS chief counsel—one of two positions appointed by the president—drafted a memo telling the group that it should read the text to mean that everyone, in every exchange, got subsidies. At some point between March 10 and March 15, 2011, the reference to “Exchanges established by the State” disappeared from the draft rule.

The February report cited by Strassel is accessible online here; Strassel’s column is must reading in its entirety.

Peter Suderman explores the same question in a post with the explanatory heading “Watch Obamacare architect Jonathan Gruber admit in 2012 that subsidies were limited to state-run exchanges.” Suderman includes a just-unearthed video of Gruber speaking to a technical management support organization as the law was being implemented. The relevant passage deep in the video shows Gruber explaining (emphasis added):

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.

In an update to his post — also must reading in its entirety — Suderman adds that Gruber was on MNSBC earlier this week to address the Halbig ruling. He was asked if the language limiting subsidies to state-run exchanges was a typo. His response: “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.”

The video below, forwarded by a reader this morning, usefully contrasts Gruber then and now. Lest there be any misunderstanding, Gruber was explaining the plain meaning of the statute then and he is lying now.

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