Obamacare Means What Obamacare Says

The most obvious legal interpretation of the health law is the plain meaning of its legislative language.



Is it possible to discern congressional intent by what was never said? In the wake of last week's D.C. Circuit court ruling in Halbig v. Burwell, that, contrary to the administration's current implementation, Obamacare does not allow insurance subsidies in federally run health exchanges, supporters of the law and reporters who covered it have argued as much: No one in Congress ever said that subsidies were limited to state-run exchanges, and reporters never heard about a debate. The idea was unheard of before critics of the health law decided to challenge the administration in court.

It's true that the legislative history isn't particularly revealing. The specific issue of whether subsidies would be available in federally established exchanges was rarely if ever brought up prior to the law's passage.

Thankfully, there's no need to infer from what wasn't said. There is a clear record of congressional intent in the plain text of the legislation that Congress voted into law.

Furthermore, the basic idea that federal credits for health coverage should be conditioned on state action was not created by critics. On multiple occasions, Congress previously threatened to withhold coverage credits from states that don't play ball with federal rules. One influential liberal health policy scholar suggested the idea before the bill was passed, and another confirmed it after it became law. Even the Internal Revenue Service (IRS), which produced the rule justifying the administration's issuance of subsidies in federal exchanges, initially believed that the credits were limited to exchanges run by states.


Any hunt for the congressional intent behind a piece of legislation should start with the actual language of the law in question. And in this case, the language is unambiguous. Tax credits—that is, subsidies for health insurance—are limited to "Exchanges established by a State." In case there was any confusion, the law defines "State" as "each of the 50 states plus the District of Columbia." These qualifying exchanges must further be established under Section 1311 of the law, the section which deals with state-based exchanges. The federal exchanges are set up under the authority of a different section, 1321.

That's it. That's what the law says. That's what Democratic members of Congress, in both the House and Senate, voted to pass, despite some initial disagreement over whether states or the federal government should be in charge of the exchanges. That's the language that President Obama signed into effect.

Arguably, that should be the end of the debate. The language is clear and direct, and it is repeated several times. There isn't really another plausible interpretation of the text in question.

That's not just common sense. It's also the conclusion of the Congressional Research Service, which wrote in a July 2012 report that "a strictly textual analysis of the plain meaning of the provision would likely lead to the conclusion that IRS's authority to issue the premium tax credits is limited only to situations in which the taxpayer is enrolled in a state- established exchange." Even legal authorities that have ultimately lined up with the administration seem to agree. A separate ruling by the U.S. Court of Appeals for the 4th Circuit last week sided with the administration's interpretation, but admitted that "a literal reading of the statute undoubtedly accords more closely with [the] position" of the challengers.



A literal reading of an unambiguous statute ought to be enough to determine what a law means—and to rule that a regulation that goes well beyond the strict text of the statute is out of bounds. 

Yet the Obama administration has argued otherwise, saying that what matters is not the text itself so much as understanding the language in the context of the "purpose and structure of the statute as a whole."

Senior congressional Democrats have backed the administration up, declaring that to accept that literal reading would somehow be nuts.

"It's absurd to think that Congress intended [Obamacare's] subsidies be available only in the state exchanges," Senate Majority Leader Harry Reid said last week following the rulings. House Minority Leader Nancy Pelosi attacked the challengers' position as a form of "legislative nihilism."

But the idea that the law's insurance subsidies would be conditioned on state buy-in is no more absurd than what Democrats in Congress have repeatedly proposed and enacted before.

As Case Western Reserve Law Professor Jonathan Adler and Cato Institute Health Policy Director Michael Cannon, who helped lay the legal groundwork for the case against the administration, pointed out in an amicus brief, there's plenty of precedent for conditioning health coverage credits on state behavior. The most obvious example is Medicaid, a joint health program in which states each manage their own systems, but which requires states to meet certain specifications, or obtain a waiver, in order to receive federal funding.

Medicaid isn't the only example. In 2002, former Sen. Max Baucus—the elected official most commonly cited as Obamacare's author—proposed legislation paying a portion of health premiums for some individuals. The Health Coverage Tax Credits in his proposal would only be available, however, for certain types of coverage within states that enacted a series of laws required by the federal government.

In 2004, Congress set up a system allowing individuals to set aside money in tax-abated Health Savings Accounts, but only in states that updated their regulatory codes according to federal requirements.

The same general approach can also be found in the final text of Obamacare, which was emerged largely from two earlier health care bills—one created by the Senate Finance Committee, the other by the Senate Health, Education, Labor, and Pensions (HELP) Committee.

Under the HELP bill, Cannon and Adler write in the brief, "if a state failed to establish an Exchange, or its Exchange fell out of compliance, or the state failed to enact specified insurance laws, the HELP bill withheld and even revoked credits from state residents. If a state neither established an Exchange nor requested a federal Exchange, 'the residents of such State shall not be eligible for credits' until four years after the date of enactment." In addition, they note, the bill permanently withheld subsidies if states did not comply with the law's employer mandate.

The Finance Committee legislation limited subsidy availability to "coverage months"—the months in which an individual would be enrolled in a state-established Exchange. As Cannon and Adler point out, the existing language restricting subsidies to state-run exchanges was eventually amplified further when the bills were combined.

The idea that federal health care benefits would be withheld unless states fulfill certain requirements isn't some kooky idea dreamed up by critics. The pattern here is clear. Congress has often proposed withholding credits for health coverage unless states play by certain federal rules.

Indeed, that explains Obamacare's original Medicaid expansion mechanism, which, prior to Supreme Court intervention, threatened states that did not participate with the loss of all existing federal Medicaid funding. This would have been a huge price, and would have effectively gutted one of the nation's two major health programs had a large number of states chosen not to comply. 

If conditioning subsidies on the state establishment of exchanges was "legislative nihilism," then so too was Obamacare's original treatment of its Medicaid expansion.

The reason that Congress made its Medicaid threat so easily is that it was assumed that every state would eventually play ball and expand the program. Funding for the expansion was generous, and resistance would be catastrophically expensive.

The same assumption of universal state buy-in also applied with Obamacare's exchanges. When the health law was being crafted, legislators and policy analysts assumed that every state would set up its own exchange. The Joint Committee on Taxation, which scored the law's health insurance tax credits, did not examine eligibility in federally run exchanges.

The federal exchange system was such an afterthought that the law provided no funding whatsoever to create it. Federal health authorities had to scramble to rewire funding in order to get it built. In contrast, Obamacare provided nearly unlimited funds for states to set up their own exchanges. The thinking was that no state would turn the government down. 

The total lack of funding for the federal exchange strongly suggests that Congress didn't intend any subsidies to flow through the federal exchanges, because Congress didn't really intend for them to exist.

Supporters of the administration's approach have pointed to a quote from Liz Fowler, who served as the top health care counsel on the Senate Finance Committee while Obamacare was being written. "Of course Congress did not intend to deny anyone in any state access to tax credits to which they are entitled," she said when asked about the Halbig suit. The slippery wording reveals very little. Obviously Congress did not intend to deny subsidies to anyone who is legally entitled to them. The question, though, is who is legally entitled, and under what circumstances. 

Meanwhile, the only hint in the legislative record points in the direction of the administration's challengers. At one point in the congressional deliberations over the health law, Sen. Baucus seemed to suggest that only state-run exchanges are authorized to dispense tax credits. Unlike the text of the law, Baucus' statement isn't terribly clear. But it is, notably, the only statement in the legislative history that deals directly with the question at hand.


One reason to be skeptical of Baucus' remarks is that, like other Democrats who supported the bill, he has admitted that he did not actually read the complete text of the law himself. In August, 2010, just a few months after passage, he said at a townhall meeting, "I don't think you want me to waste my time to read every page of the health care bill. You know why? It's statutory language. We hire experts." 

Fair enough. Obamacare is a long and complicated law, and legislators lead busy lives. So it's worth finding out what some of the experts say—and have said.

One of the most prominent experts involved in the crating of Obamacare was Massachusetts Institute of Technology economist Jonathan Gruber. Gruber was paid almost $400,000 by the administration to analyze the legislation. He later served as a consultant for states looking to create exchanges, and he wrote the section of the law dealing with small business tax credits. He helped design the Massachusetts health law that Obamacare was based on. He was perhaps the foremost hired expert involved in the creation of the law.

Last Friday, two videos surfaced showing Gruber explicitly saying, in January 2012, that states that did not build their own exchanges would lose access to subsidies.

"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," he said in one videotaped speech. "By not setting up an exchange, the politicians of a state are costing state residents hundreds and millions and billions of dollars…. That is really the ultimate threat, is, will people understand that, gee, if your governor doesn't set up an exchange, you're losing hundreds of millions of dollars of tax credits to be delivered to your citizens," he said in another speech just a week earlier.

More recently, Gruber has become a vocal defender of the Obama administration's position that it is legal for federal exchanges to dispense subsidies. He said on MSNBC last week that the provision limiting the subsidies to state-run exchanges is unambiguously "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." His own remarks disprove the claim.

He says that both of the 2012 statements, which closely resembled each other, were simply "mistakes." If so, they were mistakes that rather conveniently matched the straightforward language of the law that both he and the administration now reject.

Nor is Gruber the only liberal health policy wonk to have associated with the idea and then come out against it. In 2011, when policy wonks began to discuss the subsidy language, influential legal scholar Timothy Jost dismissed the idea that Congress could have possibly limited Obamacare's subsidies to state-run exchanges. "There is no coherent policy reason why Congress would have refused premium tax credits to the citizens of states that ended up with a federal exchange," he wrote.

Yet just two years earlier, Jost had suggested in a paper that Congress could reform the health system by working through the states by "offering tax subsidies for insurance only in states that complied with federal requirements (as it has done with respect to tax subsidies for health savings accounts)." Not only was there a coherent policy reason, he had imagined it himself just a few years prior.

These statements from both Gruber and Jost reveal not only how easy it is for positions to change over the years, but how permanent the transformation can be. What once seemed a reasonable policy mechanism became an unthinkable possibility—one that was forgotten accordingly.


Even analysts at the Internal Revenue Service, which administers Obamacare's tax credits and wrote the rule allowing subsidies in federal exchanges, seem to have initially believed that the credits were available only in state-run exchanges.

According to a February report by the House Oversight Committee, an initial draft of the proposed IRS rule dealing with eligibility for the law's health insurance tax credits explicitly mentioned the law's "Exchange established by the State" language. A later version removed the phrase and replaced it with language allowing exchanges established under Section 1321—the section dealing with federal exchanges—instead. In an email uncovered by the committee, IRS and Treasury staffers reportedly "expressed concern that there was no direct statutory authority" for the more expansive replacement language.

And yet the administration and its supporters persist in arguing that their broader interpretation, which conflicts with the plain text of the law, is not only correct but obviously so.

"You don't need a fancy legal degree to understand that Congress intended for every eligible American to have access to tax credits that would lower their health care costs, regardless of whether it was state officials or federal officials who were running the marketplace," White House press secretary Josh Earnest said last week in response to the rulings.

You don't need a fancy legal degree to understand the clear meaning of the statute either. On the contrary, it's the White House position that the law is not what it plainly says that requires tortured legal rationalizations to understand.  

The administration's defenders argue that the law is difficult to interpret, the statutory language is ambiguous, and the legal particulars are difficult to understand. None of this is true. 

The clearest and most obvious interpretation, and the one that best fits the history, evidence, and context, is that the language of the law means what it unambiguously says, that the legislative incentive for states to comply works broadly like many legislative incentives that preceded it, and that even if members of Congress who didn't read the bill did not understand every detail of the legislatory they voted for, the wonks who helped draft and conceptualize the law did and said so—and have since reversed themselves because their initial understanding is no longer convenient.

It's not necessary to interpret congressional silence to figure out what Obamacare means. As the White House likes to declare, it's the law—and we know exactly what it says.