Earlier this week, a three-judge panel in the D.C. Circuit Court ruled that, contrary to the Obama administration’s implementation and an Internal Revenue Service rule, Obamacare’s subsidies for private health insurance were limited to state-run health exchanges.
The reasoning for this ruling was simple: That’s what the law says. The section dealing with the creation of state exchanges and the provision of subsidies states, quite clearly, that subsidies are only available in exchanges "established by a State," which the law expressly defines as the 50 states plus the District of Columbia.
Obamacare’s defenders have responded by saying that this is obviously ridiculous. It doesn’t make any sense in the larger context of the law, and what’s more, no one who supported the law or voted for it ever talked about this. It’s a theory concocted entirely by the law’s opponents, the health law's backers argue, and never once mentioned by people who crafted or backed the law.
It’s not. One of the law’s architects—at the same time that he was a paid consultant to states deciding whether or not to build their own exchanges—was espousing exactly this interpretation as far back in early 2012, and long before the Halbig suit—the one that was decided this week against the administration—was filed. (A related suit, Pruitt v. Sebelius, had been filed earlier, but did not challenge tax credits within the federal exchanges until an amended version which was filed in late 2012.) It was also several months before the first publication of the paper by Case Western Law Professor Jonathan Adler and Cato Institute Health Policy Director Michael Cannon which detailed the case against the IRS rule.
Jonathan Gruber, a Massachusetts Institute of Technology economist who helped design the Massachusetts health law that was the model for Obamacare, was a key influence on the creation of the federal health law. He was widely quoted in the media. During the crafting of the law, the Obama administration brought him on for consultation because of his expertise. He was paid almost $400,000 to consult with the administration on the law. And he has claimed to have written part of the legislation, the section dealing with small business tax credits.
After the law passed, in 2011 and throughout 2012, multiple states sought his expertise to help them understand their options regarding the choice to set up their own exchanges. During that period of time, in January of 2012, Gruber told an audience at Noblis, a technical management support organization, that tax credits—the subsidies available for health insurance—were only available in states that set up their own exchanges.
A video of the presentation, posted on YouTube, was unearthed tonight by Ryan Radia at the Competitive Enterprise Institute, a libertarian think tank which has participated in the legal challenge to the IRS rule allowing subsidies in federal exchanges. Here’s what Gruber says.
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. [emphasis added]
Here’s the video, which according to YouTube's date stamp was uploaded by Noblis on January 20, 2012. The relevant passage starts around minute 31.
There can be no doubt, based on his record, that Gruber is a supporter of the law. He says so in the presentation. "I’m biased, I’m in favor of this type of law, I won’t hide that," he says. He also explains early on that his entire presentation is made of "verifiable objective facts."
And what he says is exactly what challengers to the administration’s implementation of the law have been arguing—that if a state chooses not to establish its own exchange, then residents of those states will not be able to access Obamacare's health insurance tax credits. He says this in response to a question asking whether the federal government will step in if a state chooses not to build its own exchange. Gruber describes the possibility that states won’t enact their own exchanges as one of the potential "threats" to the law. He says this with confidence and certainty, and at no other point in the presentation does he contradict the statement in question.
In early 2013, Gruber told the liberal magazine Mother Jones that the theory advanced by the challengers in this case was "nutty." Gruber also signed an amicus brief in defense of the administration and the IRS rule. But judging by the video it is quite clear that in 2012 he accepted the essence of the interpretation advanced by the challengers.
Unless this video is a fraud or there are relevant details missing, there are only two options here: Either Gruber, a key influence on the legislation who wrote part of the law and who consulted with multiple states on setting up their own exchanges, was correct, and the law explicitly limits subsidies to state-run exchanges.
Or he was wrong in a way that perfectly aligns with both the clear text of the legislation and the argument later made by the challengers to the IRS rule allowing susbidies in federal exchanges.
Update: Earlier this week, Gruber was on MNSBC 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."
Update 2: The Cato Institute's Michael Cannon, who was instrumental in developing the arguments that laid the groundwork for the legal challenge in Halbig, responds to the video at Forbes:
I don’t mean to overstate the importance of this revelation. Gruber acknowledging this feature of the law is not direct evidence of congressional intent. But Gruber is probably the most influential private citizen/government contractor involved in that legislative process. He was in the room with the people who crafted this bill.
Update 3: Gruber says the statement in the video was "a mistake." Jonathan Cohn of The New Republic got a response from Gruber this morning. Here are a few snippets:
I honestly don’t remember why I said that. I was speaking off-the-cuff. It was just a mistake. People make mistakes. Congress made a mistake drafting the law and I made a mistake talking about it.
During this era, at this time, the federal government was trying to encourage as many states as possible to set up their exchanges. ...
At this time, there was also substantial uncertainty about whether the federal backstop would be ready on time for 2014. I might have been thinking that if the federal backstop wasn't ready by 2014, and states hadn't set up their own exchange, there was a risk that citizens couldn't get the tax credits right away. ...
But there was never any intention to literally withhold money, to withhold tax credits, from the states that didn’t take that step. That’s clear in the intent of the law and if you talk to anybody who worked on the law. My subsequent statement was just a speak-o—you know, like a typo.
Update 4: Gruber appears to have made a second "speak-o." In a separate speech, he spoke of the "threat" posed by states declining to build their own exchanges. And he once again explicitly ties the creation of state-based exchanges to the law's tax credits (its subsidies for private health insurance insurance).
On January 10, 2012, in a speech at the Jewish Community Center of San Francisco, Gruber said that "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."
Here's the recording, via John Sexton at Breitbart:
(Disclosure: From 2005 through early 2007 I worked at the Competitive Enterprise Institute.)