The genesis of Obamacare’s disputed provision on insurance subsidies

By Jon Healey,

Here’s why Democrats put a provision in the ACA that critics say bars subsidies in some states.

The Times ran multiple opinion pieces last week — by me, by the editorial board and by op-ed contributors — arguing that, contrary to what the U.S. Circuit Court of Appeals for D.C. ruled, the 2010 healthcare law makes insurance subsidies available in every state, not just the 14 that established their own insurance exchanges.

To which some readers have asked, reasonably enough, why does the text of the law seem so clearly to say otherwise? For example, Michael Robertson, a tech entrepreneur who’s no fan of Obamacare, asked via Twitter, “Why mention ‘state exchanges’ in the context of subsidies if everyone gets them? That’s highly illogical.”

The provision at issue determines the size of the tax credits available through the law. It says the amount will be based in part on the size of the monthly premiums for plans that recipients “enrolled in through an exchange established by the state” under the procedures set forth elsewhere in the act.

So, why the reference to “established by the state,” a phrase upon which the D.C. Circuit Court hung its entire ruling barring subsidies in states that had the federal government set up their exchanges? According to my sources, who were involved in the actual drafting, the phrase stemmed mainly from the Senate’s desire to distinguish its approach from the House’s.

Committees in both the House and the Senate started working on a healthcare overhaul early in 2009, as did the Obama administration. The House Energy and Commerce Committee’s draft came out in July of that year, the Senate Health, Education, Labor and Pensions Committee approved its version in mid-September, and the Senate Finance Committee countered with its own proposal a few weeks later.

When Senate Democratic leaders merged the two committees’ bills into a single proposal that November, they used the Finance Committee’s language on exchanges with few changes. A potentially telling one is the deletion of the committee’s proposal to have non-governmental entities operate exchanges in states that didn’t set up their own. Instead, the bill required the federal government to establish and operate “such exchange” — a formulation that the 4th Circuit Court judges said was meant to signify the equivalence between state- and federally established exchanges.

The HELP Committee’s approach to exchanges was all but ignored, including the language that explicitly rendered states ineligible for subsidies if they failed to enact certain insurance reforms. That may be the clearest evidence that the idea of withholding subsidies never made it past the HELP Committee.

Having said all that, the provision in dispute is a forehead-slapper for anyone who supports Obamacare. Aides who worked on the bill expected to be able to polish it in a House-Senate conference committee, which may explain the sloppy drafting. Those plans were abandoned when the coalition of Democrats and independents that pushed the bill through the Senate over unified Republican opposition lost its filibuster-proof majority in early 2010, leaving Democrats little hope of steering an amended version through the Senate.

Some will argue that whatever Congress meant to say, the administration should be bound by what the law actually says. That’s not unreasonable.

Yet as the Supreme Court has ruled, individual sections of an act can’t be read in isolation. Phrases have to be read in context. That’s why the 4th Circuit upheld the administration’s interpretation of the disputed provision, which the panel said was ambiguous because it conflicted with other parts of the Affordable Care Act.

Obamacare opponents would very much like to believe that Congress was using the subsidies as a stick to punish states that didn’t set up exchanges, but the evidence in the record — along with interviews with people who helped write the bill — indicates that there was no such plan. In light of what the rest of the law says, the best explanation for the disputed provision is that the Senate was trying to distinguish its proposal from the House’s, not to withhold subsidies from lower-income Americans unlucky enough to live in states led by Obamacare opponents.

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