It’s safe to say that the Supreme Court shocked much of official Washington on Friday when it agreed to hear King v. Burwell. In King, the plaintiffs challenged the IRS’s decision to provide tax-credit subsidies to individuals who purchased health insurance on federal, not state, exchanges. The problem? The Affordable Care Act plainly and unequivocally states that subsidies are available only when the consumer purchases insurance on exchanges “established by the State.” Because millions of Americans are purchasing subsidized insurance through federal exchanges, removing those subsidies could very well break the economics of the entire scheme, creating a “death spiral” in insurance costs and necessitating significant reform.
Let’s break this down as clearly as possible:
First, according to one of Obamacare’s principal architects, MIT’s Jonathan Gruber, the state-exchange subsidy provision was intentional, part of an effort to induce states to set up their own exchanges. Here’s Gruber:
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.
Second, the state incentives were part of a law that was written to be intentionally obtuse, to take advantage of the “stupidity of the American voter.” Here’s Gruber again:
This bill was written in a tortured way to make sure CBO did not score the mandate as taxes. If CBO scored the mandate as taxes, the bill dies. Okay, so it’s written to do that. In terms of risk rated subsidies, if you had a law which said that healthy people are going to pay in – you made explicit healthy people pay in and sick people get money, it would not have passed… Lack of transparency is a huge political advantage. And basically, call it the stupidity of the American voter or whatever, but basically that was really really critical for the thing to pass… Look, I wish Mark was right that we could make it all transparent, but I’d rather have this law than not.
Third, when the IRS initially began drafting regulations to implement Obamacare, it took the statute at its word and drafted regulations providing subsidies only for insurance purchased on the state exchange. Kimberly Strassel’s July Wall Street Journal piece has the details:
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.”
Fourth, aware of the high risks of the Obamacare exchange scheme, senior IRS officials intervened to try to salvage the law by rewriting it:
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.
Emails viewed by congressional investigators nonetheless showed that Treasury and the IRS remained worried they were breaking the law. An email exchange between Treasury employees in the spring of 2011 expressed concern that they had no statutory authority to deem a federally run exchange the equivalent of a state-run exchange.
“No statutory authority” is an understatement. The IRS’s only “statutory authority” was to implement the law as written.
Faced with such clear statutory language, the Left is largely reduced to pleading incompetence. The Obama administration’s signature legislative accomplishment — one of the most sweeping pieces of social legislation in a generation — suffers from a fatal “typo.” Paul Krugman’s most recent rant is representative:
But it now appears possible that the Supreme Court may be willing to deprive millions of Americans of health care on the basis of an equally obvious typo. And if you think this possibility has anything to do with serious legal reasoning, as opposed to rabid partisanship, I have a long, skinny, unbuildable piece of land you might want to buy.
Let me translate: House Democrats, Senate Democrats, and the President of the United States were simply incompetent, unable to draft a law to say what they really meant.
Krugman then goes further, proclaiming that anyone who believes that Pelosi, Reid, and President Obama were competent — in other words, meant what they said — is just downright corrupt:
Judges who support this cruel absurdity aren’t stupid; they know what they’re doing. What they are, instead, is corrupt, willing to pervert the law to serve political masters. And what we’ll find out in the months ahead is how deep the corruption goes.
This is an astonishing statement, even for Paul Krugman. And it should demonstrate the depth of the Obama administration’s vulnerability in the case. We’re months from oral argument, and already it’s “corrupt” to believe that laws should mean what they say.
Let’s be clear, applying the law as written isn’t “corruption,” it’s vital to democracy. And if the law as written doesn’t work, it must be corrected through a democratic process, not regulatory fiat.
President Obama faces a potentially humiliating moment: Going hat in hand to a Congress he loathes to fix a law that was broken from its inception.
That’s not “corruption.” It’s accountability.