Let’s start with some facts we can all presumably agree on. MIT Professor Jonathan Gruber was involved in the development of the Affordable Care Act. He attended numerous meetings with the executive branch officials while the ACA was being formulated, met with President Obama once, and stayed as a member of a Congressional Budget Office Advisory Council on Long Term Modeling for a decade, including the years when the ACA was designed. Although perhaps he exaggerated in an effort to draw attention to himself, he referred to himself, as others did, as the architect of Obamacare. Although he is hardly President Obama himself or Senators Harry Reid, Max Baucus or then Speaker of the House of Representatives Nancy Pelosi, Professor Gruber was not a mere technocrat crunching numbers. He is more intimately connected with the bill, more of an insider, than many other academic proponents of the legislation. And so he has described himself.
So, when we are looking to understand a challenging provision of the ACA, and if we accept that the provision is sufficiently ambiguous (in context) to be subject to broader interpretive methods, and if there isn’t much other contemporaneous evidence on the subject, it does not become crazy to look at Professor Gruber’s statements about the provision.
The provision of which I speak is, of course, is section 36B of the Internal Revenue Code (section 1421 of the ACA) in which, to the untrained eye, Congress appeared to limit advance premium tax credits (subsidies) to those “enrolled in through an Exchange established by the State under section 1311.” Only 16 or so states established such an Exchange. The remaining 34 in one form or another have let the work be done by the Federally Facilitated Marketplace established in section 1321 of the ACA as a fallback precisely when the States did not, as anticipated, establish an exchange. But the IRS has interpreted “established by the State under section 1311” to include exchanges “established” by State non-establishment, i.e. their not establishing an Exchange knowing that the federal government would do so for them. This latter interpretation means that, just because people live in states with entrenched opposition to the ACA, like Texas, or states which have recognized their apparent incompetence in running an Exchange, like Oregon, or other states, which perhaps didn’t want the trouble, they will not be denied thousands of dollars of subsidies in a program which, at least according to the rhetoric of its proponents, was intended to reduce the rank of uninsured nationwide.
This provision, section 36B, is one that presumably the Supreme Court will interpret this term in King v. Burwell — unless of course it “DIGs” the case and decides to withdraw review for now. Although Burwell is not a constitutional case, and although it may have few jurisprudential ramifications, from a practical perspective, it is an extremely important decision. Because of the way section 36B reads, it is likely to determine whether many millions of Americans who have purchased health insurance on the “Federally Facilitated Marketplace” (FFM) pursuant to Obamacare in reliance on an advance of federal tax credits are in fact entitled to those advances or tax credits at all. It is about whether insurers will continue to sell health insurance policies in states now served by the FFM or seek to withdraw for fear of unsubsidized policies being bought predominantly by those with high projected medical expenses. And it is about whether some states will be induced by a decision in King v. Burwell to mitigate the damage to many of its citizens that would otherwise occur, by now establishing Exchanges whose creation they previously opposed. Oh, and if subsidies end up being unavailable, the employer mandate (26 USC 4980H) could be diluted because few employees will actually purchase policies on an Exchange.
It’s also about politics. The Democrats may look bad for having misused executive power to stretch the interpretation of an arguably clear law beyond recognition. And, of course the collateral political consequences of a “win” by mostly Republican opponents of Obamacare at the Supreme Court may provide that party with the credibility that comes from having a litigation position vindicated by the nation’s highest court. But all will not end there. At least some of this perceived political advantage to the GOP may be offset by the political harm likely to occur if the “victory” rips health insurance from their constituents. And it augurs a delightful spectacle: Republicans joining Democrats in the aftermath of the former’s victory in King v. Burwell to amend the ACA to actually say what the Obama administration now says it means. One can hear now Republicans claiming that it was all a matter of principles, of defending separation of powers and the Rule of Law. One could also perhaps see some Republicans wanting to take such a victory as a hostage and seeking concession from Democrats on a variety of matters, including a renegotiation of many provisions of Obamacare, as a condition of restoring coverage to millions of Americans.
Did Gruber lie?
But back to Gruber. The problem for those who support the IRS’ interpretation of section 36B is that it takes a heroic stretch of statutory language to get there. And Gruber — on videotape — twice — offered what purported to be a knowledgeable account of at least a plausible reason why the drafters of the ACA might have indeed threatened to punish the uninsured in states unwilling to “get with the program” and establish Exchanges. You can watch him below starting at about 31:25. Here’s a transcript.
Question: You mentioned the health information exchanges through the states and it’s my understanding that if states don’t provide them the federal government will provide them.
Gruber : Yes so these health insurance exchanges … will be these new shopping places and they’ll be the place that people go to get their subsidies for health insurance. In the law it says that if the states don’t provide them the federal backstop will. The federal government has been kind of slow in putting in the backstop I think partly because they want to sort of squeeze the states to do it. I think what’s important to remember politically about this is that 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 for this bill. So you’re essentially saying to your citizens, you’re going to pay all this 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 and that they’ll do it. But, you know, once again the politics can get ugly around this.
Or here. It’s an audio from January 10, 2012 at the Jewish Community Center of San Francisco. Again, here’s a transcript
I guess I’m enough of a believer in democracy to think that when the voters in states see that by not setting up an exchange the politicians of the state are costing state residents hundreds of millions and billions of dollars, that they’ll eventually throw the guys out. But I don’t know that for sure. And that is really the ultimate threat and that is will people understand that, gee, if your government doesn’t set up an exchange you’re losing hundreds of millions of dollars in tax credits to be delivered to your citizens. So that’s the other threat: will states do what they need to do to set it up.
Per Gruber, it was all a bluff. It was a stick to get the states to establish their own Exchanges. It’s not all that much different from lots of conditional spending decisions, such as tying federal highway funds to state raising of the drinking age, except this was a conditional taxing decision. It’s a not-so-unusual way of nicely inducing the states to do something they might otherwise be reluctant to do because, now, not doing so, hurts their citizens. As careful health law scholar and Obamacare advocate Tim Jost pointed out in a 2009 article (see figure below), conditioning subsidies on the state’s creation of an exchange is a way around a potential constitutional impediment to simply directing that the states do so. And if the states call the bluff, well, so be it, that’s a matter for internal state politics and does not undercut the federal desire that the states behave in conformity with the incentives. The limitation on subsidies set forth by the text of section 36B was a stick so big and so bad that resistance was thought to have been futile. Indeed, that may well have been why Professor Gruber, as he stated under oath in his testimony this week before the House Oversight Committee, always assumed in his modeling that subsidies would be available in all states.
There was only one problem. Many of the states called the statute’s bluff. They refused to establish their own Exchanges, either seeking to avoid the financial obligation or, at least in the Red Zone, complicity with the evils of the Affordable Care Act. And so, having seen the bluff called, the IRS, under this theory, pretended that the statute had never conditioned subsidies on state creation of an Exchange. In order that the benefits of Obamacare extend from sea to shining sea, the IRS interpreted “established by a state under section 1311” to include inaction by a state under section 1311 that led, under section 1321, for the federal government to come to the rescue.
Now, in ordinary circumstances, the musings, even recorded musings, of a lone professor at an academic conference or a community group on why Congress might have written a statute which, if one believes in many of the ideas of the ACA, is rather cruel, would not be particularly relevant to a Supreme Court case on its interpretation. After all, even careful law review articles by scholars are frequently ignored in statutory debate. And there is even a respectable argument that Gruber’s remarks are not relevant now to King v Burwell.
But interpretation disdains a vacuum. And the problem is that none of the legislators apparently explicitly focused on the purported cruelty of a literal interpretation of section 36B at the time the ACA was pushed through. And their silence could be interpreted several ways: that most people who cared understood it was a bluff that likely would not be called, that most people who cared understood that “established by a state under section 1311” should be read broadly, or, perhaps most realistically, that most had no idea about the details of a 2,700 page bill, even one that had indeed been widely debated.
And so, if the executive branch is to prevail in its reading of section 36B, it would sure help if it could tamp down contemporaneous evidence some proponents, even non-legislative ones, thought that use of a bluff made any sense. Professor Gruber’s comments, as an important proponent of the ACA, thus acquire additional saliency.
To be sure, Professor Gruber at the same hearing before the House Oversight Committee had an explanation for his assertions on this point. It was one, I assume he and others hoped, that would further diminish the force of what he had to say earlier on. Its an argument based on allegedly omitted context. Here is what he had to say (go to about minute 34 of the CSPAN video):
About my January 2012 remarks concerning the availability of tax credits in states that did not set up their own health insurance exchanges: the portion of these remarks that has received so much attention lately omits a critical component of the context in which I was speaking. The point I believe I was making was about the possibility that the federal government for whatever reason might not create a federal exchange. If that were to occur and only in that context then the only way that states could guarantee that their citizens would receive tax credits would be to set up their own exchange.
In other words, Gruber now claims that the only circumstance under which citizens of states not setting up their own exchanges would be deprived of tax credits would be if the federal government did not set up an exchange either. In that event, even under the broad definition of “established by a state under section 1311” that he embraces, there would be no exchange and the citizens would lose out.
The main problem with Gruber’s remarks is that the purportedly clarifying context is invisible except retrospectively and in Gruber’s own mind. Nowhere in his answers — nowhere in the full recordings — does he indicate a belief that Washington would not set up an exchange at all – a reasonable omission given that Washington was very much in the throes of establishing a federal exchange at the time. Washington spent hundreds of millions on healthcare.gov but was never going to get it up and running?
Want more evidence of the absurdity of the hypothetical scenario created by Gruber to reconcile his earlier comments with the desires of the Obama administration in King v. Burwell? You could read this May, 2012 report from CMS in which it discusses over 19 pages how the federally facilitated marketplace will work. You could read these July 2011 regulations and find the eight places in which the Department of Health and Human Services set forth how it is going to set up a federally facilitated marketplace, including the passage in the figure. Find me the warnings from CMS, from HHS, from the President from anyone that, in fact, the federal government was not going to establish a federally facilitated marketplace.
Not good enough? How about contemporaneous words very close to Gruber himself. Take a look at the work in December 2011 of the Study Panel on Health Insurance Exchanges. It’s important not only because it was work mandated by Congress but because a member of that study panel was … Jonathan Gruber. (Look at the list of panel members on page ii.) It writes a 34-page report on precisely how the federally facilitated exchange — the thing Gruber now says he doubted might exist — would come into being and the steps already being taken. The figure below is an excerpt from page 12 of that report.
It is thus no surprise that the report ends with the following statement: “Over the next 12 months, the federal government will continue to invest in and build a Federally-facilitated Exchange to operate in states that elect not to operate a State Exchange, or are unable to meet the certification and implementation schedule to stand up their Exchanges in 2014. ” In short the hypothetical scenario set forth by Professor Gruber in which the federal exchange does not exist looks like a fantastic reconstruction of events that simply did not occur.
And what are we to make of Gruber’s “squeezing the states” language? Are we to believe that the federal government thought tax credits were so important for a nationwide program that they would squeeze the states by going slowly on establishing an exchange only then to not set up an exchange at all if some states failed to capitulate to the pressure? How would that be consistent with a belief that the ACA was supposed to establish a nationwide program? And what are we to make of his language about state democracy: “I’m enough of a believer in democracy to think that when voters in states see that by not setting up an exchange the politicians of the state are costing state residents hundreds of millions and billions of dollars, that they’ll eventually throw the guys out.” It wasn’t the federal officials, his Obama administration friends, that Gruber hoped the state voters would throw out for failure to establish a backstop exchange; it was the officials in the state that he hoped would be thrown out for failing to establish an exchange. The simplest explanation for this hope is that Gruber believed that under the statute, even if the federal government established an exchange that let people buy policies without subsidies, states not establishing their own exchanges would thereby cause their citizens to lose hundreds of millions of dollars in tax credits.
I’m afraid he did
In short, and I say this with some sorrow as a fellow professor who has testified before the same committee, there is proof beyond most doubt that Professor Gruber deliberately lied under oath on at least this point. He did so not in an off the cuff remark but with advice of counsel and after having apparently rehearsed and written out his testimony beforehand.
Now, to be complete, I suppose we order to consider one other make-weight explanation offered by Professor Gruber to diminish the import of his earlier recorded comments: it’s about his models.
Indeed, my microsimulation models for the ACA expressly modeled that the citizens of all states would be eligible for tax credits whether served directly by a state exchange or by federal exchange.
But this explanation about his behavior presumably prior to the enactment of the ACA is not inconsistent with a view that 36B conditions subsidies on a state creating an exchange. It’s consistent with a (mistaken, as it turned out) view that the carrot and stick contained in section 36B was too large for states to ignore. It is also potentially inconsistent with his belief, expressed two sentences earlier, that he, unlike anyone else in the debate, harbored this suspicion that Washington would not set up an exchange for the states that failed to set up their own. In that event, according to Gruber’s own reasoning, he should not have assumed in his model that all states would receive subsidies.
Why does it matter?
Ok, so some MIT professor interpreted section 36B of the ACA the way the plaintiffs in King v. Burwell do. OK, so he took liberties with the truth in his testimony before Congress. Is this an irrelevant tempest in a teapot brewed up by implacable Republican adversaries of Obamacare? I don’t want to speculate on motivation, but I actually think it is neither the most important event in the history of Obamacare — far from it — nor entirely irrelevant. It may well be that the statute is so clear, though, that Professor Gruber (or anyone else’s thoughts) on its meaning are entirely beside the point.
Nonetheless, if for no other reason than to satisfy curiosity, I would like to see Professor Gruber, when he is hauled back before Congress pursuant to an additional subpoena, asked a more open ended question about how he, a mere (MIT) economics professor without legal training acquired his beliefs about the meaning of section 36B. Did he really read the statute with care and come to that conclusion using the same somewhat — let us be fair — circuitous statutory reasoning now advanced by the defendants in King v. Burwell? Or might it have actually been based on comments he heard from the true legislative architects of the ACA during some of the many meetings he held on the subject? If so, even such hearsay might be more relevant than Gruber’s own beliefs as to interpretation of a critical statute.
I am also old fashioned enough to be somewhat concerned about what sure looks to me like at least one calculated lie. If, for example, Professor Gruber believes so strongly in the ACA — and one need only read his graphic book to realize the passion of his commitment — that he is willing to re-invent events in order to play a tiny role in its salvation, how non-instrumental was he in the modeling that led up to passage of the ACA and that, I believe, may have some residual role in contemporary forecasts of its success? I can understand that lies in order to provide, in his opinion, millions of people access to life-saving healthcare may in his mind be a necessary evil. After all, although transparency may be important, it is crystal clear that Gruber would, as he said, rather have this law than not.