Two-years have passed since the signing of the Affordable Care Act (ACA, Obamacare). At this point, one thing is clear, there was a significant “drafting” mistake in the original legislation. There has been an on-going fight over this. I think it’s coming to a boil. If so, it couldn’t come at worse time for the Administration. Some connecting dots:
-Under ACA, a state could either, 1) establish its own HIX, 2) Do a partial HIX with federal support, or 3) Let D.C. pick up the whole thing.
-ACA provided strong incentives to the states to choose option #1 (90% reimbursement). It was originally assumed that a high percentage of the states would set up their own HIXs.
-To make the cost of insurance “affordable” there were tax-credits available for lower income individuals and families. These tax-credits are an essential ingredient to Obamacare.
-The following is the key language that is now in question:
Tax credits are available if
(A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependentof the taxpayer and…..
……which were enrolled through an Exchange established by the State
The tax credits are limited to those states that establish their own HIX.Period. The Letter of the Law reads, (clearly to me) that the ACA tax credits are not available in states that choose to have D.C. manage the required HIX (option #3)
-Many states have refused to set up their own HIX. The following shows the tally as of 11/29. Yesterday, NJ’s Chris Christie, surprisingly, said “Nix to HIX”.
-If the tax credits for “No HIX” states were to go away, Obamacare goes down for the count.
-The Obama Administration “fixed” the problematic “drafting error”. The President called the Treasury Secretary, (Geithner) and told him to fix it. Timmy, in turn, called the boss at the IRS, Doug Schulman, and told him to fix it. Doug issued a ruling that “eliminates” the conflicting language. Poof! The problem goes away. Maybe.
-Without the consent of Congress, the IRS changed the letter of the law on the most significant legislation in the past fifty-years. With out the IRS ruling, ACA was D.O.A.
The most recent development in this curious story came on Friday. Doug Elmendorf, the head of the Congressional Budget Office (CBO) wrote a letter to Congressman Darrell Issa (R-CA) on this topic. (Link)
Elmendorf’s letter was in response to one from Issa. Elmendorf frames Issa’s question:
You asked for a description and explanation of CBO’s assumption that premium assistance tax credits established under ACA would be available in every state, including states where the insurance exchange would be established by the federal government.
Elmendorf answered with this:
To the best of our recollection, the possibility that those subsidies would only be available in states that created their own exchanges did not arise
To the best of our recollection?
When the CBO originally looked at ACA, it produced reports that assumed that the tax credits would be available to all states, regardless of what choice was made with HIX. This fact is now being used as “evidence” that legislators “intended” to have the credits available without restriction.
Issa’s letter was trying to get to the facts. Why didn’t CBO produce numbers that reflected the wording of the law? Elmendorf’s response was a put down (IMHO). He’s saying, “No one brought it up”.
I’ll repeat the words that are causing the problem. What’s your interpretation? What was the intent of Congress on the issue of availability of insurance tax credits? Do you think the IRS should have glossed this over? (It was a backdoor “fix”, plain and simple) Do you think Issa is going to rollover on this? (Not a chance) Did the CBO make a mistake by not considering the plain language in ACA back in 2010? (At a minimum, it should have asked for a clarification). And how about the, “We don’t recall” answer from CBO?
tax credits are available… to those who were enrolled through an Exchange established by the State
I’m not sure what to make of this. I think the language was a mistake. ACA was pushed through in 72 hours, no one caught the error.
The working assumptions provided by CBO in 2010 were not intended to confuse Congress, but that was the result.
The IRS “fix” will be challenged in court.
The Cato Institute has been pounding away on this topic, Cato believes it has evidence that Sen. Max Baucus (D-MT), Chairman, Committee On Finance, spoke of ACA limiting tax credits to only states with their own HIX. (Link) (Video). If correct, it would be a problem for ACA. I doubt that Baccus is going to speak up on this. After all, he was one of the guys running the show.
I don’t think this is as cut and dried as Cato makes it out to be. At a minimum, Baccus was confused on the critical question of tax credit availability. That is the point, the big-shots running the show did not really understand what they were doing. Most legislators had no clue what they were signing.
There is no easy fix to this. If you asked the House how it would apply the tax credits today, it would limit them, as the original law was written. That vote would be on party lines. There will be no effort to clarify the original language, that would open a huge can of worms. Stay tuned…About The Author - Bruce Krasting had worked on Wall Street for 25 years--"For 25 years I woke up thinking, "What am I going to do today to make some money in the market". I don't do that any longer. But I miss it." Nowadays, Bruce blogs about his take on financial events at Bruce Krasting. (EconMatters author archive here.)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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