Report: HHS Waffled On Federal Obamacare Subsidies Question

Font Size:

The nonprofit coordinating several lawsuits against Obamacare subsidies in federally-run exchanges is out with a new report which suggests that the Obama administration itself didn’t expect to offer premium subsidies on

The Competitive Enterprise Institute published a report by finance expert Scot Vorse has published a timeline of the Department of Health and Human Services’ preparation for Obamacare’s launch over the past several years. Interestingly enough, while HHS quickly began work on getting state-run exchanges to offer subsidies, it doesn’t appear that the agency did the same with, suggesting it may have not initially believed it was allowed to.

The question is more pertinent that ever. A number of lawsuits charging that Obamacare restricts subsidies to state-based exchanges only, and that the IRS is illegally handing out taxpayer dollars on, have proceeded quickly through the court system. The Supreme Court will hear one such case, King v. Burwell, next session.

“Official documents show that while HHS moved quickly after the ACA’s enactment to help state governments make tax credits available through state-based exchanges, for nearly two years, it developed its website without any effort to offer tax credits on the federal exchange,” Vorse wrote in the CEI report.

The key is the tax credit calculator, a function on Obamacare exchanges which allows customers to input their expected annual earnings and get an estimate of what they’ll pay for coverage after subsidies are included. Without the calculator, customers would have no basis of understanding what they’d owe — which could suggest that HHS didn’t actually think would be offering subsidies at all.

President Obama signed the Affordable Care Act into law in March 2010 and HHS was awarding grants to state exchanges by September. It certainly appears that the law’s authors didn’t expect states to refuse to build their own exchanges — Vorse points out that while the law authorizes funding for states to build exchanges, it doesn’t include funding for building a federal exchange.

In Nov. 2010, HHS began distributing guidance to states about building exchanges, including requirements that the website have a tax credit calculator available. The agency sent out at least 18 different documents related to state exchanges, all requiring tax credit calculators, according to CEI. As late as Sept. 2011, HHS’ initial contract with a developer didn’t require a calculator, according to CEI.

The change began to occur around Nov. 2011, when HHS knew for certain that some states would refuse to build exchanges. HHS updated a Cooperated Agreement document on Nov. 29 and eliminated six phrases that referred to “state-based” or “state-operated” exchanges.

The report corroborates a February 2014 Joint Staff Report in the House on the issue of federal exchanges subsidies. That committee report found that “early drafts of the proposed premium subsidy regulation contained the statutory language restricting tax credits to Exchanges “established by the State.”

Those restrictions were removed by March 2011, but CEI argues, as did the Oversight report, that the IRS believed for at least one year that it could only issue premium subsidies to customers of state exchanges.

CEI, of course, does have a horse in this race: it’s coordinating and funding two of the most prominent lawsuits, Halbig v. Burwell and King v. Burwell, which the Supreme Court will hear next year. But the timeline again raises doubts about what the Obama administration knew and when.

Beyond what guidance was issued and when, a key Obamacare architect (yes, architect), Jonathan Gruber, has not only acknowledged that the law says subsidies can only go to state exchanges, but has also provided the explanation of why Congress would do that. (RELATED: Obamacare Architect Argued Years Ago That States Without Exchanges Can’t Get Subsidies) 

“The federal government has been sort of slow in putting out its backstop [federal exchange], I think partly because they want to sort of squeeze the states to do it,” Gruber said in 2012. “I think 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.”

Gruber argued that state governments would be pushed to build exchanges by constituents who were paying taxes but not eligible for subsidies.

“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,” Gruber continued. “I hope 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.”

Gruber has since sided with the Obama administration over the question, but the appearance remains that both an architect of the law and the federal government itself have flip-flopped on the question. The Supreme Court’s decision on the case next June will have ramifications for millions of Americans who’ve been promised by the Obama administration that they won’t have to pay the full cost of their Obamacare coverage.

Follow Sarah on Twitter