The Halbig Issue Is a Real One

I thought I had the whole Halbig issue figured out. I’m starting to think I was wrong.

Halbig is the name that is used to describe the most recent legal challenge (Halbig v. Burwell) to Obamacare. It is expected to be argued before the Supreme Court sometime next year. If the challengers win, it can very well mean the end of Obamacare, as it would take away the ability of the IRS to give tax credits to those who bought their plan on the federal exchange. Without those credits, the plans would be unaffordable to most of those who would otherwise qualify for rebates, and 36 out of the 50 states would effectively be out of the program. Without all of the states the law would be unsustainable and it would probably collapse in short order.

The issue, as I have written about previously, is the wording of the law. When speaking about the tax credit/subsidies, the law mentions plans purchased on the exchanges run by the states. Furthermore, it mentions the section of the law in which the establishment of these exchanges are detailed. The establishment of the federal exchange is in an entirely different section, one not referenced when speaking of the subsidies.

What the Halbig petitioners are essentially arguing is that the intent of the law is to limit subsidies to the state-run exchanges only. This argument was originally advanced by Michael F. Cannon, Cato Institute’s director of health policy studies, and Jonathan H. Adler, director of the Center for Business Law and Regulation at the Case Western Reserve University School of Law. They contend that those writing the law had this in mind when crafting the language of the Affordable Care Act.

I must admit that I didn’t completely buy this argument. To be perfectly honest, I thought it was a case of a stupidly written law. Nancy Pelosi’s famous remark at the Legislative Conference for the National Association of Counties in March 2010 — “we have to pass the bill so that you can find out what’s in it” — comes to mind. But I had always thought that even if it were the fact that the bill was written foolishly, and Cannon and Adler were wrong about intent, the challengers should still win.

After all, it’s the law.

In his opinion upholding Obamacare in 2012, which is either famous or infamous, depending on whom you speak to, Chief Justice John Roberts wrote the following: “Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments. Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.”

The same would hold true here. If Congress hadn’t thought about the possibility that many states would not make their own exchanges, which they definitely did not expect, then they may have left out the provision for subsidizing insurance premiums on the federal exchange via tax credits — albeit unintentionally. But even if they really wanted those states to have the credits, they didn’t write it into the law, so those people would not be able to get them.

But that leaves it open to a bit of debate. Some have argued (as did the dissenting judge in Halbig, Harry T. Edwards) that since the argument would be that an unintentional omission now allows states to destroy the law, it stands to reason that the statute language is ambiguous. (That’s really his argument.) If a statute is ambiguous, the government agency tasked with implementing the law gets to decide how to interpret it. In this case the IRS decided to issue credits, and the courts cannot stop that.

This argument, while it leaves open the possibility of a Republican president stopping the subsidies when he’s in charge of the IRS, took a very big hit this past week when two clips surfaced of Obamacare architect Jonathan Gruber talking about the exchanges. In the first one Gruber said, “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.”

When reached for comment, he dismissed this as an off-the-cuff remark, and not at all indicative of what he really believed. But then another clip surfaced where, as was also the case in his prepared remarks, Gruber said, “A number of states have even turned down millions of dollars in federal government grants as a statement of some sort. They don’t support health-care reform. 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 in their 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 what is really the ultimate threat is: Will people understand that, gee, if your governor doesn’t set up an exchange, you’re losing hundreds of millions of dollars of tax credits to be delivered to your citizens?”

These two clips opened my eyes to the possibility that Adler and Cannon might be right that this was actually planned for. But what was planned for was only the possibility that a handful of states wouldn’t set up exchanges of their own. They would then be able to threaten those governors with loss of the subsidies, setting them up for a political nightmare.

Because if you think about it, why would a state want to run its own exchange? Other than political calculations, there is no reason for them to choose to do so. But with this added “stick” to the “carrot” — that is, the subsidies — they can get the few holdout states to set up exchanges.

But instead, the overwhelming majority of states chose not to set up their own exchanges. Threatening loss of subsidies would then doom the law — something Republican governors would’ve welcomed. So the IRS had to rewrite the rule allowing the subsidies in those states.

But now the question is not what Cannon, Adler or Gruber say. It’s soon going to be what Roberts and Kennedy say.