By Glenn Kessler

The Supreme Court on March 4 will hear the case of King v. Burwell, which threatens to unravel the Affordable Care Act, a.k.a. Obamacare, because the plaintiffs argue that the health-care law does not authorize subsidies through federally run insurance marketplaces; instead, they say, the law only allows such subsidies in the 14 states (and District of Columbia) which set up their own exchanges. The subsidies, which come in the form of a tax credit, reduce the cost of premiums by as much as 89 percent. A court ruling denying subsidies to states on the federal exchange will cause the law to collapse, many experts say.

This legal attack against the law was first outlined in a July 2012 paper co-written by Michael F. Cannon, a Cato Institute health-policy analyst,  and Jonathan Adler, a law professor at Case Western Reserve University. They argued that because the law did not clearly state that premium subsidies would be provided to Americans living in a state that did not set up a health-insurance exchange, an Internal Revenue Service rule extending the subsidies to all states was illegal.

Cannon has said he initially thought the wording about subsidies in the law—which was actually two bills, rather than one bill reconciled in a conference committee—was a drafting error. But he has since to come to the conclusion that it was intentional, though lawmakers and staff members involved in the legislation have disputed that. In a brief filed with the Supreme Court, they have argued that the clear intent of the law was to provide health premium subsidies to every American who qualified.

In recent weeks, advocates of the law have pointed to statements made by leading Republican lawmakers that have suggested that at one point they too assumed the subsidies would be made available to all Americans.

From time to time, The Fact Checker awards an upside-down Pinocchio to politicians who make an unacknowledged flip-flop on an issue, so we thought it would be interesting to put these statements to the Pinocchio test. We were assisted in collecting these statements by the Constitutional Accountability Center, which opposes King v. Burwell. (We would welcome from readers examples of Democratic contradictions on this matter as well.)

Three of the lawmakers below have signed a Supreme Court brief that argued that a clear reading of the law shows premium subsidies were not intended for states on the federal exchanges. Their statements were often made in open hearings, and so one has to be a bit Talmudic in trying to understand what the lawmakers are trying to say. The key parts of these statements will be in boldface.

Rep. Paul Ryan (R-Wis.)

(March 15, 2010)

You’re taking money out of this program to create a brand new, open-ended entitlement. And it’s a new open-ended entitlement that basically says to just about everybody in this country, people making less than $100,000, ‘You know what? If your health care expenses exceed anywhere from 2 to 9.8 percent of your adjusted gross income, don’t worry about it. Taxpayers got you covered. Government’s gonna subsidize the rest.’

From our perspective, these state-based exchanges [in the U.S. Senate’s version] are very little in difference between the House version—which has a big federal exchange, just putting the same rules in place.

But what we’re basically saying to people making less than 400 FPL [400% of the Federal Poverty Level], or in real language that’s about $100,000, is ‘Don’t worry about it. Taxpayers got you covered.’

Given that Ryan spoke of an “open-ended entitlement that basically says to everyone in this country, people making less than $100,000,” it certainly suggests he thought everyone in the country (under a federal or state exchange) would be covered. But a Ryan spokesman disputed that in a statement:

Mr. Ryan maintains that Obamacare, as written, grants subsidies only to people who sign up for coverage on a state exchange. None of the quotes contradict that position.

In the first and third quotes, Mr. Ryan is not talking about who will qualify for the subsidies but who will pay for them. Obamacare raids Medicare to pay for a new, open-ended entitlement. Mr. Ryan is making the point that whatever Obamacare’s costs—and whoever incurs them—taxpayers will foot the bill.

In the second quote, Mr. Ryan is not talking about who will qualify for the subsidies, but how the exchanges will work. In 2011, states were debating whether to set up their own exchanges, and those in favor argued that doing so would maintain state control over insurance markets. But because the insurance reforms in Obamacare are federal mandates, states have already lost substantial control over their insurance markets, whether they set up an exchange or not. Mr. Ryan was making the point that there’s no difference between state and federal exchanges when it comes to regulating insurance deemed compliant.

Mr. Ryan has always maintained that Obamacare is fundamentally flawed—right down to the plain language of the law. That’s exactly what the Supreme Court will rule on this summer.

So did Ryan misspeak when he said: “From our perspective, these state-based exchanges [talking about the Senate version of the ACA] are very little in difference between the House version — which has a big federal exchange, just putting the same rules in place”?

The spokesman replied:

In the quote, Mr. Ryan is referring to the rules that insurance companies must follow when designing plans, not the rules that the federal government must follow when distributing subsidies. Obamacare says plans offered on a state exchange must offer largely the same benefits as plans offered on a federal exchange. So there is in fact “very little difference” between the state and federal exchanges when it comes to insurance regulations.

That’s an entirely different question than who can receive subsidies. The law allows people buying on state exchanges to receive subsidies, but makes no provision for people buying on a federal exchange. So it’s correct and consistent to say there’s “very little difference” between the exchanges in one aspect (that is, insurance regulations) and a big difference on another (that is, subsidies).

Sen. John Cornyn (R-Tex.)

(exchange with Health and Human Services Secretary Kathleen Sebelius, Feb. 15, 2012)

The Congressional Budget Office originally estimated that only some seven percent of employees would lose their employer-provided coverage as the health-insurance exchanges were implemented in 2010. McKinsey, the business consulting group, has estimated that at minimum somewhere in the order of 30 percent of employees would lose their employer-provided coverage and it could well be as high as 50 percent to 60 percent. Indeed, I think it’s easy to see why that’s true because the financial incentives for an employer would create a reason for them to drop their employee coverage and to then require those individual employees to seek their coverage in health insurance exchanges.

And of course the employer-provided coverage is subsidized as a fringe benefit by the employer, not by the American taxpayer. But once they go into the exchanges, they will be eligible — those individuals will be eligible for taxpayer provided subsidies in the exchanges. Can you tell us how the President’s budget deals with this issue and how we’re going to be able to afford to provide taxpayer-provided subsidies for this 50 or 60 percent of employees that are now provided with employer coverage?

Cornyn’s questions discussed “individuals… be[ing] eligible for taxpayer provided subsidies in the exchanges.” He made no qualification about state or federal exchanges—and in fact he attacks the law by wondering how the budget could “afford to provide taxpayer provided subsidies for this 50 or 60 percent of employees that are now provided with employer coverage” being dumped on the exchanges by employers who might think that more cost-effective.

In some ways, his attack on the law makes little sense if the logic of the King v. Burwell case applied, since no federal spending on subsidies would take place in any states with a federal exchange. Thus his estimate of 50 to 60 percent of employees losing their employer-based coverage would not come to pass either.

Spokesman Drew Brandewie argues that Cornyn was asking Sebelius “a hypothetical question based on something the administration was planning on doing (providing assistance to those in federally run exchanges) to make a point about how costly their proposal would be. It doesn’t mean he believed the law provided for assistance for federal exchanges.”

Interestingly, Cornyn’s comments were made long after Cannon and Adler began to raise questions about the IRS rules. In fact, he could have raised questions as Rep. Lynn Jenkins (R-Kan.) did in a hearing just two weeks later, on Feb. 28:

REP. JENKINS: The Affordable Health Care Act makes clear that health insurance subsidies are only available to individuals and families enrolled in an American health benefit exchange, which is defined in the law as a state-based exchange. And further, the law requires that in order to be eligible for exchange subsidies, the individual must be enrolled “through an exchange established by the state,” that’s a quote.

And in response to Mr. Levin’s question, you explained that it’s clear that many states will not set up exchanges. And as you know, the law does not allow subsidies to flow through federal exchanges. However, back in August, the IRS issued a proposed rule allowing premium subsidies to be made available in all exchanges, whether state or federally run.

The IRS commissioner responded to a congressional letter on this matter stating, and I quote, “The statute includes language that indicates that individuals are eligible for tax credits, whether they are enrolled to state-based exchange or a federally facilitated exchange.”

Now, I can’t find the term “federally facilitated exchange” in the health care law, so I’m just wondering exactly where in the law is the term “federally facilitated exchange,” or what specific language authorizes the administration to allocate subsidies via the federal exchange.

SEC. SEBELIUS: Congresswoman, I’d be glad to get you that answer in writing. There’s some very detailed legal analysis and also a variety of statutory language. So I’ll be sending that back right away.

REP. JENKINS: OK. Because it appears — and I’d just be curious if you would agree — that essentially the IRS is amending the health care law through the regulatory process.

SEC. SEBELIUS: Oh, I don’t think that’s accurate at all. But I will send you the statutory references and the legal interpretation.

REP. JENKINS: OK. Because if the law provides it’s only federal, it’s only allowed for the state-run exchanges –

SEC. SEBELIUS: I will be happy to answer this question in detail. It has been analyzed and looked at. You may disagree with the analysis, but I will be delighted to get you the language in the statute and the legal interpretation of that language.

REP. JENKINS: OK. Because those of us in Congress, I think, get a little defensive when our constitutional authority to write tax policy is taken away from us and imposed through a regulatory agency.

Sen. Orrin Hatch (R-Utah)

(January 2, 2010, in a Wall Street Journal opinion article)

(AP Photo/Jacquelyn Martin, File)

A third constitutional defect in this ObamaCare legislation is its command that states establish such things as benefit exchanges, which will require state legislation and regulations. This is not a condition for receiving federal funds, which would still leave some kind of choice to the states. No, this legislation requires states to establish these exchanges or says that the Secretary of Health and Human Services will step in and do it for them. It renders states little more than subdivisions of the federal government.

Hatch, in a statement to The Fact Checker, said:

My op-ed is about the constitutionality—or rather, the unconstitutionality—of Obamacare, whereas King is about the meaning of a specific provision of Obamacare. The op-ed addresses broad constitutional concerns; King involves a narrow, albeit highly important, question of statutory interpretation. These are different issues that raise different questions.

Obamacare subsidies don’t go to state governments. They go to individuals, in the form of tax credits. The reason most states ultimately chose not to establish exchanges was because the President decided—after the Affordable Care Act became law—that he was going to provide subsidies on federal exchanges, too, thus eliminating the incentive for states to create their own exchanges.

Obamacare coerces state governments to create exchanges without giving states a monetary benefit in return, foisting new expenses on state governments without accompanying relief. That’s why I wrote in the op-ed that establishing exchanges is “not a condition for receiving federal funds”—for states.  If ordering a state to do something violates principles of federalism, then surely ordering a state to do something and promising to do it anyway if the state refuses also violates federalism.  As I wrote in the op-ed, Obamacare’s this-is-going-to-happen-whether-you-like-it-or-not approach “renders states little more than subdivisions of the federal government.”

The context makes clear that the op-ed is talking about states and what Obamacare requires states to do. Tax credits to individuals are a different beast. I, like many of my colleagues, expected the President would follow the letter of his own law. Unfortunately for the American people, those expectations have not been met.”

We should note that Hatch was one of the first lawmakers to formally protest the IRS rule. On Dec. 1, 2011, Hatch sent a letter to administration officials questioning the IRS action and making the case that premium subsidies were not available to states that had not set up their own exchanges. He noted that officials might have found the legislative language “problematic” and he blamed the “highly partisan nature” of how the bill was crafted, but he said the problems could only be fixed through legislation, not regulations.

Sen. John Barrasso (R-Wy.)

(various statements in 2011)

February 1, 2011, speaking about his proposed bill that would allow states to opt out of the law:

QUESTION: I’m just curious how this would work. If the states opted out with it, would the people in states still be eligible then to the federal subsidies to purchase insurance? Or would they no longer be eligible for those subsidies?

SEN. BARRASSO: States are going to have an opportunity to opt out of different components of this – all four components…Those people are still paying taxes.

QUESTION: But would they get federal subsidies to purchase insurance?

SEN. BARRASSO: People are still paying taxes and we’re working out the details of that part of it. There’ll be additional bills coming in terms of Medicaid money to the states, and as people continue to pay taxes, they’re not going to give up that right to have an opportunity to use that money.

July 21, 2011, in an article in Roll Call, calling for a bill that would allow every American to seek a waiver from the law:

The employees who are “dumped” will be forced to get their insurance through heavily subsidized insurance “exchanges” run by Washington.

The annual cost of subsidizing these ballooning numbers of insurance policies — about $900 billion — is nine times what the White House has claimed. In short, taxpayers will get stuck with a bill of nearly a trillion dollars every year.

Barrasso did not sign the Supreme Court brief but he has also argued that the reading of the law is clear: “Subsidies through state exchanges were supposed to be there for people. But if a state chose not to set up a state exchange, people from those states were not supposed to get subsidies.”

In the first quote, Barrasso is talking about his own bill, so to be frank, one could argue he is not talking about the specific language of the health-care law. In the second example, however, there’s an interesting fact check angle. Our colleagues at FactCheck.org had criticized the $900 billion claim in the Roll Call article as an overstatement, in that Barrasso assumed that every single American now getting health insurance from an employer would be dumped on the exchanges.

But it is hard to make that case if most states are not on federal exchanges—and thus their citizens do not qualifies for tax credits and premium subsidies. (It should be noted that the IRS regulation was not issued until a month after the Roll Call article appeared.)

Barrasso spokeswoman Emily Schillinger said: “After reviewing the text of the law and consulting with numerous legal experts, Senator Barrasso believes that the Obama Administration is choosing to illegally enforce Obamacare.  As he has stated consistently, the exact wording of the law is very clear. If states refuse to establish a state exchange and the Obama Administration followed its own law, people from those states would be ineligible for subsidies to purchase Obamacare’s mandate-laden, overpriced coverage.”

The Pinocchio Test

As we noted, these quotes are open to interpretation. But some of the explanations don’t make much sense.

Sen. Hatch has the strongest defense. He’s speaking about the constitutionality of the law—which he thought was dubious—and so does not appear to directly address the issue about whether subsidies would be given to people who lived in states that were on the federal exchange.

But Ryan, Cronyn and Barrasso have weaker explanations. Ryan spoke of “everybody in this country, people making less than $100,000” receiving subsidies, while Barrasso cited a $900-billion figure that clearly depended on every person in the country receiving a subsidy. In their defense, these statements came before the IRS rules were promulgated and Cannon and Adler made their case against them.

But then why not admit that their understanding of the law had changed? Cannon at least has been forthright in doing so.

Cornyn has perhaps the weakest defense—and he is listed as the first author of the Supreme Court brief. He asked his “hypothetical” question months after the Cannon/Adler paper was published, at around the time at least one other GOP lawmaker was raising questions about the IRS rule. His concerns about the budget make little sense if one believes that the citizens in about three-quarters of the states would not qualify for premium subsidies. (Update: Brandewie counters: “His concerns would make perfect sense if the Administration was proposing to provide subsidies to a huge swath of people who might not otherwise qualify – which they were.” Of course, The Fact Checker continues to wonder why he didn’t actually say that in the first place, as Jenkins did.)

An upside-Pinocchio is awarded for an unacknowledged flip-flop on an issue. Ryan, Barrasso and Cornyn appear to qualify. They should simply acknowledge that their understanding of the law has changed, rather than pretend that they knew all along that people living in states on the federal exchange would not qualify for premium subsidies.

An Upside-Down Pinocchio