Obama administration’s false, two-faced argument about Obamacare tax credits

Obama administration’s false, two-faced argument about Obamacare tax credits

The Obama administration has claimed that despite recurring language in the Obamacare statute limiting tax credits to people who buy insurance on an “exchange established by the state,” such taxpayer subsidies are also available to people who buy insurance on the federal exchange, Healthcare.gov.  (The availability of tax credits triggers employer mandates and penalties in any state where the credits are available, and the tax credits contain work disincentives and marriage penalties, so the tax credits are not a free lunch.)

Architects of Obamacare such as Jonathan Gruber have argued that it is “nutty” to argue that Congress intended to limit tax credits to state exchanges. But this supposedly “nutty” view was once the view of Gruber himself – and, apparently, the federal government itself. When the Department of Health & Human Services issued a contract to create a federal exchange in 2011, the contract assumed tax credits didn’t apply to the federal exchange. (The original contract did not include any functions to allow purchasers to calculate their tax credits, or factor in tax credits before displaying health-insurance prices, and the contract was not amended to apply tax credits to the federal exchange until much, much later.)

Back in 2012, Gruber had himself admitted the tax credits were not available on the federal exchange, contradicting his later statements. A 2012 video caught “Obamacare architect Jonathan Gruber saying, ‘If you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits.’” In July 2013, that video was “nationally-publicized due to the efforts of CEI’s Ryan Radia,” who helped expose Gruber’s two-faced turnabout. (“The Wall Street Journal, Bloomberg, Forbes, New Republic, Slate and others carried stories” due to Radia, noted the Des Moines Register.)

Gruber claimed that what he earlier said on the video was just a slip-of-the-tongue—a “speak-o” akin to a typo—but it turned out that he publicly made the same exact admission on at least one other occasion in 2012, before that admission became politically inconvenient.

As Forbes Magazine noted, “the irony is that” by 2013, “Gruber was deriding as ‘nutty’ and ‘stupid’ the contention that the Affordable Care Act required subsidies to flow through state-based exchange,” the very contention he himself made back in 2012. “It’s a ‘screwy interpretation’ of Obamacare, alleged Gruber in an interview with Erika Eichelberger of Mother Jones . . . ‘It’s nutty. It’s stupid… it’s essentially unprecedented in our democracy.’” Less than a week before his video was unearthed, “Gruber was on MSNBC’s Hardball,” where he proclaimed the “criminality” of those who argue tax credits are limited state-based exchanges.

But as Scot Vorse discovered, the government itself once recognized that credits are limited to state-based exchanges. In light of that discovery, CEI has submitted two FOIA requests, one to HHS headquarters, and one to the Centers for Medicaid & Medicare Services, seeking additional information relevant to the government’s about-face.

As Vorse notes, HHS implicitly recognized this limit on tax credits, when its Centers for Medicaid & Medicare Services omitted any tax credit functionality from the detailed, lengthy contract that led to the federal exchange (even as it require such functions for state exchanges):

Specifically, the Department of Health and Human Services (“HHS”) original contract to develop the Obamacare website did not include any specific language related to tax credit functionality for consumers on the federal exchange . . .CGI, the primary contractor for building HealthCare.gov, signed the original contract with HHS on September 30, 2011 for $56 million. According to the contract, the system was to include two main functions: (1) “a Federal Exchange (“FX”) that serves the needs of individuals within states where those states do not have their own state-run exchange” and (2) “the Data Services Hub, which provides common services and interfaces to federal agency information.”

The original contract statement of work contained only five references to “tax credits,” all of which related to the second function and administrative services [not the federal exchange itself] . . . most importantly, the original contract does not include any specific language related to technology which would allow consumers, who sign up using the Federal Exchange website, to determine their individual tax credit eligibility, and calculate and display comparative pricing options after any tax credits. . . if the law was intended to provide tax credits to the residents of states included in the Federal Exchange, the HealthCare.gov original design contract would have included functionality to provide tax credits to individuals in these states.

Shortly after Obamacare was enacted, HHS provided guidance documents to states regarding tax credit technology and systems. . .By stating in the introductory paragraph that “IT systems should be simple and seamless in identifying people who qualify for tax credits”, HHS made it clear that tax credits for consumers was one of its highest priorities . . .

Between November 2010 and September 30, 2011, HHS distributed numerous other documents highlighting specific required consumer tax credit functionality for [state] “Exchanges” . . .Prior to September 30, 2011, State-Operated Exchange Contracts Included the “Mandatory” Consumer Tax Credit Functionality . . .[By contrast,] The Federal Exchange contract did not contain any consumer tax credit functionality language – The original contract with CGI was signed on September 30, 2011 which was several months after “mandatory” Exchange guidelines had been established by HHS. Although HHS had been closely “collaborating” for months with the states, the Federal Exchange contract did not have the same consumer tax credit functionality language that was included in state contracts and RFP’s. . . . A modified contract was signed on August 28, 2012, only a year prior to the launch of Obamacare. The modified contract had only one new material addition. This three page addition made 11 additional references to “tax credits” and specifically added a consumer “decision engine” or tool related to tax credit eligibility, or calculating and displaying comparative pricing options after tax credits for people signing up using the federal exchange. This language was consistent with the type and level of detail included in the state contracts and RFP’s.”

After this major change was made to the contract, the contract’s cost almost doubled (going from $60 million to $100 million). That further suggests that the original omission of tax-credit features from the federal exchange was not a minor or inadvertent oversight, but a conscious decision that tax credits were not available on the federal exchange.

Expanding tax credits to the federal exchange will increase budget deficits, paying out hundreds of billions of dollars that Congress never intended to be disbursed from the federal Treasury. That’s in addition to the fact that there are massive work disincentives embedded in Obamacare’s tax credits. The Congressional Budget Office estimated those work disincentives may shrink the number of people employed in America by two million people. That is one reason why Obamacare will increase the budget deficit despite all its tax increases.

Hans Bader

Hans Bader

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. Hans also writes for CNS News and has appeared on C-SPAN’s “Washington Journal.”


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