Exchanges, Halbig and Unintended Consequences

When I was young, my brother and I would hide our Battle Beasts, prepped to ambush whatever unwitting toy came by. Sometimes we would hide them a bit too well, never to find them again. We were always devastated by the loss. “We didn’t mean to lose them,” we’d think. “And we certainly won’t lose them next time we hide them.” But, of course, the next ambush would lead to more lost-toy casualties.

Those were some of my first run ins when unintended consequences. I’ve experienced it many times, and with much more serious results, since then.

Speaking of large scale unintended consequences, Congress just received a lesson of its own with Halbig v. Burwell. No, millions of anthropomorphized toys weren’t lost. Instead, millions of people just lost their tax credits.

The recent ruling relates to the plain language reading of IRC Section 36B, which states that health care enrollees may receive premium assistance in the form of a tax credit if the taxpayer was “enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act.” That means only people enrolled in a state established exchange, not the bug ridden Federal Exchange, is entitled to the health insurance premium assistance tax credit.

As a reminder of where we came from, the ACA, or Obamacare, required more people to be insured with more lavish insurance packages, with the argument was that it would be made “affordable” with the help of these tax credits. Without the help of the tax credits, The Patient Protection and Affordable Care Act would most likely become even less popular than it is now, which gives Republicans even more fuel for reform or even repeal.

I know this isn’t the last word on the situation, and it’ll probably be more than a year before anything is ultimately decided. So let’s just get that out of the way.

But back to unintended consequences, tax law is chocked full of them. Follow tax history, and you’ll find all kinds of cases where the government intended one thing yet the law they passed ended with the opposite result. Executive pay is one of the more predominate issues that still hasn’t been resolved.

Or, to bring in a less lavish example, remember the First Time Homebuyer Credit? You got this nice $8,000 credit to help with the purchase of your first home. The catch was you’d have to pay it back if you didn’t live in the home for at least three years. The bill, however, was rushed through. Congress forgot to consider some of the legitimate reasons for why a person would have to leave their house before the three years were up. Like being laid off.

Worse case that I saw? Housing values dropped in an area and the taxpayer got laid off. Suddenly, they were saddled with a house they couldn’t sell, no job, and an $8k credit they had to repay.

I’m absolutely positive that wasn’t Congress’s intent. But they didn’t write a way out in their law, so that’s what happened, and what the IRS enforced.

With the credits in the ACA, unless the word “State” is as amorphous as the children’s claymation character Pingu, the written law clearly defines the credits as only flowing to state created exchanges. The argument, however, does not seem to be about what was written, but the intent.

Pictured: Pingu's angry dad. Not pictured: the rule of law

Pictured: Pingu’s angry dad. Not pictured: the rule of law

Here’s where I get a bit out of my tax bubble. In a legal proceeding, intent can matter. The written word isn’t perfect, and sometimes what one person means is different than what other person interprets. Heading over to the trying-not-to-be-controversial-but-often-is Vox, they bring up a few quotes arguing Congressional intent:

“No sentient being following the health care debate could argue, in good faith, that Obamacare’s architects intended for the federal government to set up exchanges without subsidies. It would completely subvert the law’s intent.” -Jonathan Cohn in the New Republic

“There was not a breath during the legislative debate suggesting that Congress meant to deprive citizens in states with federally-facilitated exchanges of tax credits.” -Nicholas Bagley a law professor at the University of Michigan

The first quote is from 2012. I have no idea when the second quote was from, but considering credits on Federal Exchanges wasn’t an issue until around 2012, I would guess it wasn’t said until around that time.

And the date is the kicker: Federal Exchanges weren’t really considered when the law was written. Want evidence? Let’s go back to 2010, when the law passed. The Congressional Research Service, which is an organization that works exclusively for Congress to provide them with legal analysis, wrote the following at that time:

“Under PPACA (this was before we took up Obamacare or ACA), state-established ‘American Health Benefit Exchanges’ will have to be established in every state by January 1, 2014.” (emphasis mine) In the next paragraph, it continues, “Only for purchase of coverage within an exchange, advanceable, refundable premium assistance credits will be available to limit the amount of money some individuals would pay for premiums.”

In other words, every state will have to set up an exchange, and those exchanges will allow people to get the tax credit.

No word is spoken about the Federal Exchanges. Not because Congress didn’t want people in Federal Exchanges to get a tax credit, but because they thought ALL STATES would create exchanges. The Federal Exchange was a throw away back up plan that the drafters didn’t expect would come into play.

The Great Harry Reid

Omniscience not yet achieved.

To go back to Congressional intent, I honestly do not believe they intended anyone on an exchange to go without a credit. Unfortunately, I believe they simply didn’t consider the possibility that 36 states would opt out of the state exchanges. I also don’t believe they meant for unemployed homebuyers to have to pay back their $8,000 credit or for executive pay to actually go up every time they tried to limit it. But that was what happened, no matter how unintended it was.

In other words, Congress screwed up. They forgot to consider all possibilities in their 2,000+ page comprehensive law, which was bound to happen. We have a legislative process to fix it. Yes, it’s almost impossible to get anything through Congress right now, but just because it’s hard doesn’t mean you can go around the law to get your way.

Think I’m wrong? Am I missing a key point here? Let me know in the comments below.

Only here for the taxes? You can get more of that by following me @TimJGordon

Picture of Harry Reid from the American Progress Action