there's a question with regard to the contracts whether or not similarly when the contracts for the computer operations of the exchanges were being developed, whether or not federal exchange -- the contracts for federal exchanges required the same capability of being able to calculate exchanges as the state exchanges. and there are some that have argued looking far more closely at these contracts than i have. reading the statute was bad enough. having to read these dozens upon dozens of pages of procurement contracts seems even worse. there is an argument made that the functionality that the federal exchanges were initially required to have or the congress was required to have for federal exchanges did not require the actual ability to calculate and provide a tax credit. that would be an indication again that folks that do this sort of thing on a routine basis within the bowels of the agencies when reading the statute read it the way i read it in my kansas presentation

before this was a political issue, that established by the state, establishes use consistently throughout the statute a particular way, when state is defined in the statute, a definition that they didn't mention, states expressly defined in the statute to include d.c., not include the federal government, territories that are defined as equivalent for certain purposes, federal government never is, when people outside the political context engaged the statute, what was there unpoliticized read of the statute? federal agencies haven't been very forth coming with everything, but, you know, there certainly are efforts to try and look at what did neutral folks, when they read the statute, think it meant, because obviously now everyone who reads the statute has a sense of what the possible implications are. crs, for example, did an early read where they said basically go by plain text. pretty strong argument that this is limited. acknowledge that you could also find it ambiguous. irs, again, initially said state

exchanges established by the state and they were later told to change that. and when they promulgated their rule, really gave no rationale, all the argumentings we've heard about such exchange and the like, those are all arguments that came up a and were brought up after the irs had made a decision after people were scrambling to find arguments for why the statute could be read. otherwise, if i could just really quickly, since we were quoting -- dick cheney was quoting from uarg opinion earlier this past year, i think it's important to read the whole decision because i agree 100% we care about context, care 100% about the whole statute. that's why i've read the whole statute and looked at every use of phrase established by the state and knowing in some case if david is right that means there are provisions in the statute that allow the federal government to pull all medicaid funding if federal exchanges don't fulfill certain obligations. that's just crazy. it makes sense, might be coercive to say states can lose

medicaid money if state exchanges don't do certain things, but states lose money if feds do certain things? that can't be right. the other thing scalia said in that opinion talking about the clean air act, the power of executing the laws includes authority and responsibility to resolve some questions open by congress that allows during the rise of administration. but it does not include a power to revise clear statutory terms that turn out not to work in practice. we reaffirm the core administrative law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate. state is clear, it's capitalized, it's defined in the statute, established by the state is inserted into these provisions. and what we have not heard today is any reason why congress would insert the phrase established by the state in section 1401 let alone anywhere else in the statute to have some meaning. >> okay. let me stop you. david? >> well, a few things.

i mean, i think it's sort of the structure of this back and forth i think is sort of telling. i mean, on one side we have an inquiry into what did an irs functionary put in a request for work to computer programs. there's that possible way. again, i don't know what those documents will say. and on the other hand, we have a judge giving a cold read tofg statute saying i'm going to look at the statutory text and see what that means. i think the statutory text should control. secondly, the idea that we should read the statute without considering its implications. i mean, that goes right against any sort of fair meaning as justice scalia would say, because that's who we're quoting today, it's a fair reading of the statute. you don't interpret it in a vacuum, don't look at "the new york times", but you need to say how does this reading of the statute affect the rest of the working of the statute? and, you know, lastly, with regard to harry reid's midnight editing session, again, i don't think any of that matters for my

textual interpretation of the statute. the statute as written with a state, i know it's defined, but it's also included in 1311 so it works by reference, you know, the reason why some staffer in harry reid's office late at night perhaps after a beer looked at the statute and said, oh my gosh, in this provision right next door we say established by the state. i'm a line editor. it should be consistent within this one thing. i don't know. i don't know if an interview with that person would matter. that's not what was passed is that individual staffer's intent. you look at the statute and you walk through it the way that, you know, professor adler did and the way i did, and you try to say a what's the best reading of the text, that's what's important, not what a staffer did in harry reid's office. >> i'm afraid that's all of our time. i would have said before we got here it wouldn't be all about scalia, it might have been all about chief justice roberts, but i have been schooled. two announcements. there's water on the first floor

outside. we're going to take probably now a ten-minute break, not a 15-minute break, and restaurants -- restrooms are located on the lower level. so please thank our panel. [ applause ]. >> so a 10-minute break in this discussion of whether the obama administration overreached in extending tax credits and subsidies for health care exchanges that are established by both the state and the federal government. the meantime, there's an article in today's "roll call" spotlighting possible supreme court challenge to the nation's health care law more than to two years after the supreme court upheld the health care overhaul, more challenge -- another challenge is on the justices' doorstep. this time it's on the question of whether the law of subsidies can be made available in every

state. justices are scheduled to meet tomorrow in their first opportunity to decide whether to take up a chall to subsidies that help low- and middle-income residents in 37 states buy coverage under the overhaul. the court could announce as early as frild or monday whether it intends to act, though there is disagreement about whether the justices will or should weigh in. and again, back at the cato institute and in the middle of a break now. when they return, the discussion on a d.c. circuit case and remarks from oklahoma attorney general scott pruitt. until then, indiana attorney general greg zoeller. >> all right. good morning. welcome to this conference. i am david bose, the executive vice president of the cato institute. appreciate having you hear. i know there are more people who are going to be coming in, but we're going to get started and try to stay on time today. the subject of our conference today is this -- in a democracy,

under the rule of law, does the executive branch of government have the power to implement laws the way the president would prefer they had been written or is the executive bound by the law the same way you and i are? the four lawsuits we're talking about today involve the patient protection and affordable care act or obamacare. but they are not lawsuits about obamacare. they are lawsuits about the rule of law. back in 2011 the irs quietly implemented -- quietly reversed its interpretation of a crucial aspect of the ppaca. it announced it would implement the health care law's health insurance subsidies and the penalties on employers and individual who is failed to purchase coverage even in states that did not establish a so-called health insurance exchange.

michael cannon, one of our scholars at cato, and professor jonathan add ler, who will be speaking later today, were the first to blow the whistle on this problem. the aca they pointed out only authorizes those taxes and those subsidies in a state if the state establishes an exchange. the irs persist ld. it's been spending billions of dollars and subjecting tens of millions of employers and individuals to penalties that are not permitted by the aca, not authorized by an act of congress. as you might imagine, the people subjected to those illegal taxes don't like that, and that's why they have filed four lawsuits, pruitt v. burwell, king v. burwell hshgs indiana v. irs, rather than challenging the aca, the plaintiffs are claiming that the executive branch of the government is not implementing the law faithfully. they are asking the courts to force the irs to do so.

despite the fact that the president has come under bipartisan criticism for unilaterally rewriting parts of his health care law, a lot of people thought these lawsuits were crazy. that is, until someone unearthed this video of health economist jonathan gruber, who is widely hailed as one of the key architects of the aca. sorry. i talked a lit tool fast here. jonathan gruber, as many of you know, was a key architect of governor romney's health care plan, which was itself sort of an architect of president obama's health care plan. and jonathan gruber was

discovered halfway through the discussion of all of these things making this point about the aca. that means your citizens don't get their tax credits. >> so there is a guy who knows more about this law than anybody else does and he says if you're a state and you don't set up an exchange that means your citizens don't get their tax credits. he could read. he could write. he helped create it. that's what he said.

the fact that 2 out of 3 standing opinions issued by federal courts in these cases psied with the plaintiffs against the government didn't hurt in changing people's minds about the viability of the lawsuits either. this conference is very timely. tomorrow the supreme court will meet to decide whether to take up one of these lawsuits. two of those lawsuits were filed by states attorney generals and we're delighted to have both of them today. we'll hear from greg zoeller and at lunch corner scott pruitt, who was the first to challenge the nirs court. in between, we'll have one panel debating the legal merits of these cases and another debating the impact this issue is having and could have on health care reform. we're proud to hold this conference today and proud of the role the cato institute has played in this and other areas to make presidents of both parties respect the rule of law.

so now it's my honor to introduce our opening keynote speaker for the event. on october 8th, 2013, greg zoeller became the fourth person and the second attorney general to file a legal challenge to that irs regulation in indiana v. irs. he was joined as a plaintiff by 39 indiana school systems. those public school systems complained that they had had to eliminate jobs and reduce the hours of noncertified support staff, including bus drivers, food service staff, and instructional assistance to fewer than 30 hours a week because the irs is unlawfully subjecting them to the employer mandate even though the statute itself says they are exempt. the irs' illegal mandate did create one job, however. one school system had to hire someone to make sure its part-time employees were not making too much. greg zoeller has been indiana's 42nd attorney general since

2008. prior to state government, he spent ten years as an assistant to senator and vice president dan quayle, first in the senate office, then in the office of the vice president. he was also in private practice for ten years after getting his law degree from the indiana university school of law where he now, in addition to being attorney general, also teaches constitutional law. welcome, greg zoeller. >> thank you, david. and thank you to the cato institute for hosting this. i'm glad the lead-in kind of took away some of the things that i was going to point out. so i'll be able to kind of condense this and hopefully we can take some questions. but let me do just a few things as part of my own lead-in. i'm almost sorry that you mentioned my ten years in the federal government with senator and vice president quayle. in indiana, i deny it.

you know, i've learned the federal government is not a well-loved institution and congress even worse. so i don't know, i guess it was a clintonesque kind of deny, deny, deny. so i say that that was my brother skippy who was actually in the white house and it was not your attorney general. but i think i've resolved my checkered past by suing the federal government a number of times. that's very popular in the state of indiana. let me explain, you know, when i come to washington, i have to explain a little about states. what you've read in books and what people think about states in washington often is not exactly true. so, first of all, it's true that all states are sovereign, and yet all states are not alike. since we're sovereign, we have our own ability to create our

sovereign government in the way that we choose. indiana is one of six states that has chosen what i think is a little more conservative path from our history, and we -- >> adequately filled us in on the right and wrong of the case and whether or not the court's going to take it and what's going to happen with it. we're going to look at in this panel what it would mean if halbig succeeded. my name is laurie montgomery. i'm also a reporter at "the washington post," likely colleague bob barnes. my connection with this subject is i covered the health care law, and to be honest with you the chaos of those days makes it seem a little crazy that we're sitting here parsing what they meant, because what they meant was to get it passed by all means necessary. our speakers on the second panel are going to start off with the president of health policy and strategy associates.

bob had 20 years of experience in the insurance industry, serving as chief operator for nine of those years before beginning his business in 1992. he has participated extensively in the nation's health care debate and has been a regular contributor on the issue for a number of national television, radio networks as well as major newspapers and trade journals. his marketplace practice concentrates on how employers, provider, health insurance companies, hmos and blue cross plans come to grips with market and policy change. bob will discuss the potential economic impacts of the halbig case on the nation's insurance markets. next up will be len nicholls, director of the center for health policy research and ethics and a professor of health policy at george mason university. he's been intimately involved in health reform debate, policy development and communication with the media and policymakers for over 20 years. since serving as senior adviser for health policy at the office of management and budget in the

clinton administration. since that time, he has testified frequently before congress and state legislatures. len has been a principal research institute at the urban institute, vice president of the center for studying health system change, and director of the health policy program at the new america foundation. as he has come to focus his research more on payment and delivery reform, len has been an adviser to the center for medicare and medicaid information at cms and is now the principal investigator on a five-year evaluation of care first patient centered medical home program and a three-year robert wood johnson project testing how payment reforms might be used to reduce health disparities. len is going to talk about the implications of a halbig victory for policymakers as well as for average americans. third will be tom miller. he's a resident fellow at the american enterprise institute where he studies health care policy including regulatory barriers to choice and competition, health care cost

factors, and market-based alternatives to the affordable care act. a former senior health economist for joint economic committee in congress, miller was previously a trial attorney, a journalist, a sports broadcaster. he once thought about exploring stand-up comedy as well but soon realized that describing government health policy drew more laughs. he is the co-author of the bestseller "why obamacare is wrong for america" and author of "when obamacare fails: the playbook for market-based reform." tom is going to focus on how congress and state legislatures might respond to a halbig victory. finally, michael cannon has been described by my publication as an influential health care wonk at the libertarian cato institute where he is the director of health policy studies. along with jonathan adler, he wrote the leading scholarly treatment of the issues before us today, "taxation without representation: the illegal irs rule to expand tax credits under

the ppaca," published in health matrix journal of law medicine. this means, of course, that he has no opinion on how the courts should rule in this case. his presentation will focus on the dueling narratives of the halbig case. are the plaintiffs being obstructionist and nitpick i can or is the administration committing a staggering violation of law? so we're going to start out with bob. >> thanks, laurie. it's great to be here. thank you, michael, for inviting me. my job today is to talk about the what-if. what if halbig is affirmed and what impact would that have on the marketplace? and to cut to the chase, it would be devastating, catastrophic. you know, we talk about the nuclear option sometimes in public policy, but i don't think any of us have ever seen the nuclear option. halbig is the nuclear option for the individual health insurance market in these 36 states. in the other state where is the states are running the exchanges

there wouldn't be a direct impact but the impact on these 36 states would be devastating. 86% of those enrolled are on subsidy and the people on subsidy are generally low-income people. what would happen is the minute people lost their subsidies presumably the minute the supreme court ruled in favor of halbig, the next month there are no subsidies. so these people simply would not be able to afford by and large to continue their health insurance because this group is so disproportionately low income. obamacare works pretty well for people that are at low-income levels. they get about all their premium paid. their deductibles and co-pays are cut dramatically. as a result, obamacare has disproportionately enrolled people who are lower income. people who are middle class or lower class. it's not working as smoothly. obamacare has only enrolled one out of three subsidy-eligible people. for a program to work like this the rule of thumb in the insurance markets is you have to

get about 75% of the people enrolled. so obamacare is far from having cleared the tower. and right in the middle of this three-year open enrollment if the courts were to rule to affirm halbig, you would take a market that is not able to stand on its own right now and devastate it even from that point, much less not let it get to where it needs to be. now, it's important to understand that in the states that are running their exchanges they may have a shot at making this sustainable. but that would clearly not be the case in these 36 states. now, another factor here is that the affordable care act's reinsurance provisions for the insurance companies pretty much picks up order of magnitude 80% to 90% of their losses. it's a very complex system. i can't give you the exact number. it depend on a number of things. but 80% of 90% of an insurance company's losses are sustained by the taxpayer, by the federal government in 2014, 2015, and

2016. if a halbig ruling were to come down during this peer it would be immediate devastation for the insurance companies because of that. now, in may the administration claimed 5.4 million enrollments in the federal exchanges. 86% subsidy eligible. based upon the adjustment to 7.3 million that they came up with a few weeks ago, we've got close to 4 million people, will have about 4 million people at year end in the exchanges under subsi subsidy. the insurance companies are telling me that the enrollment is melting at a rate of about 3% a month, which is much more than we see in the normal marketplace. in the normal marketplace you'd expect the people coming on to about offset the people leaving nap's not the case. in obamacare it's be shrinking. then of course we'll have the 2015 enments. we don't know what that's going to be. the d congressional budget office has tornado obamacare will be at 13 million people at the end of 2015. they're at about 6.5 million now

or will be at year end with the melting of the enrollment. so the obama administration has before it the task of about doubling the number of people covered in the insurance exchange base the end of the 2015 enroll tomt stay on the cbo estimate track. by the way, that's probably a pretty good track for it being sustainable. i think that obamacare has to have about 15 million people in the exchanges for this first to be confident this will be sustainable and they're at about 6.5 million now. now, we don't know exactly what the income breakdown of people is in obamacare. we don't have that data. but the administration a few months ago told us that the average substance p di people receiving was very high. and so if the average subsidy they're receive organize the net premium they're paying is very low, it tells you right there the bias is clearly toward low-income people who need these subsidies, and if they don't get these subsidies wouldn't be able to continue. so you would almost certainly have dramatic disenrollment for

the insurance plans at the moment the subsidies ceased. but not -- but wouldn't immediately impact negatively the insurance companies because of the reinsurance provisions. and you might recall that the obama administration took the cap off the reinsurance provisions just a few months ago, another controversial move the might be subject to some court tests, but they took the cap off. so basically the insurance companies have an open-ended subsidy here. the affordable care act's risk program comes in three parts. a revenue-neutral risk-adjustment system that doesn't mean much in terms of this issue, but a claim reinsurance program and then a risk program that sustains the losses on behalf of the insurance companies. any claim in 2015, every claim between $70,000 and $250,000 is completely lly inreinsured by

federal government. the carrier is on the hook for the first. what comes after that is the catchall. it's a bit complicated but what it says is after we've sustained all of the high claim costs the government has on behalf of the insurance companies we'll make sure that your medical loss ratio doesn't exceed a certain point. again, it's very complicated, but the bottom line is it will -- if the claims losses are really bad, this provision alone will pick up about 75% of any losses the insurance company sustains after the federal government picks up the claims between $70,000 and $250,000. so when you net all these things together, the reinsurance provisions are probably going to cover 80% to 90% of the losses for the insurance companies. for a publicly -- big makely traded company or a big blue cross plan, this means any losses that they would sustain would be really minor and fairly immaterial. but you've got a number of obamacare co-ops out there that

just got started under obamacare. in iowa, nebraska, and maine and montana, an individual co-op has about 50% of market share in each of these states. they would be protected by the reinsurance provisions as well. but the problem is they'd lose most of their enrollment. and any insurance by is challenged by two things -- one, having too many claims, the other not having enough people covered to cover your expenses. if these co-ops were to lose the subsidized population from the business, they would not be able to sustain themselves because of the expense problems they would run into. they would simply lose their business. it wouldn't matter that the government was reinsuring their medical loss ratio program. they'd have terrific expense problems and probably would go down almost immediately. these co-ops have no other source of capital. only the seed money the federal government gave them. they wouldn't be even able to have an insurance company come

in and take them over because the rules say they can't run a co-op. so they would be in a really tough spot. so what we would have is almost immediately the market imploding. as soon as those subsidies and the people would need to find -- the people would not be able to pay their premium. how many people would that be? well, i took the 7.3 million the administration talked about the other day, adjusted for 86%, looked at what the federal government said had enrolled in each of these exchange, and here are some of the states. the states with the asterisk are medicaid expansion states. and i noted that because it would seem to me they would be most likely to want to try to continue state exchanges. they accepted the medicaid expansion. there would be an enormous political imperative here for the states to have to do something. and the insurance companies would be waiting to see what the states would do because you'd have 283,000 people in north carolina immediately lose their

subsidies. the vast majority of those would have to drop their coverage. in florida, 895,000 people would immediately lose their subsidies. this is based on 2014 enrollment. if they double the enrollment in 2015, that would be something approaching 2 million people in florida or 600,000 people in north carolina depending on how many people they enroll in 2015. so it's a huge problem. texas, 580,000, could be a million in 2015 if the obama administration stays on the cbo track for enrollment. that would be an enormous political issue. and what the carriers would be doing is they'd be sitting there saying, all right, what are these states going to do? if -- you would -- if that halbig ruling came down it would likely be midyear because the court tends to make its big rulings just before the july break. so we would be looking at the rest of the calendar year. the insurance companies are committed to be in the exchanges for that calendar year.

there's a provision in the new health plan agreement that says the carrier can get out if the subsidies go away, but only subject to state and federal law. the health insurance portability and accountability act in 1996 is still operative and it se that a carrier can't cancel individuals. it can only cancel a class of business. we only have one class of business, the silver/gold plans, for example. that's the class of business. you can't cancel the people only who lose subsidies. if the insurance company wants to get out, it's got to cancel everybody. and if it cancels all of its individual business in that market, hipaa says that they can't come back into the market for five years. so you've got a hell of a dilemma here. the carrier is looking at the market falling apart. they're subsidized to the end of the year with the reinsurance provisions. they're not going to take a huge loss. but the market has just melted on them. it's further complicated by the

fact that under the affordable care act an insurance company can't cancel someone until they haven't paid the premium for three months, three months, 90 days. traditionally you don't pay your insurance premium, you're canceled at the end of the month. affordable care act says they have to keep them for 90 days. so it's just a real mess here. my sense is that most of the carriers would probably stay in the market for that calendar year, say 2015, they'd stay in the market for another six mos, and they'd fall back on their reinsurance provisions and they'd look to see what the state's going to do. fit looks like the state is going to enact a state exchange, they'll probably gut it out. if it doesn't look like the state's going to do the exchange, then they're likely to get out and they may have to get out of the entire market. this would impact the nonexchange market as well, because if this thing falls apart, the nonexchange market, the off exchange market is at unviable as the exchange market. so can the states just simply

move to create a state exchange? there was a piece in "health affairs" recently, and tim pretty much pointed out that for a state to immediately create a state exchange is not a simple matter. you have to political problem, of course weather the texas legislature vote to do that, but if the texas legislature voted to do that, it would likely take many months, many months to set up a state exchange as simply as creating a state exchange and then contracting with the federal government a the vendor to continue doing the exchange on their behalf. that would be the simplest way to do it. but that would take at least many months to do. so what we would have is really a soeshing situation here. to say that this was a catastrophe, to say that -- in terms of the insurance markets does not understate it. it would be an extraordinary mess in terms of the insurance markets imploding, which would create one hell of a political

problem for the governors and the legislatures in each of these states. and i think the debate would then quickly move on to who broke it, because, folk, it would be broken in spades. thanks. [ applause ]. >> thanks very much for that cheery assessment. and now here's -- >> can i go home? >> here's len. >> how do i get this -- no, i'm not tom. whatever happens, let's not do that. i'm not doing anything here. somebody -- >> out of order. >> i can only click. i can't move the mouse. >> go forward? >> i don't know. if i go forward, i get you. not a good plan. what if you go all the way forward? >> i can't make it go to mine. i need technical help.

it's a really nice lag. meanwhile we're all resounding in bob's pessimism of what's going to happen. >> this is forward. >> i can go forward. i can't get to my slides. >> those are your slides. >> no, i'm not. i'm this guy. >> there you are. >> all right. let's try again. all right. if the wrong people win in court, what the hell's going to happen? first of all, i think it's worth taking at least three minutes and just assessing how's the aca doing already because that's going to play into hoi how this post halbig judgment goes. you need coverage, cost, growth, and there are three dimensions to cost growth -- it's both national spending per cap tashgs federal spending and household

spending. then of course the things people in the health system really care about, quality and health. on coverage i think you've got to say, although shockingly, given the way the rollout of the website went down, the success in enrolling people is somewhat amazing. roughly a third of the uninsured have been covered. i agree with bob completely. the real test is what happens in 2015 when, think about it, the people who signed up the first year are probably the people who knew they had a health condition, so the task of persuading those to sign up the second year is much higher and the same subsidies are there, so why didn't they come before? it's going to be kind of amazing if they get as many people. but it's also important to remember that this one-third reduction in uninsured occurred despite the fact that half the states did not expand medicaid as they could have. and so it's a nontrivial success. cost growth is coming down. careful people know it started coming down before the affordable care act, so the affordable care act cannot claim

most of the responsibility here. but i do think you could say -- and that what's kind of interesting and bob knows this, if if you go out to the health care system and talk to people running it, they have focused like a laser beam on cost growth production any way they have not before, and has been that focus partly because of the payment reforms engendered by the affordable care act and picked up and amplified by the private sector that you see those last four years of more or less constant per-capita health care cost growth rate way below historical norms. the stability of that growth rate is really what we're talking about here, and that's the success people hope to hang on to. in some ways what matters, this is what's going on in washington, this is cbo's forecast for total health spend big the federal government in 20. and each bar is a different time when the forecast was made. the first bar is just before the

law was passed or sign ed and that basically is just medicare or base medicaid and medicaid before the aca. the second bar is the forecast of spending post-aca but pre-roberts, so they assumed medicaid would be full speed and all that stuff, and they said by 2020 we'd be spending, you know, a couple hundred million more -- hundred billion more than we are -- than we expected to before baseline. but the amazing thing is april, 2014, baseline, okay. what that shows you is that even taking into account the enrollment expansions that cbo expects by 2020, the total federal spend will be less than it was rprojected to be before the aca passed. that's what you call paying for yourself by carving out space in cost growth reduction over time, which is why most analysts are pretty optimistic about that.

now, the thing that really matters of course is what do household pay. and what we have here is an incomplete but as yet all we've got is a picture of how premiums are changing in 2015. now, bob is too kind to say in 2014 basically health plans had to make a fairly uneducated guess about the risk pools they were going to get, they had to make these guesses based upon incomplete knowledge of what the uninsured were like. we know what they're like from surveys but we don't really know which ones are going to show up. the expectation is, of course, the sicker ones will show up. so the 2014 premiums were probably low given all that backdoor coverage, risk coverage by the federal government on a whim. not a whim but on an optimistic perspecti perspective. 2015 is a premium based on who you really got, what the experience actually is. experiences are short but

nevertheless way better than they had the year before. therefore, the premium movement in 2015 is actually a better indication of how insurers view this market stability than the level it was in 2014. and that's why the average premium change between 2014 and 2015 being negative 0.8% is so amazing. yes, there's variability. nashville has a positive 8.7 and denver has a negative 15, but the point is on average the second lowest cost, the most important, the ones which subsidies are paid, the second lowest are stable or going down on average across the country. that's kind of amazing. so what about quality? well, most of you know, quality moves like a glacier. and what this shows you is the percentage of -- percentage of recommended care that adults get across the country and some

researchers from rand got a lot of attention back in the mid-2000s when they rorpted that americans only get what they should get about 67% of the time. and we're now up to 69% so, that's pretty impressive. but that all occurred bf the affordable care act. my point is quality moves very slowly. you cannot claim quality has been approved, although if you do your power point correctly you could do this, because what you have here is the statistic that has been focused on the most, and that is readmission percentages in the medicare program. you may have known that 19% of medicare beneficiaries admitted for a given problem were readmitted for the same problem within 30 days. 19%. okay? and that's gone all the way down to 18.4% and then 18%. again, you could make this look good and you can feel good about yourself but it's not really that impressive. what i'm worried about is that there are fines built into the aca for not doing well on readmissi readmissions. with all the attention readmissions have gotten, the

fact that the number of hospitals being fined has gone up is not good news that this is spreading widely. so quality not so good. what really matters of course is health, and there's 10,000 ways i could show you this but only ten minutes, so this is healthy people through 2020, the metric base which they judge the health of the population, and it basically shows that ten measure are improve, eight are stuck, and, you know, so forth. so we're basically not moving very fast. what's getting worse is kind of depressing. it's suicide and adolescent depression and visits to dentists increasingly oral access is a problem. but what's not moving is what bothers me the most because what's not moving is obesity. what's not moving is chronic conditions. and if that's what we've got to move, everything should be focused on that. so as a professor i have to give a score and the score is on average coverage, i give it a b-plus, actually an a for performance but a b-plus because the rollout was so bad it made people doubt that government could organize a two-karpa raid. i understand in this building

there's never been any doubt. but anyway, the point is there are -- b-plus is what i would give it, and the question would be how much expansion is there in 2015. cost, i would say, again, better than expected, so i give it a b. but the real question is how are out of pocket payments changing over time. a lot of these people with those low incomes or slightly above the subsidy level are quite worried about the deductibles they're paying, how are premiums going to move going forward, quality, hasn't moved much, health habit moved at all. overall, b-minus. which is not bad for a law that some people think is the end of civilization, but it is where we are, and the point is how much will it spread, how deep will these payment reforms last, because at the end of the day if we don't make payment reform work everything else is commentary. i say all this simply to say this is how it's doing, it's a b-minus out of the box, the tower has not been cleared, but it's not on the ground either. the question is why would you

blow this up? so what if the wrong arguments prevail? this is the most important map because it summarizes everything you need to know. okay? the color scheme is, if it's green it's a state that has both a state exchange and expanded medicaid. if it's gray, and only ohio is gray, it's a state that has an exchange but did not expand medicaid, just to prove they're different. the orange are states that basically have a federal marketplace or a partnership marketplace but did expand medicaid. and the blue, of course, is hell, no, we won't go. okay? the blue is nothing, across the board, although as bob pointed out almost a million people in florida, a blue state, has signed up for the exchange and 600,000 almost in texas signed up for an exchange, even though their politicians were fairly hosti hostile. so the point is, what's going to happen if the decision is made

in a certain way, is going to vary a lot by these states. so remember the colors. green is everything, blue is nothing, stuff in between. green's going to be fine. green's going to be fine because they have abexchange, they've done medicaid, they're going to move along. the gray state will be fine enough. just leave them alone nape ear nicer. they're happier that way. the problem is half the yellow states -- arkansas, pennsylvania, iowa, probably ohio -- they're trying to link medicaid and the exchange in a fundamental way. in fact, their expansion of medicaid is through the exchange, through the marketplace. well, you take this federal subsidy away, blows up everything. all right? and the blue states of course will get to live their politicians' dream of this libertarian paradise of never taking a federal dime. i wish them good luck. so the point is simply this -- the states where expansion has

occurred in a serious way, those are the states whose hospitals are happier. these are reports by for-profit hospital systems. the negative bar is the reduction in self-pay admissions. okay? reduction in uncompensated care admissions. the reduction in people who could not pay. the red bar is increase in medicaid or paying admissions. obviously these things are correlated but not perfectly. and the point is the hospitals where expansion has occurred are happy. the hospitals where expansion has not occurred and where the imploegsion would occur are not happy. all right? and so i want to show you a map from 1965. this is when medicaid was created. some of you know medicaid was tacked onto medicare at the very end. wilbur mills literally at midnight tacked it on there. it passed in july.

the program started in january of '66. okay? i can assure you they did not have medicare regulations -- medicaid regular leighs in that second half of '65. the first year of medicaid they basically said whatever you're doing we'll cover half. whatever you're doing for the poor, we'll cover half. 26 states took it up, exactly the same number that expanded medicaid this time. okay? what this color-coded map tells you is what year states decided to create medicaid. dark blue is the first year, light blue the second year, that sort of fluorescent blue, virginia, tennessee, colorado, that was the fourth year, deep south five years in. and my point is this -- over time the hospitals and the health care system where coverage expansion happens persuaded those who were ideologically, philosophically, and arguably racially opposed to create the medicaid program in the first place.

they finally came around. why? because their health care systems are a hell of a lot stronger with it. so why would you be mean to this person? this person is -- she calls herself in "the new york times" the reason this law was passed, working at a hair cuttery, you know, part-time. the affordable care act gave her a way to get health insurance, cut her hours back, go to college, improve her life. okay? and i submit to you this is the deal. okay? this is the price of insurance, everything but medicare. okay? across our income spectrum. the left-hand corner of the origin is where medicaid was before the affordable care act. you recall medicaid covered exactly half of our poverty population. half. not all. half. then on the right-hand side where you get high-income people, you get a tax exclusion for employer-sponsored insurance, that's where we all live, that is to say our subsidy

is proportional to our marginal tax rate. tax rates go up as your income goes up. so the biggest subsidy we give is for bill gates. people in the middle, you are on your own, yaoyo, they're the only ones paying retail, they're the only ones paying full price for health insurance in this country. the affordable care act is all about giving those people first an extension of medicaid and, second, sliding-scale subsidies . why would you want to turn 30 million people into opponents of your political position? thank you very much. [ applause ]. >> okay. i gue tom, i guess you can answer that question. >> first of all i have to see how i get myself back to here. all right. i'm just going ahead. let's see if that will work. oh. there we are.

okay. a little lower here. first couple -- good to be back at cato again. we're above ground unlike when i used to work here and the auditorium below in the bowels. couple of quick acknowledgments and disclaimers. i always like to thank the obama administration for making my work necessary. and i acknowledge that i once -- i got involved in the early launch of these lawsuits but it was just because i was a few credits short of continuing legal education for the georgia bar. defenders of the irs rule and opponents of the halbig/king legal challenges would have us believe that unthinkable, unbearial disasters will occur if the federal exchange tax credits are overturned as illegal. you can almost smell the napalm in the morning coming down. but i would say in fact that it's apocalypse not. now, one of the scenarios would depict that after a supreme

court ruling affirming the original d.c. circuit court's original opinion that we'll have a barren, devastated scene similar to the one in the highest rated tv film ever. or there might be alternative scenarios. in this case, you have to fill in your own captions. this could be the millions left without any health insurance or health care treatment or on the all terntive, it could be the potential second wave of enrollees for the next enrollment. . it could be republican legislatures in the states about to reap the future consequences of what they had wished for. we also have the fake distress calls of the health insurance industry which once upon a time seemed to worry about being tied to the aca's regulatory railroad tracks. but soon adjusted stockholm syndrome style and developed a bit of a taste for being tied up. this scenario would suggest that the republicans rushing in to

help, in fact, are being entangled in a deeper trap that they couldn't anticipate. and our bipolar political world one side or another is supposed to be at the end of the rope. the question is, what does that rope really look like? could it be a slip knot where if you pull loose on the tax subsidies in the federal exchanges, you begin to unravel the rest of the affordable care act quite quickly. in the alternative, maybe it's a noose knot which would mean that upsetting the coverage subsidies and then upsetting the interests benefitting from them would kill off the political future of aca opponents. i've saved a few minutes for substance. just a little. i'll follow the primary rule, which is don't include any specific numbers or concrete date.

going to be in fewer mandates. you'll so the end of the employer mandate. it's not coming back. it's already on weak status as it is and a great weakening of the individual mandate. also a loosening of boundary lines of central health benefits. what are the range of actuarily approved policies that might be out there in the marketplace? more state control. less intensive or detailed federal requirements. be happy to have anything being done by the states at a certain point. but in a more, in a positive sense, more two-sided renegotiation of what once was in a world that doesn't exist anymore and has never been politically sustainable or economically viable. now, i in that sense it's a bit of mutually assured accountability. neither side would be able to walk away and hold out for full

set of preferences. we would move on to a more grudging but sustainable accommodation of the conflicting views that we need. continuing to work more than it currently does. the short-term effects if the plaintiffs win. on the negative side, a good bit of disruption. one of the disruptions, of course, would be that the prices become more transparent. you'd find out what things actually cost as opposed to how they've been camouflaged. and in the short-term, the disrupt or thes would be a bit of a blame magnet. there'd be a flipping of the field as opposed to what we experienced a year ago. it used to be that you could see all the upfront burdens and hassles of what was supposed to

eventually arrive as the benefits of the expansion and everybody saw the hassles up front. and that was a difficult world to be in. now it'd be a reversal in the sense of saying, well, this will eventually be a better world once we work our way through it post disruption. but in the meantime, you can have identifiable folks. i'm upset about that. and many states trying to expand that more aggressively than they already have. and the early adopters in the bluest of the blue states would be hanging on because they'd still have their subsidies and they'd be happy with that world. it would create some political tensions in terms of the regional distributions of the money and the pot. what would be the short-term effects if the plaintiffs lose? the pluses.

i'm still looking. some minuses, like ground hog day, longer, more years of obamacare improvisation, in order to change the law as it goes. in fact, it would be an encouragement of the overreach. we already saw with the irs rule. we'd have another entrenched entitlement we can't pay for it to add on to the previous ones. and there'd be limited work arounds. the landscape is not totally bleak. the medicare program we have today is very different than the one launched 50 years ago. things change, but our political system makes it harder to change them quickly when they're in the mass entitlement state. what would some of the key institutional players do to reposition and respond? on the hill, there's limits,

even on the hill to procrastination and polarization. it's hard to believe, but that's really true. when things are really a big mess, they have to respond regardless of what they prefer to do to put it off. so you have some urgent transition fixes. when it comes down. we're already almost on the honor system in most of the subsidies already, including for insurers, maybe we'll settle it a year later if we can figure out what's going on. so the premise that somehow people are going to be at risk for what they've already relied upon, whether or not it was good legal guidance, or not, is not going to be at risk there. there might even be a bit of a pause, some patches where in return for some rules of debate for what goes ahead in the future that there are some fixes put together in the interim to get folks through the next time. it may depend upon when a

supreme court decision came down. if it's in between this current open season and the next one, you'd have time to adjust. if you're talking about it happening in 2016, there may be a little bit more of a cliff hanger nature to it. and create an alternative system. to think of other ways in which with roughly the same commitment of resources towards subsidizing coverage, it could be done through other less obnoxious or intensive means than the current affordable care act provides. what we see you for is the employer mandate and ultimately the individual mandates which never had either the need, the administrative capability or the political support to carry out on a long-term basis. and what will be very much in play will be the risk corridors. not all of the other "rs" the risk adjustment and reassurance.

already vulnerable. they'd be more vulnerable in this environment. you would think that after you've already adjusted for health risk, after you've already taken out the high cost claims of the individual market. that is not going to be a defensible political proposition before or after this exercise. but i think the risk corridors would be quickly at risk. we've had back sliding in the states. more on the governor's side than the state legislators' side. we've seen that to some degree with medicaid. as a way to get the federal money without getting their hands dirty. this would upset some of those arrangements, including in

wisconsin if a governor is re-elected. it'll be harder for state politicians on the republican side to complain but still get the money. they'll have to say, hmm, we got to do something here. which is an interesting positive development in the longer term political sense. but discomfort for those who are currently saying it's all your fault, we didn't have much to do with it. i think that as much as you may say that the current boundary lines on what can or cannot qualify as a state exchange might be suggested. under this law. i think it'll be much more fluid, and in fact, from the federal side, they'd be happy to call anything a state exchange. we -- but we also have state pushback and we'd have

bargaining leverage on the state side where they could say, yes, i will consider doing an exchange. but unlike what you told us we had to do before, now we're two parties at the bargaining table. what are you doing? that's a very different type of true partnership between the states and federal government than the way the aca unfolded. some bluffs will be called where folks who have previously said if you get the feds out of the way, we can fix our state health care markets. well, those bluffs have to begin to be acted upon. and some two-sided finger pointing, but the finger should be pointed at everyone. and one factor that may be different in a few of the states. don't underestimate the fact that you've still got up to 20 or more states still resisting a medicaid expansion several years after it was supposed to occur in a quasi voluntary system. that it's one thing to discount the medicaid voters, but it'll be a little harder to discount the near poor, but more likely to vote folks who would be

losing out on exchange subsidy. what is the real positive behind all this, the details and some of the stretched correlations seen as causation it's really what this means for political systems, hygiene and therapy. we might have a return to regular order or regular disorder as the case may be where we start finding out you have to work this stuff out in the political system rather than take a quick bypass. and a mutual rendezvous with both sides with reality. if you will the frozen ember will begin to thaw and we'll get a reshuffling of the deck of cards and find out where we turn out on that. think of it as a way to correct what's done to the regulatory system which is what happened. you have to work this stuff out on the ground in politics. and it turns out you can find an accommodation nobody wants as their maximum preference, but they're willing to live with. there is some common ground on which all parties can agree,

though. there's one thing both parties will ever agree to in washington. when it comes to other people's money, it's time we can find a way to pass it out. we may distribute it differently, but we'll continue to pass it out in a different set of arrangements. thank you. >> well, that was optimistic, including that return to regular order idea. >> thank you, tom, lori, bob, all of you for being here. i have two points i want to make. one, there are two ways of understanding the potential disruption involved, surrounding this issue. the second point is that no matter whose side you take, no matter how you look at the potential disruption, the potential for disruption gets worse over time. so if the government says th that -- says that under the

plaintiff's interpretation of the statute, there'd be tremendous disruption and the plaintiffs actually agree. says, yes, that's true. as bob detailed for us. there would be tremendous disruption if the courts ruled for the plaintiffs in these cases. but the plaintiff's interpretation also suggested that the only thing that could be worse than that was the interpretation which caused much more disruption. the plaintiffs would say these lawsuits don't create any disruption at all. the purpose of these lawsuits is to end the massive economic and political disruption that has been caused by the president's decision to ignore the clear statutory language that he's sworn to uphold. and so let's dive right into those two narratives explaining these legal challenges. again, we're talking about pruitt v. burrwell, and indiana

v.irs. the government's narrative is this, we are implementing the law as congress intended. and these pesky plaintiffs over here, they're coming and trying to gut the law. they're trying to -- their interpretation would cause premiums. and if they did that by blocking an essential piece of the law, that would cause premiums to double for 7 million people. now, it's important to recognize that when you get rid of a subsidy, that doesn't increase the cost of the health insurance because the subsidy doesn't reduce the cost, the subsidy just shifts that cost from the premium payer to the taxpayer. really what's happening here, the premium payer would be exposed to the full cost. there'd be more transparency involved if we got rid of these subsidies. but the government says, with some and there's merit to them. premiums would double, the amount people are paying out of pocket for their premiums would double for some people. for some people, it would go up seven fold. and as bob said, insurance

markets could collapse in 2/3 of the country. in fact, the law itself could collapse because congress isn't likely to tolerate that. just sit there and do nothing. but that's the framework that the media have adopted when reporting on these lawsuits. it's the government's narrative. and so they framed the discussion in the same terms. if these lawsuits prevail, then there will be this disruption. but there are two sides of this litigation. the plaintiffs have another narrative, and it's actually much more ominous. the plaintiffs say that the obama administration is not implementing the law as congress intended. the plaintiffs maintain that these lawsuits are not challenges to the ppaca or obamacare at all. the plaintiffs are in court because they argue the law says one thing, the president is doing something else, and that something else is hurting the plaintiffs and they want them to stop. they argue that the patient protection and affordable care act clearly and unambiguously allows the president to implement its major taxing and spending provisions only in states that agree to implement

the law by establishing a health insurance exchange. now, it's a mouthful, one side of the story. i think it's important to note here, however, that 2 of the 3 standing judicial opinions in these cases, 2 of the 3 opinions in these cases side with the plaintiffs. they have adopted the plaintiff's interpretation that the statute is clear and unambiguous and the president is violating it. and the third opinion actually says, yeah, there's a lot of merit in what they're saying even though that ruling -- that opinion sided with the government. and interestingly, one more piece of history here is that the treasury and irs employees were charged with implementing this part of the law actually confessed to congressional investigators that at the time they were developing this regulation, they knew that the statute didn't give them the authority to implement these taxes and these subsidies in states with federal exchanges. but they did it anyway. the president -- his administration have nevertheless

been implementing those taxes and outlays in the 36 states that have not established exchanges. those disputed taxes fall on the plaintiffs, plus about 57 million other americans are subject to those penalties. and the plaintiffs are suing to stop what they think are unauthorized taxes in the subsidies that are connected to them. under the plaintiff's interpretation, the nature of this litigation is completely different from what the government says. they're not suing to stop the law. they are suing to stop the president from violating it. as a federal judge in oklahoma wrote, he was not overruling or overturning or gutting the ppaca, but upholding it. so no matter -- and no matter what you think of obamacare, it's far preferable. obamacare itself is far preferable to a system where the president can tax disfavored groups and subsidize favored groups without congressional authorization.

so which perspective, which narrative you adopt has a big impact on how you look at and categorize the disruption. the obama administration is correct that the law authorizes these taxes in spending and 36 states with federal exchanges, then the potential disruption involved here is only the destruction of the insurance -- the individual insurance markets in two-thirds of the country. only, that's all that's involved. i say only because if the plaintiffs are correct, the distortion is far, far greater. those taxes -- if the plaintiffs are correct, the law does not authorize those taxes and subsidies. those taxes and subsidies never should've happened. that money never should've gone out the door because they're forbidden by federal law. and under this interpretation, every way those taxes and those subsidies and the anticipation of the availability of those taxes and subsidies prior -- prior to when they took effect in january of 2014 has changed our world and is a disruption compared to what should've

happened if the government had followed the law. those disruptions have been widespread and they have been deep. they have disrupted the health care sector, they have disrupted the democratic process, including legislative votes and possibly even elections. and they threaten to disrupt the judicial process, as well. let's talk about the impact for a second. if the law does not authorize those taxes and subsidies in those 36 states, then ever since the administration announced its intention to offer them in states with federal exchanges, way back in 2011, insurers have been more enthusiastic about participating in the law's exchanges than they would have been otherwise, if the president followed the law. more insurers chose to participate in exchanges and more are participating now than if the administration had followed the law. reconfigured health benefits, cut hours for thousands, perhaps millions of employees, including

teaching assistants, bus drivers, school cafeteria workers and so forth. so some people's incomes have suffered as a result of the president's decision not to follow the law. millions of americans are paying penalties or are purchasing coverage to comply with an individual mandate. 4 to 7 million americans have agreed to -- that the government had no authority to offer them. subsidies that could vanish with a single court ruling or at the whim of the next president, whoever he or she may be. also, another economic distortion is that the federal debt has risen above the level authorized by law. that's just the economic impact. what's more troubling to me is the political impact of these taxes, unauthorized taxes and subsidies and the anticipation thereof. again, if the law does not authorize those taxes and subsidies with states of federal exchanges, then the obama administration's decision to

offer them there has disrupted the process, as well. if the administration stuck to the statute and let it be known that states essentially, that states could effectively block the exchange subsidies, the employer mandate and to a large extent, the individual mandate by refusing to create an exchange, then as early as 2011, the debate over exchange implementation would have been about those things and fueled by opposition of two of those things. opposition to the individual mandate and the employer mandate. republicans who wrote opposition to obamacare to office in 2010 would've made that a cause. you'll remember a lot of governors, governorships and legislative changes change hands. we may have had more than 36 states refusing to establish exchanges. it would be the fact that resistance in the states could block parts of the law, could have been, would have been an issue in the off-year elections in 2011 and congressional and presidential elections in 2012. they could have launched --

opponents could've launched grass roots campaigns that say block the mandate, say no to an exchange. voters would've behaved differently. congress held dozens of votes trying to repeal obamacare. well, those votes may not have succeeded. but the votes cast by individual members may have changed if it were revealed that this law is actually very vulnerable to state resistance and much less workable than the obama administration had pretended. it could have affected races, as a result. it could have affected the presidential election. both in terms of how many republicans decided to enter the race and the ultimate outcome of the presidential election. if this law was exposed to be less workable than the president had been pretending it was. and we could've had a congressional debate and a fix in 2013 before there was any disruption. before anyone had to lose any subsidy, before the money went out the door. before there was any threat to insurance markets collapsing.

we'll never know what would've happened because the obama administration denied states the ability to veto the law's unpopular employer and individual mandates and effectively disenfranchise voters who voted in state elections out of opposition to this law. in addition to americans voted in 2012 as if there were not a gaping hole in this law, that would expose the full cost and force congress to reopen it. and the irs rule is still influencing the 2014 congressional -- being held next week. candidates decided whether to run this year and voters will vote this year as if that gaping hole in this law does not exist. as if the law that congress enacted were more popular and successful than it actually is. so had the administration followed the law, the fact that 36 states exercised those vetoes would've led -- probably would've led to changes in the law and possibly changes in congress. and the fact that they didn't is a much greater form of

disruption than the what is threatened -- than the -- what could possibly happen to the individual markets in those 36 states. if the plaintiffs in these lawsuits prevail because that also is a result of the president's decision to ignore the statute. finally, handing out and making these subsidies available or making 4 million to 7 million people dependent on these subsidies also makes it less likely that judges will enforce the clear language of the law. because as -- an attorney center for american progress noted, judges are much less likely to rule for the plaintiffs in these cases if it means taking subsidies away from people. judges are human beings, they wouldn't want to do that. i wouldn't want to do that. and one of the reasons. and almost, almost came out and said that one of the reasons that the administration and its supporters are pursuing a

strategy of delay in these cases is because they're hoping that effect will influence the court's decision. that put another way, they're hoping that will prejudice the courts, which is how this, the irs rule is oalso -- could potentially disrupt the judiciary. no matter which side you believe, the potential for disruption grows over time. if you believe the government's narrative, then if the courts take -- the longer the courts take to resolve these cases, the more potential disdisruption, because the more people will become more dependent on subsidies. if you believe the plaintiff's narrative, then delay means the federal government -- the federal government will continue to tax and borrow and spend billions of dollars that congress never authorized. those subsidies will continue to make millions of people dependent on, or the irs will continue to make millions of people dependent on subsidies that could disappear with one court ruling or, again, if the

next president just feels like making them disappear. and those taxes will continue to suppress workers' income and employees' ability to hire. no which side you believe here, if you want to reduce the potential disruption involved in the irs rule or these lawsuits, you want a quick resolution of these cases. thank you. >> okay. okay. so we're going to go to questions here in a minute. but before we do, i just want to establish doom and gloom, chaos, catastrophe, on this side of the table in the event of a how big victory, right? >> i honestly believe, as tom said, there'll be much more pressure on the near poor to actually vote. and that may be enough to swing

some elections in certain states and those, 12, 15 states doing fine, they're going to continue to do fine. it would be a sad day. >> in the medicaid model then, you would still have these. >> it would be operational. >> on this side of the table, not so bad, really? things would continue along we'd renegotiate. >> for people? >> yes. we've got a president administration that thinks it can tax and spend and borrow without authorization. there'll be people who desperately need these subsidies and will lose these subsidies. but my response to that scenario is. and i'll ask this question to everyone on the panel. is there anyone who thinks

assuming those subsidies, if those subsidies are not authorized by statute. if congress never authorized them, should those people continue to get those subsidies? bob, tom? >> i think we tend to underestimate the cravenous of politicians to stay in office. >> that supports my theory that people would vote in a different way than they have voted or nonvoted before. >> you've got -- you don't get to set the way back machine. >> michael, listening to his remarks. the concern i have. the way you need to fix obamacare is the republicans need to win two elections. and we need to have sort of regular order, by the time we get to 2017, we'll know where

obamacare is. if i'm right about obamacare not working very well, that'll become crystal clear and there'll be imperative to change it. the 2017 rates, the first time this thing stands on its own. i think you need to go through the congressional process proposals like the 2017 proposals and so forth. if you fix it through the political process, it'll be fixed in a way you have a soft landing. in other words, they'll get rid of the stuff that doesn't work. change to the new way of doing things and people won't get screwed. you're going to have blood in the streets. and what the democrats -- and instead of we're going to have this moment like we all live in, what's going to happen, the democrats are going to say the mean-spirited republicans. and they'll call it mean-spirited republicans because two attorneys general here today, i think they're

republicans, they couldn't change this law the right way, so they tried to get it through the courts. and, and the other side of it will be. this is the question i want to ask michael is, the other side will say, wait a second, this is deeply flawed. we were going to do more damage if we continued with it in all 50 states and therefore we needed to bring the suit. what i heard you say is this suit is about getting obamacare. >> no, actually. >> no, in fact, it's about upholding obamacare is what i said. as bad as obamacare is. >> this is the way we need to -- this is the way we need to change obamacare. it's bad in all 50 states. >> no. as bad as obamacare is. what we have right now is much worse. what we have right now is not obamacare. >> this is about getting obamacare. that's what i heard you say. >> i don't know how else to explain.

>> you're removing the political distortions that mutated obamacare. >> well, sure. it's no secret that i've -- i oppose this law and persuaded, tried to persuade states not to implement the law and i was doing that because i think this law is on balance harmful for patients and for workers and the economy and so forth. when the irs issued the final rule saying it would offer tax credits and cost-sharing subsidies and if in effect the employer mandate and individual mandate where the statute did not authorize it to do so, this stopped being about obamacare and started being about something much, much bigger, which is the rule of law. and whether the president, as i said can tax and borrow and spend without congressional authorization. it just happens to be about a health care issue, which is why the health care guy is here and other health care guys on the panel.

so, because -- and. and so, the irony here is that the people who are suing the federal government now are actually -- they're all pretty much, i would guess all of them are opponents of this law. but they have more respect for obamacare than the president himself does. he thinks that he can, as i said, tax and borrow and spend money that statute does not authorize him to tax and borrow and spend. >> okay. let's let the audience ask some questions. so we're going to raise hands and wait for a microphone. and please announce your name and affiliation. over here. >> maybe -- just to help you out with the vocabulary. maybe you should distinguish between obamacare which is whatever the obama administration implements and the aca, which is what the

statute says. you could say you're suing to stop obamacare and implement the aca. but having made that vocabulary suggestion, i'll get to my question. if you actually read the statute, which some of us have done. it seems clear, the penalty over here and not over there. and the administration say said we don't think that's fair, we're going to do something different. what's the -- what's to stop the administration from saying, okay, the supreme court made its decision, but that's not fair, here's what we're going to do. and potentially remove the issue of standing by saying, all right, we're not going to implement the taxes and penalties in those states, but we'll still give people the subsidies. and, yes, they're not authorized by law. and, yes, the supreme court says you can't do it, but we know better and this is really what it's supposed to be. so we're going to go ahead and do it. how do we know that's not going to happen?

>> 40% approval rating on its way to 25%, that's how. >> the reason the president's -- has unilaterally written -- all the wavers to the mandates a few years ago. there's defining congress as a small business for purpose of getting employees into a shop exchange. the reason he's allowed to get away with all these things is twofold. one, challenging him in court. and two, there are enough members of his own party in congress that congress can't do anything to rein him in. if his approval rating plummets even further, then that second dynamic will change. and it's because they're identifiable plaintiffs, people with identifiable injuries under the irs rule that the plaintiffs

have been able to challenge this revision of the law in court. right, so they lose their standing, that -- so the only constraint there would be political. congress would have to do something. and the question becomes, how much will congress put up with? well, the question becomes how much will congress put up with from this president? and so far, seems like quite a lot. i couldn't say congress wouldn't let them get away with doing that, too. >> two institutional bodies against them rather than one would be the net effect of that move. in addition to the change in public opinion. yes, you can get away with a lot of nonsense and a lot of nonsense gotten away with. there are boundary lines on this. nixon discovered that among others, okay. >> which raises my point. which is it seems to me what michael really wants and what he's trying to argue for, i'll put it that way. the argument to me leads me to the conclusion that the real goal here is to impeach obama.

godspeed. go ahead, i have no problem with that. what i have a problem with is the continued assertion that the only interpretation of the aca is the interpretation that was reached by the majority of the d.c. circuit. to me, the king logic down there in richmond is pretty clear. either the statute's clear or it's not. if the statute's not clear, you use the chevron test. and if the chevron test leads you exactly where the circuit ended up. which was, this thing's ambiguous. when it's ambiguous, you give the executive authority to interpret within the confines, if their interpretation is within the confines of that ambiguity, we're done here. because we're not going to re-legislate. that is the interpretation that is the alternative interpretation working its way through the court. i don't know which way the supreme court's going to rule. for me, that's almost a separate question to what the obama administration is trying to

implement, which may skirt the level of, you know, what y'all would consider impeachable. i don't know, again, i'll leave that to higher minds. what i'm worried about health policy. and what i know is that when congress passed this law, there was no question in anybody's mind who was on the committees that wrote it that they intended to deny the subsidies to the people in the people of the united states. whether the feds or the states -- >> medicaid. same is true of medicaid. everyone agrees that's a traditional program. >> michael, i'm trying to make a point here. and the point here is if you ask max baucus, if this was an issue, they'd say, of course, we meant it to go. and what i love about the way you're going to make this case, is you're going to basically say that the president's misinterpreting the law, which is essentially an argument about a typo.

i mean, max baucus would've fixed this if they'd had a conference and that would have been that. so i just -- i just don't think that's the issue. i think the issue you want to impeach the guy, okay, fine. let's talk about, you know, implementing health reform then we're talking about subsidies in all parts of the united states. >> does anyone else have a question. yes, sir? >> so we're like 4 1/2 hours into this and nobody has said the word massachusetts yet. and is it the real problem that they put forth the law in massachusetts and they just thought they could pick it up and jam it down the throats of the other 50 states. isn't that the real problem we have right here? >> no. >> no? >> no, the real problem is that a slight majority in congress supported the logic of the massachusetts law. there are differences in the laws. and a slight minority opposed it. quite vehemently.

and the real problem is that when the inability to agree in the finance committee on any kind of bipartisan nature of the conversation, those worlds split, and we got out of regular order and we've been in this mess ever since. that's a real problem. we have a fundamental disagreement about whether the federal government should be strong enough to grant all its people access to health care. and we should settle that in my opinion and the political sphere. but we're stuck -- >> which we'll do right after the court decision. >> actually, or that we already did. i want to return to a point that bob made, which is that under the -- you adopted the government's narrative which is, we should be fighting this out in the political sphere and not in the courts. actually, the plaintiffs agree, they believe we already have fought this out in the political sphere. and because it gives the states the power to block two legs of

the three-legged stool, the american people have rendered their judgment on this law. the question i thought about in the beginning of my remarks. what if the american people defeated this law but the president implemented it anyway. that's what's happening here. the president -- he is trying to achieve by executive through the political process. he was not able to get through any bill except one that gave states the power to block two legs of the three-legged stool. >> you say two legs, you mean medicaid? >> no, the regulatory scheme for the private insurance market, the three legs of the stool are the pre-existing condition provisions, individual mandate and the subsidies. states can knock out both the mandate by and large and the subsidies completely. and then they were not able to get states to go along with that. and if they had followed the law, as i said, we would've had a much different debate, there would have been a lot of defections on the democratic side from this law because it

would be revealed to be more costly and less workable than the president has been pretending that it was. he's pretending he passed a bill that he couldn't get through congress. and as i say, trying to achieve that he could not achieve through the political process. that's what the plaintiffs are trying to do. trying to get us to have that debate we should've had years ago when there wouldn't have been any dislocation and now there will be and the fault for that lies with the administration. >> i think the big problem here is that politics and constitutional law don't mix. i mean, you've got -- >> this is not a constitutional issue. >> constitutional law issues here and rule of law issues here, there's no doubt about that. the politics of this, if this goes through are just devastating. and there is a point when i think, you know, you have to sit back and say what if we win? then what? >> that's what i say. bring it on. >> well, i want to ask a question to michael.

do you agree with lynn's assertion this is essentially a typo? that congress did not intend and never discussed the possibility -- wait, because i was there and i actually agree with lynn that they never contemplated the idea that the subsidies would not be available to everyone. it was never discussed. >> it was never discussed. that doesn't mean it was never contemplated. there was no evidence of it being discussed except for the one i mentioned. a couple things about that. the first is, people hate to say this was a drafting error. the government has never argued that in court. and there's a reason why the government's never argued it in court because it's not credible. the statute -- the tax credit eligibility rules in the statute are very clear. jonathan adler walked through them in the last panel. they say that the panels that are eligible for tax credits, the people who are eligible for tax credits, the premiums that are used to calculate the tax credits, the rating area in which you'll find all these things. all of them happen through an exchange established by the

state. never mentions federal exchanges, nothing unclear about it. in fact, if you -- if you get a proponent of the government's position to voice an opinion on just the tax credit eligibility rules, they'll say, yeah, those are clear. so when you have multiple uses of that phrase, it's not a typo. it's not a drafting error. and multiple stages in the legislative process, that's not a typo or drafting error. as far as whether anyone discussed this or what congress' intent was, the whole idea that congress intended for this statute, the ppaca to authorize tax credits in federal exchanges is a fabrication. you made it up. and why do i say that? because there's no evidence of it whatsoever. none in the legislative history, none in the statute, none in any of your excellent reporting on this law, lori. i read every article you wrote about the implementation of this law and a lot of other people,

robert is here and read all of his. no one touched on this. it never came up. the only time it ever did come up, the question, the specific question of what would happen under the patient protection affordable care act if states did not establish exchanges was answered. or the only time it did come up, when a former supreme court of texas justice named lloyd dogged, a very left leaning member of congress and a very conservative state said, wait, i don't like -- we don't -- he and ten of his colleagues from texas said we don't like the senate passed ppaca because if states don't implement it, our residents won't see any benefit. they categorically said there'll be no benefit to states, to the intended beneficiaries of exchanges if states don't implement them. and they acknowledge there would be a federal exchange. there's absolutely nothing in the legislative history to support the claim that congress

intended for this law to do what the administration is doing. that's a fabrication. and the only piece of legislative history that speaks to this question supports the plaintiffs. if you have any evidence to support what you're saying, i'm interested to hear it. but post enactment statements by members of congress, the same members of congress who say if you like your health plan, you can keep it are not really educational. they don't tell us about anything that congress intended. there's a reason why judges don't pay any attention to those statements. >> microphone in the back, please. gentleman in the red tie. >> charles william, an internist from st. louis, missouri, spent a career taking care of patients one person at a time. built a medicare advantage health plan all to better enable myself to do that. it's clear to me i followed this closely in its formation that

given the cornhusker kickback, there's no way you would have gotten even all those democratic states to come along if it weren't for the idea that it would be implemented by the states. that's what i heard as a citizen interested citizen. let me, it's interesting to hear you gentlemen debate whether this ought to be settled in the courts or at the fed. not just that, we're solving the problem in the market already, it's being solved in the market already. and i hate for -- i hate to give it any credit because it's stimulating that. concierge medicine, oklahoma medicare advantage, et cetera. so it will be -- we will -- we will be fine if they throw -- if they throw this thing out. the longer we can keep you guys in washington in check doing nothing, we can solve the problem. thank you.

>> we have a question. >> one thing, it looks to me like all the panelists agree on this that in the 16 states that have established state exchanges, there's going to be very little impact. now, in the other 34 states, in the short-term, the impact will be very disruptive. in the longer run, supporters of obamacare think the impact will be very negative. opponents of obamacare think it will be positive. for this sort of the sort of insurance policies that might come up again. we may see an employment drop because of once it becomes clear that the employer mandate no longer applies, hiring the other

16 states. but the point is, we will see the difference between the 16 states and the 34. and whichever of them does better, there will be great political pressure on the other side to change what they're doing. so i would think that supporters of obamacare would be eager to win in order -- to have the opportunity to demonstrate to demonstrate that obamacare is, in fact, improving things. >> as a logical matter, you are correct. and i do know people who support the law who are exactly where you are. the difficulty is, the people who support obamacare tend to also be democrats by nature, and democrats by nature don't like to think about those people who drive taxi cabs and cut your hair and do all those things, having something taken away from them. and they're quite worried,

frankly, more tactically about the response of the insurance industry, if they get burned in this way. they went along, got burned, okay, what do we do know. yes, bob's right, maybe they won't lose financially in year one, but they hate gearing up for a whole new market and having that market be taken away. so we worry about the insurance industry's response to the debacle, which would drive voters to our side. so that's our dilemma. >> yeah. it's long-term, the debacle will create a different system. >> yeah. >> it's the short-term. of course the state of texas will figure this out. how many years will it take? that's -- and what happens -- what happens to the people in the short-term? and what are the political consequences in the short-term? and what are the political consequences to the long-term objectives? if you have 8 million people lose their insurance in july 1st, 2015, the day after the supreme court ruling, you aren't

going to elect a republican dogcatcher much less president. and what does that do? of course texas will figure this out. what happens in the medium term or the short-term? >> well, i doubt it's going to be as simple as wins, democrats win. and that's because holbig victory would continue the narrative that most people adopted this law. and you would add to that narrative, wait a second, we can block the individual mandate in our state? and what, the president was violating the law on a massive scale? is that going to lead to a flood of democratic votes? i'm not so sure. >> over here. >> thank you. i'm just trying to figure out, can you explain to me how the agencies or the individuals

disrupt the democratic process or the economic process? how this -- what is the mechanism? how this happened. thank you. >> i'm sorry. how individuals have disrupted? >> how the agencies of individuals or the law itself disruption, economic or -- >> i think the answer is -- at least my answer is that if the president had been following the law and let it be known that the subsidies that the law authorizes for exchanges are only available through an exchange established by the state. and that the penalties that those subsidies trigger against employers under the employer mandate and individuals in the individual mandate would also disappear if a state did not establish an exchange. then we would've had a very different debate over this law for the past four years.

the law -- the law would have been revealed to be more costly. as states refuse to establish exchanges. the insurance companies would be talking about what would do to the premiums, it would expose the premiums, it would be much higher. some insurers wouldn't participate. the law would not have enjoyed the stellar popularity ratings it's had for the past four years. if the president had been following along. and so by keeping the laws popularity artificially high, it wasn't high to begin with. but it wasn't very high even after he did that, i should say. that's what disrupted the political process. and then there are also the economic disruptions i talked about. >> let's let grace marie speak. >> okay. >> grace marie turner. with all due respect, my good

friend, to your excellent work, this is now going to be a political dilemma. and i hear you making sort of a straight line projection saying that the states are going to have to adjust to the law as it would current -- it would be interpreted if halbuk were to win. but because it's a process, those republicans that don't want to lose their seats would quickly say, oh, my goodness, we need to throw out a safety net to make sure that millions of people don't lose their health insurance. so, i think there would quickly be legislation to make sure people don't lose their health insurance. probably structured in a different way as both mike echa and tom said. but i hear you saying, we're going to stay in this box not realizing this is a very fluid political process and politicians would respond. >> i was not saying that.

my 12 minutes was confined to what happens the day he's affirmed, okay. and you'll note one of the last slides i had up there, the states with hundreds of thousands of people who would lose their insurance on that y day. and then i had the slide up saying here's the process the state would have to go through. and then i made the point that it would not take days to fix that. it would minimally take months to fix that. if the supreme court would rule, probably in june, they always do this, the big cases, you know, june, all right. and so you -- and the -- there are no state legislatures in session. the governor has to call them into session. the governor has to convince them to do this, which i think would be a lot easier to do in pennsylvania and ohio and new jersey and the states that took medicaid because they know they would have to do. and then you'd have states like texas who would probably be defiant because that's the way they've acted so far, all right?

so what you would have -- and what i think you're missing here is the day this ruling came down. and the headlines and the newspapers on july 1 was we've got a crisis. we've got a mess. this is terrible. and the best that republicans could do would be to -- would be to go into defensive mode in some of these red states or quasi red states and fix it as quick as they could because they've got this terrible political noose around their neck that was created by all of this. that is not a positive development, that is not a wonderful thing. it's a god awful mess, and they did it. and half of them are going to fix it and half of them aren't going to fix it. and you've got one heck of a burden. >> but the next day, congress could act and give them a different authority. to basically say we're going to -- >> who is going to give them a different authority? >> congress to say for the next -- >> congress. the congress. >> the house of representatives. so here's the thing. >> has a point.

has a point here. the high risk pool idea is not controversial. republicans like that. >> wait. we're talking about political movement. let me tell you this, if you were in the house and i was in the house, we would have a chance. we're not. so what's going to happen is that the people who wanted to kill obamacare the whole time are going to say, hey, we finally got a stake in the vampire's heart. we've got to kill it. and the other ones are going to say, oh, my gosh, i lost 600,000 covered lives, i've got to implement obamacare by creating a state exchange. that's a dilemma. >> you'd have a bunch of wonderful speeches and they'd all be looking at the 2016 presidential election and they would think they have the republicans where they want them. and they would not let them out of that box. i don't know where you think that in 15 minutes this town is going to fix something this big and complicated when it took us ten years to get what we've got. >> perhaps you could get a subsidy now. you can continue to get it, and

we'll come back to this and work on it for the next six months. >> but perhaps you guys can meet over lunch and have this conversation. because we are out of time, unfortunately. thank you very much.

you're watching live coverage on whether the obama administration is overreaching in extending tax credits and subsidies for health care exchanges established by the state and the federal government. the supreme court will decide whether or not to hear an appeal on subsidies, this from cq more than two years after the supreme court upheld the health care overhaul and other challenges on the justices' doorstep. this time on the question of whether the law's subsidies can be made available in every state. justices are scheduled to meet friday in their first opportunity to decide whether to take up a challenge to subsidies that help low and middle-income

residents in 37 states by coverage under the 2010 overhaul. the court could announce as early as friday or monday whether it intends to act. though there is disagreement about whether the justices will or should weigh in. again, that from cq. this event at cato in a short break now but will resuming shortly for remarks from oklahoma attorney general scott pruitt. until then, we'll show you as much as we can from an earlier speaker. indiana attorney general greg zeller. >> thank you to the institute for hosting this. i'm glad the lead in kind of took away some of the things that i was going to point out. i'll be able to kind of condense this. and hopefully we can take some questions. but let me do just a few things as part of my own lead-in.

i'm almost sorry that you mentioned my ten years in the federal government with senator and vice president quayle. in indiana, i'd deny it. you know, i've learned the federal government is government is not a well loved institution. congress even worse. so i don't know. i guess it was a clinton -- deny, deny, deny. i say it was my brother skippy who was in the white house and it was not your attorney general. i think i've resolved my checkered past by suing the federal government a number of times. that's very popular in the state of indiana. let me explain, you know, when i come to washington, i have to explain a little about states. what you read in books and what people think about states in washington often is not exactly true. so, first of all, it's true that

all states are sovereign. and yet, all states are not alike. since we're sovereign, we have our own ability to create our sovereign government in the way that we choose. indiana is one of six states that has chosen what i think is a little more conservative path from our history. we have created the office of the attorney general as a statutory office. the other states are all constitutional office holders. but i serve as indiana's attorney general under statutory authority. and the distinction is one that i think merits some attention, bought if you are a constitutional officer, you have some of the areas of patrii, which would allow to you do things based on the need of the population that you serve. if you're a statutory officer,

you represent state government. so the claims that we bring are much more aligned with defending the sovereign state. we don't have the same expansive role to be able to represent the people as individuals. so i think it's a distinction that plays out in this area. a little history that proves out that point. in the lead-up to the passage of the affordable care act, our senator richard luger, recognized that under the statute of the attorney general, that my office was able to do research for the senator. so this dates back to kind of the quaint days when senators represented state legislators under the -- before the 17th amendment. so senator luger, seeing the coming of the affordable care act, asked my office to do a

report. some months later, we created a 55-page report that told the senator that there were some substantial constitutional issues being raised by the way they have structured the affordable care act. and i threw in in conclusion that should it pass in its current form, which at the time it was unlikely. everybody assumed it would be changed when it went through the house and back to the senate. so i said that if it passed in its current state, i would feel compelled to challenge the constitutionality. so i had already anticipated what would happen. but i didn't realize that they would pass it in the same form. when it did pass, there were a number -- i think 13 attorneys general who filed maybe minutes after the president's signature. indiana was not one of those. the original lawsuit focused on

individual mandate. again, since i don't represent individuals in that same capacity, my office, i felt, may lack standing to bring a claim based on the individual rights of our citizens as opposed to the authority of the state. so what we did is we worked with some of my colleagues later in the first amended complaint that was filed. we added the complaint dealing with the expansion of medicaid under what we felt was a coercive mandate from the federal government to coerce a sovereign state. so we joined in the whole lawsuit. but our real focus was on that relationship between the federal government and the state being coerced to expand our medicaid program or lose all of the monies that we currently were

getting from the previous deal with the federal government. so i think that as you look through the court's decision, chief justice roberts -- i will throw out a shoutout to our hoosier born supreme court justice. the three points that were made clear in his decision was, first, there were limits on the commerce klaus, which i think many states were glad to see they had reached the function. so there are limits to the commerce clause authority of congress. a second, they did strike down the mandatory expansion of medica medicaid. again, i think it was his words that a gun to the head is the type of coercion that is not allowed under the constitution. finally, in saving the

constitutionality of the case -- or of the affordable care act, he found that there was a taxing authority being implemented by the federal government in which they had that authority to have a tax penalty. so when you look through the history, since the passage, and the supreme court's decision, all of the states have now made their choice whether to create an exchange. i think there's 16 now that have their own exchange. there's eight who have come up with a hybrid between a state and federal exchange. and the remaining 26 states, including indiana, have only a federal exchange. now, that was the decision of a sovereign, in each case, based on our authority as a state sovereign. it's not mandated by the federal sovereign. it was something that each state chose. it's not the way the affordable care act was written, because if you look at the first few

paragraphs of the act, it says, this is an exercise of commerce clause authority. that's what we defended against. that's what we challenged. we were, i will admit, a little bit surprised about the saving under a tax penalty. but that's not the subject of my remarks today. the real issue, if you think about it from the perspective of indiana and one of six states that are statutory creatures, it's really a question of whether the federal government now has authority to regulate state sovereigns under the taxing authority. we know that the federal government can regulate states as employers under the commerce clause authority, which again the first two paragraphs make it pretty clear, congress thought they were exercising that authority. so you have the supreme course

precedent that says that since states hire employees out of the stream of commerce, we're subject to federal regulation under fair labor standard acts and things like that. the history of that commerce clause authority going back to where the states won under a 5-4 vote saying we were not subject to federal regulation under commerce clause. then garcia overturned that 5-4 saying the federal government can require states as employers to be subject to those fair labor standard acts and terms and conditions of employment. now, i'm still not happy about garcia. frankly, i would like another shot, because 5-4 is not exactly let's say a permanent rule that the federal government can regulate my state and all

sovereigns under commerce clause authority. but again it's the current rule of law and i will respect it even without liking it. but the question remains, when chief justice roberts says that this is not an exercise of commerce clause authority, it's really a tax penalty. so now the question under kind of the rule of law is whether the federal government has the ability through the irs to regulate my sovereign state under a taxing authority. again, what has been taught in law schools all around the country over the years is that states as sovereigns are not subject to federal taxation. we don't have a tax form that we fill out. so i point that all out really to demonstrate that under our challenge, it's not so much

just -- again, scott pruitt can explain from a constitutional officer's position the focus on challenging the act. but i think ours really lends itself to this question of federalism, whether the precedent will now be set that the irs can regulate our states under a taxing authority that's hither to unknown. this tax penalty is not the same as a regular tax. so if you read what i would consider a somewhat gra conian tax penalty, is that you count up how many employees you have. the state of indiana has 28,000 employees. and you multiply $2,000 times your work force, and that is your tax penalty. even if you were just to miss a few employees being covered under the affordable care