In Halbig, the DC Circuit argued that the plain language of the PPACA should rule, and that subsidies should only apply to customers in state-run exchanges. I am going to leave the legal stuff out of this post, and say that I think from a political point of view, Obamacare proponents made a mistake not sticking with the actual language in the bill. The IRS was initially ready to deny subsidies to the Federal exchanges until Administration officials had them reverse themselves. When the Obama Administration via the IRS changed the incipient IRS rule to allow subsidies to customers in Federal exchanges, I believe it panicked. It saw states opting out and worried about the subsidies not applying to a large number of Americans on day 1, and that lowered participation rates would be used to mark the program as a failure.
But I think this was playing the short game. In the long game, the Obama Administration would have gone along with just allowing subsidies to state-run exchanges. Arizona, you don't want to build an exchange? Fine, tell your people why they are not getting the fat subsidies others in California and New York are getting. Living in Arizona, I have watched this redder than red state initially put its foot down and refuse to participate in the Medicaid expansion, and then slowly see that resolve weaken under political pressure. "Governor Brewer, why exactly did you turn down Federal Medicaid payments for AZ citizens? Why are Arizonans paying taxes for Medicaid patients in New Jersey but not getting the benefit here?"
Don't get me wrong, I would like to see Obamacare go away, but I think Obama would be standing in much better shape right now had he limited subsidies to state exchanges because
- The disastrous Federal exchange roll-out would not have been nearly so disastrous without the pressure of subsidies and the data integration subsidy checks require. Also, less people would have likely enrolled, reducing loads on the system
- Instead of the main story being about general dissatisfaction with Obamacare, there would at least be a competing story of rising political pressure in certain states that initially opted out to join the program and build an exchange. It would certainly give Democrats in red and purple states a positive message to run on in 2014.