Why The Latest Threat To Obamacare Was So Impossible To Predict

Nobody who watched the genesis of Obamacare could have conceived that we would get to this point. When a federal appeals court ruled last week that the law’s subsidies were not available in the 36 states that used HealthCare.gov this year, it was the culmination of a unexpectedly turbulent legislative process and five ensuing years of willful Republican obstructionism that puts health coverage for nearly 5 million people at risk.

Separate state and federal exchanges were never supposed to exist. A national exchange, a more fully formed HealthCare.gov, if you will, was preferred by House Democrats and the White House. But unforeseen political changes forced Congress and the president to accept state exchanges with a federal backstop.

But then nobody really believed that states would chose not to set up their own exchanges. Until, fueled by the conservative legal challenges that they hoped would undo Obamacare as a whole as well as the politically motivated defiance of Republican governors, a substantial majority of states defaulted to the federal exchange.

Then enterprising opponents of the law discovered the language in one provision of the ACA that is now at the heart of their current legal challenge. They’re arguing Congress didn’t actually intend for subsidies to go through a federal exchange, even though a fully federal exchange is originally what many members and the White House wanted. Meanwhile, the law’s defenders, as well as many journalists who covered its passage like Vox’s Sarah Kliff and The New Republic’s Brian Beutler, are being confronted with a scenario that they never could have anticipated after years of covering the law’s drafting and implementation. It seems simply unthinkable to most of those who have tracked the law closely. But here we are.

This is how it happened.

The earliest versions of the House’s health care bill, released just a few months after President Barack Obama took office in 2009, would have established a national marketplace. The thinking at the time was that it would provide the kind of strong regulatory backdrop that only the federal government could offer and reduce administrative costs, as noted health policy expert Tim Jost wrote for Health Affairs that year. So the idea of administering subsidies through a federally run marketplace was there from the beginning.

States could petition the federal government to set up their own marketplace if they wished and likely would have maintained some involvement by regulating plans. But the responsibility for building and maintaining the exchanges would have fallen to the feds.

The Senate bill always called for state exchanges, though there were two versions — one from the Health committee, the other the result of extensive negotiations between Senate Finance Chair Max Baucus (D-MT) and ranking member Chuck Grassley (R-IA) in the summer of 2009. The first HELP draft explicitly allowed subsidies to flow through the federal exchange, according to Greg Sargent at the Washington Post, who has recently been canvassing the law’s development. In the end, states were allowed to opt out and default to a federal exchange, but the explicit language was lost when the two bills were merged, providing the basis for the current legal challenge, Sargent reported this week.

Throughout the debate over the legislation, the Senate’s approach was typically more conservative, a result of a desire to bring some Republicans onboard and to keep conservative Democrats like Sen. Ben Nelson (D-NE) in line. There was little room for error with the Democrats holding 60 seats, unable to lose one vote to beat a filibuster after Republicans united in opposition.

The White House preferred a national exchange from the beginning and late into the legislative process, as the Associated Press reported at the time. After the House passed its bill in November 2009 and the Senate passed its bill the next month, the debate was still open while the two chambers went into negotiations. Liberal House Democrats wanted to hold to the national exchange concept and they had President Obama’s backing, per the AP.

“We want to make sure it’s the same all over the country,” Rep. Louise M. Slaughter (D-NY) told the Washington Times in January 2010. More conservative Senate Democrats and some state officials, meanwhile, pushed for the state-based approach. The federal back-up was rarely discussed.

“The thing that we fear the most is we would not have the ability to enact [state] laws to create greater consumer protections,” Sandy Praeger, the Kansas insurance commissioner, told the Times. “We would see the problems and not really be able to solve them.”

Then circumstances changed. Republican Scott Brown won the Massachusetts special Senate election on Jan. 19, 2010, following Sen. Ted Kennedy’s death. Democrats no longer had their filibuster-proof majority.

AP/Charles Krupa

They came up with a way to get the law passed — known as “budget reconciliation,” which avoided the filibuster in the Senate — but it came with a price. Budget reconciliation didn’t allow the two chambers to make substantial changes to the bill. Instead, the House had to effectively sign off on the Senate plan in March 2010. So state-based exchanges, it would be — to the chagrin of liberal House members who swallowed their pride to pass the law.

But even then, there were no indications that anybody thought the specter of state exchanges had put the law’s crucial subsidies at risk. Instead, bigger and loftier goals — like a public insurance plan — would have to be put off.

“I supported single-payer, I supported the public option, I supported a national exchange,” Rep. Barbara Lee (D-CA) told the Washington Post. “None of that is in there, so for me this is a big deal to support this. But it’s a foundation.”

And as the state-based approach became more likely, few observers seemed concerned that states would object to setting up exchanges. Nobody warned of dire consequences if they did not.

“I can’t possibly imagine a state opting out of an insurance exchange, given it’s a good deal for the state,” The New Republic’s Jonathan Cohn, one of the foremost health care journalists, who has also been retracing his own coverage during the recent debate, said on NPR in January 2010.

“I know a lot of states are nervous about what’s going to happen with this, but at the end of the day, I just don’t see it happening,” Cohn said at the time.

The federal government offered generous funding, eventually handing out more than $4 billion, to convince states to take up the effort. But many were reluctant. Some publicly said that they were waiting until the 2012 Supreme Court decision on Obamacare’s constitutionality. The law was upheld by the high court that June, but by that point, there was little more than a year to build, test and then open the exchange for enrollment in October 2013.

Some states — including those led by Democrats — simply gave up then and defaulted to the federal option, which left the feds with a bigger workload than they expected. That probably helped contribute to HealthCare.gov’s disastrous launch. But more than impracticality, it was outright defiance that led some of the GOP’s most outspoken governors to reject setting up their own exchange.

“This is a federally-mandated exchange with rules dictated by Washington,” Texas Gov. Rick Perry (R) said in a November 2012 letter to the Obama administration, according to the Dallas Morning News. “It would not be fiscally responsible to put hard-working Texans on the financial hook for an unknown amount of money to operate a system under rules that have not even been written.”

Opposition to the law had become party doctrine, and they believed it swept them to huge victories in the 2010 midterms. After losing at the Supreme Court, they hoped that a President Mitt Romney would undercut the law. There was no appetite for compromise. Instead, Republican-led states categorically refused to set up their own marketplaces, even after Obama was elected to a second term.

“We don’t think it makes any sense to implement Obamacare in Louisiana,” Louisiana Gov. Bobby Jindal (R) said in June 2012, according to Yahoo News. “We’re going to do what we can to fight it.”

In the end, 36 states ended up using HealthCare.gov in 2014. What none of them seem to have considered is that their residents would lose access to financial help under the law. But, if the law’s opponents have their way, that’s exactly what will happen.