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85–358 PDF 2013

OVERSIGHT OF IRS’ LEGAL BASIS FOR 

EXPANDING OBAMACARE’S TAXES AND SUBSIDIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY POLICY, 

HEALTH CARE AND ENTITLEMENTS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JULY 31, 2013 

Serial No. 113–61 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

MARK POCAN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON ENERGY POLICY, HEALTH CARE AND ENTITLEMENTS

JAMES LANKFORD, Oklahoma, Chairman 

PATRICK T. MCHENRY, North Carolina 

PAUL GOSAR, Arizona 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

JACKIE SPEIER, California, Ranking 

Minority Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

JIM COOPER, Tennessee 

MATTHEW CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

DANNY K. DAVIS, Illinois 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

(III) 

C O N T E N T S 

Page 

Hearing held on July 31, 2013 ............................................................................... 1 

WITNESSES 

The Hon. E. Scott Pruitt, Attorney General, State of Oklahoma 

Oral Statement ................................................................................................. 4 

Written Statement ............................................................................................ 7 

Mr. Charles Willey, MD, CEO, Innovare Health Advocates Inc. 

Oral Statement ................................................................................................. 12 

Written Statement ............................................................................................ 14 

Mr. Simon Lazarus, Senior Counsel, Constitutional Accountability Center 

Oral Statement ................................................................................................. 17 

Written Statement ............................................................................................ 20 

Mr. Jonathan Adler, Professor of Law, Case Western Reserve University 

Oral Statement ................................................................................................. 31 

Written Statement ............................................................................................ 33 

Ms. Emily S. McMahon, Deputy Assistant Secretary for Tax Policy, U.S. 

Department of The Treasury 

Oral Statement ................................................................................................. 66 

Written Statement ............................................................................................ 68 

APPENDIX 

The Honorable James Lankford, a Member of Congress from the State of 

Oklahoma, Opening Statement ........................................................................... 96 

A letter to Chairman Darrell E. Issa in Response to a Request for Info. 

about CBO’s March 20, 2010 Cost Estimate for H.R. 4872 .............................. 99 

The Honorable Jackie Speier, a Member of Congress from the State of California, Opening Statement .................................................................................. 100 

Legal Analysis of Availability of Premium Tax Credits in State and Federally 

Created Exhanges Pursuant to the Affordable Care Act from Jennifer 

Staman and Todd Garvey, Legislative Attorneys .............................................. 103 

Health Insurance Exchanges: Legal Issues ........................................................... 113 

House, Senate View Health Exchanges Differently by Julie Rovner .................. 150 

The Hon. Lloyd Doggett, a Member of Congress from the State of Texas: 

Settling for Second-Rate Health Care Doesn’t Serve Texans ........................... 153 

A Letter to Chairman Issa from Alastair M. Fitzpayne, Asst. Secretary for 

Legislative Affairs, Dept of the Treasury ........................................................... 155 

Post Hearing Questions for Emily McMahon ........................................................ 159 

(1) 

OVERSIGHT OF IRS’ LEGAL BASIS FOR EXPANDING OBAMACARE’S TAXES AND SUBSIDIES 

Wednesday, July 31, 2013 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ENERGY POLICY, HEALTH CARE AND

ENTITLEMENTS, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 10:43 a.m., in Room 

2154, Rayburn House Office Building, Hon. James Lankford [chairman of the subcommittee] presiding. 

Present: Representatives Lankford, Gosar, McHenry, Jordan, 

Walberg, DesJarlais, Woodall, Issa (ex officio), Speier, Cartwright, 

Cardenas, and Lujan Grisham. 

Staff Present: Alexia Ardolina, Assistant Clerk; Brian Blase, Senior Professional Staff Member; Caitlin Carroll, Deputy Press Secretary; John Cuaderes, Deputy Staff Director; Linda Good, Chief 

Clerk; Meinan Goto, Professional Staff Member; Tyler Grimm, Senior Professional Staff Member; Christopher Hixon, Deputy Chief 

Counsel, Oversight; Mark D. Marin, Director of Oversight; Emily 

Martin, Counsel; Scott Schmidt, Deputy Director of Digital Strategy; Sarah Vance, Assistant Clerk; Peter Warren, Legislative Policy Director; Jaron Bourke, Minority Director of Administration; 

Yvette Cravins, Minority Counsel; Jennifer Hoffman, Minority 

Communications Director; Adam Koshkin, Minority Research Assistant; and Suzanne Owen, Minority Health Policy Advisor. 

Mr. LANKFORD. Good morning. Committee will come to order. 

Like to begin this hearing by stating, the Oversight Committee 

statement. We exist to secure two fundamental principles. First, 

Americans have the right to know the many Washington takes 

from them is well spent. And, second, Americans deserve an efficient, effective government that works for them. Our duty on the 

Oversight and Government Reform Committee is to protect these 

rights. Our solemn responsibility is to hold government accountable 

to taxpayers because taxpayers have the right to know what they 

get from their government. We work tirelessly in partnership with 

citizen watchdogs to deliver the facts to the American people and 

bring genuine reform to the Federal bureaucracy. This is the mission of the Oversight and Government Reform Committee. 

We are starting a little bit different this morning. Our Democratic colleagues had a meeting with the President this morning 

from 10:00 to 11:00 here on the Hill. So they will be joining us in 

2 

just a moment. They have gone through written testimony as well, 

but they will miss much of the oral testimony at the very beginning 

here. 

Ranking Member Ms. Speier will actually go last in this order. 

I will give my opening statement, we will receive the opening statement from our four witnesses, then Ms. Speier will come and give 

her opening statement as well. So it will be slightly different than 

is what is typical. But we are grateful for everyone to be here. 

Today’s hearing continues the subcommittee’s oversight of the 

administration’s implementation of Obamacare. While the substance discussed during today’s hearing may be complicated, the 

principles involved are not. Congress makes laws. The President 

and the executive branch are responsible for carrying those laws 

out as they were written. At issue today is an example of the administration rerouting the law to meet political objectives. 

In 2010, Democrats with overwhelming majorities in both Chambers of Congress passed a law that expanded the scope of the Federal Government control and involvement over America’s 

healthcare choices through a complex scheme of mandates, rules, 

taxes, and subsidies. To encourage States to set up a State-based 

exchange, the Senate and House created a subsidy for individuals 

only in States that operate their own health exchange. In section 

1311 of the Affordable Care Act, a health insurance exchange is defined specifically as a governmental agency or nonprofit entity that 

is established by a State. In section 1401 of the law, the subsidy 

is provided monthly when the taxpayer is covered by a qualified 

health plan that was enrolled through an exchange established by 

the States under section 1311. 

As the Congressional Research Service legal analyst has made 

clear, the language is straightforward. According to the CRS, a 

strictly textual analysis of the plain meaning of the provision would 

likely lead to the conclusion that the IRS’ authority to issue the 

premium tax credits is limited only to situations in which the taxpayers enrolled in a State-established exchange. Therefore, an IRS 

interpretation that extended tax credits to those enrolled in federally-facilitated exchanges would be contrary to clear Congressional 

intent, receive no Chevron deference, and likely be deemed invalid. 

At the time of Congress passed Obamacare, the administration 

confidently predicted it would become more popular and States 

would willingly create their own exchanges. However, 34 States 

have refused to participate, and left building the exchanges to the 

Federal Government. Therefore, the impact of the IRS and the 

Treasury rule that extends tax credits to individuals in Federal exchanges is substantial. First, CBO has established that roughly 75 

percent of the cost of subsidies will be new Federal spending. As 

a result, this rule will add hundreds of billions of dollars of Federal 

spending, which was not authorized by Congress in the statute. 

Second, the subsidies are tied to the law’s employer mandate so 

that employers face large tax penalties if their workers receive subsidies. Therefore, the IRS and Treasury’s rule directly harms many 

employers and workers in States that choose not to create an exchange. 

My State of Oklahoma is one of those States. The leaders in my 

State decided to protect their own employers and workers from the 

3 

employer mandate tax penalties and protect future generations of 

Americans will face increasing debt by not creating a State exchange. That was their option within the law. But now the IRS and 

Treasury’s rule has invalidated my State’s decision, harming employers and workers in my State and added to the Federal deficit. 

Because of the significance of this rule, this committee, along the 

Ways and Means Committee, has conducted oversight for over a 

year, focusing on the process and factors the IRS and Treasury 

have considered. The evidence we have gathered is consistent. The 

IRS was given an enormous role in implementing many Obamacare 

provisions, but the issue of whether tax credits will be available in 

Federal exchanges, doesn’t appear that it was even considered or 

given substantial time or attention. Prior to the proposed rule, the 

IRS only had a single, weak reason for supporting their interpretation, that the designation that the Secretary create a Federal exchange in States that choose not to operate their own was enough 

to authorize subsidies in those States at well. After several media 

commentators pointed out the IRS rule was inconsistent with the 

statute, Treasury assigned one individual to gather additional information. Rather than doing an unbiased review of the statute 

and legislative history, it appears this individual only sought out 

information to support the predetermined conclusion that the tax 

credits would also be available for Federal exchanges. At three 

briefings with committee staff, IRS and Treasury officials could not 

remember details and could not provide evidence for factors that 

they may have considered. There is virtually no evidence to support 

Treasury’s assertion that they carefully considered the language of 

the statute in the legislative history. 

For example, in a letter to Chairman Issa on October 12, 2012, 

Assistant Secretary for Tax Policy Mark Mazur stated that there 

is no discernible pattern for how Congress used the term ‘‘exchange’’ in Obamacare. During the course of those briefings, IRS 

and Treasury employees admitted that they didn’t organize or categorize the usages of ‘‘exchanges’’ in any way to look for a pattern. 

Today I hope to gain a bit more clarification from Emily 

McMahon, the Deputy Assistant Secretary for Tax Policy, about 

IRS and Treasury’s careful consideration of this statute to bring 

some light to this conversation. 

I also look forward for hearing from several witnesses on the first 

panel, including my own good friend, Scott Pruitt, the attorney general of our State, and all of your perspective on this IRS rule. I look 

forward to our conversation today. 

As I mentioned before, the ranking member’s comments will 

come at the conclusion of our opening statements. All members will 

also have an additional 7 days to put their records—their opening 

statements on the record. 

Mr. LANKFORD. We will now recognize our first panel. 

Mr. LANKFORD. The Honorable Scott Pruitt, the attorney general 

for the State of Oklahoma. 

Scott, glad you are here. Thanks for being here. 

Dr. Charles Willey is the chief executive officer for Innovare 

Health—Innovare Health Advocates Incorporated. 

Mr. Simon Lazarus is the senior counsel of the Constitutional Accountability Center. 

4 

Thanks for being here. 

Mr. Jonathan Adler is professor of law at Case Western Reserve 

University, and author of ‘‘Taxation Without Representation: The 

Illegal IRS Rule to Expand Tax Credits Under the Affordable Care 

Act,’’ published in Health Matrix Journal of Law and Medicine. 

Gentlemen, thank you all for being here. 

Pursuant to committee rules, all witnesses will be sworn in before they testify. 

If you would please rise and raise your right hand. Thank you. 

Do you solemnly swear or affirm the testimony you are about to 

give will be the truth, the whole truth, and nothing but the truth, 

so help you God? 

Thank you. You may be seated. 

Please let the record reflect all the witnesses answered in the affirmative. 

In order to allow time for discussion, I will ask you to limit your 

testimony to 5 minutes. Your entire written statement will be 

made part of the record. I will give a little mercy if you go a little 

beyond 5, but you get bonus points if you go less than 5, how about 

that? 

Attorney General Pruitt, you are first up to bat, sir. Be glad to 

receive your testimony. 

STATEMENT OF THE HONORABLE E. SCOTT PRUITT 

Mr. PRUITT. Chairman Lankford, Ranking Member Speier, and 

members of the subcommittee, good morning. 

And thank you for inviting me to appear before you today to 

present concerns on the implementation of Affordable Care Act and 

the legal and economic implications of actions taken by the U.S. Internal Revenue Service, the Treasury Department, and the U.S. 

Department of Health and Human Services. 

This is a critical issue for Oklahoma and for every one of the 34 

States that chose not to establish a State healthcare exchange, a 

choice that was provided to us by Congress and affirmed by the 

United States Supreme Court. Because of the serious ramifications 

facing our States, I appreciate the attention that this subcommittee 

is giving to these concerns and to this matter. 

First, I would like to be clear about my intentions today regarding healthcare policy and the law. My comments will not focus on 

the need for healthcare reform or the wisdom and the policy choices 

embodied in the ACA. Our responsibility as attorneys general is to 

preserve the rule of law, is to give meaning and effect to that which 

you have passed in Congress, while protecting the rights and interest of our citizens. 

When Congress passed the Healthcare Act, they provided States 

a choice. That choice is whether to establish a State healthcare exchange or to opt for a Federal exchange. The ACA included with 

that choice a set of consequences and benefits that States had to 

consider. As the chairman indicated, our policy makers did, in fact, 

go through that process in a very deliberative fashion. 

Among the outcomes of the State choosing not to establish a 

State exchange is a consequence of no subsidies flowing into that 

State. That law also provided a benefit of no penalties in the employer mandate arena for large employers. Our Governor, Mary 

5 

Fallin, and other Statewide stakeholders thoughtfully and thoroughly reviewed the options provided them under the Affordable 

Care Act and ultimately chose not to establish a State healthcare 

exchange. 

But after that decision was made, the IRS finalized a rule that 

would strip States of the main benefit of their choice, no large employer penalty. Congress provided this choice to States, and now 

the IRS is attempting to take that away by rule. The IRS is acting 

as a super-legislative body in this capacity by enacting regulations 

that Congress did not authorize. 

Their actions conflict with the ACA. And when informed of this, 

the regulators ignored public warnings and concerns that pointed 

out the problem. In fact, many months before the rule went final 

in May of 2012, the record was made as early as November of 2011 

with respect to these concerns. The IRS does not have the authority to expand access to subsidies beyond what is clearly written in 

the law. As the chairman indicated, that’s billions of dollars that 

will be flowing, unauthorized by Congress. 

The regulation appears geared more toward enacting the agency’s own policies than in faithfully following implementation of the 

law passed by Congress. This is why in September of last year, I 

filed a lawsuit in the Eastern District of Oklahoma challenging the 

IRS rule and its lack of authority under the Affordable Care Act. 

Our unique position allowed us to lead the charge against rogue 

agencies misusing the law to advance their own agenda. 

As we stated in our lawsuit, Oklahoma’s position has been clear 

from the very beginning, that the large employer penalty not only 

violates the law when implemented in States without a State 

healthcare exchange, but it cripples businesses with burdensome 

and onerous requirements and penalties. For a medium-sized company, already struggling to meet the needs of its thousands of employees, the penalty equates to millions annually when one of its 

employees qualifies for a subsidy under Subpart A. 

Until now, the Obama Administration has argued in court that 

the mandate is uncomplicated and easy. But its recent sudden reversal and delay of the mandate clearly demonstrates and acknowledges that the large employer mandate is, in fact, a complex, jobkilling, and harmful mandate in businesses, and again, Oklahoma 

is considered a large business under the statute. 

Exactly where these burdens fall is a serious matter. And if the 

ACA exempts employers in States forgoing the establishment of 

their own exchange, that exemption should be recognized and enforced, and we appreciate the committee’s focus on that. These 

issues are very important to the great State of Oklahoma because 

we value our State’s economic stability and growth and the rule of 

law. Our fight continues on behalf of Oklahoma citizens to confront 

the administration when it seeks to overreach its authority and circumvent the law. 

We hope to obtain relief in this matter through the courts, but 

we also welcome Congressional oversight being brought to bear on 

these agencies. I look forward to answering any questions you may 

have. 

And I thank you for the time this morning, Mr. Chairman. 

Mr. LANKFORD. Thank you. 

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[Prepared statement of Mr. Pruitt follows:] 

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Mr. LANKFORD. Dr. Willey. 

STATEMENT OF CHARLES WILLEY, MD 

Dr. WILLEY. Mr. Chairman and members of the committee, good 

morning. And thank you for your service to the great American 

taxpayer, the forgotten man. 

I am Charles Willey, an internal medicine physician in my 29th 

year in St. Louis. My care of patients has me aggressively leading 

them to long-term health. My healthcare team is responsible and 

accountable for both the economic—both the clinical and the economic outcome of our care of our patients. 

Since 1992, we’ve been prepaid for population health management one person at a time. In effect, we are paid to keep our Medicare beneficiaries happy, healthy, active, and energetic for life. We 

intervene early and often. We spend whatever time and resource 

necessary to bring them to long-term health. Our result is 5-star 

quality and satisfaction and a medical cost ratio of 60 percent. 

Now, this is happening on a scale of 40,000 members in the 

Medicare Advantage plan that I founded in St. Louis in 2003. Witness that being healthy costs less than being sick. Ladies and gentlemen, please understand the implication if all Medicare beneficiaries were cared for in this method, you could freeze the revenue to the Medicare program, cut nothing, and solve the greatest 

financial crisis of our time, the $70 trillion obligation to the current 

payers of the Medicare tax. 

We achieve this by aligning the incentives of the health plan, the 

physicians—and the physicians with the long-term health of the 

patient. It is crucial that Medicare Advantage also liberates us 

from much of the destructive regulation found in regular Medicare 

Stark law and the SEC. 

Now I have set about to replicate these methods for my employees and those of other medical practices and businesses in my 

town. Unfortunately, Obamacare increases destructive regulation, 

does nothing about the legions of ambulance-chasing lawyers, and 

creates new entitlement to become and remain sick. It is treating 

these problems caused by government with more government. 

As an employer of 56 healthcare workers, it is doubly important 

that their health plan give them economic responsibility for health 

decisions and short-term reward for becoming and remaining 

healthy because I need them to model and teach this to my customers, our customers, the patients. In the our company health 

plan, we have gradually been increasing the deductible, while expanding our health savings account. 

Now Obamacare would limit our deductible to $2,000, whereas, 

we would make it as high as the maximum HSA contribution and 

help our employees fund it. This gives our staff ownership and a 

high motivation to avoid unnecessary costs by shopping wisely for 

necessary healthcare services and by becoming healthy so service 

is not necessary. 

Our benefit design would also have a higher premium and copayments for smoking, being obese, for not complying with diabetes 

recommendations and control. These policies are good for our employees’ health and good for their savings accounts as well. 

13 

Now, Obamacare calls these policies discriminatory and prohibits 

them. This is a clear example of government promoting and maintaining illness, preventible illness. 

Discrimination against illness, through no fault of ones own, like 

ovarian cancer, is unacceptable. But it is good to be candid about 

unhealthy behavior because that will motivate the behavior to stop. 

To do otherwise is enabling, much like the spouse or parent of an 

alcoholic. The lack of courage to oppose the self-destructive behavior actually promotes and maintains the illness, increasing the 

probability of greater illness, disability, even premature death, and 

increases cost. 

This is how Obamacare is making entitlement of becoming and 

remaining sick. It codifies obesity, cigarette smoking, ongoing substance abuse, and other choices, unhealthy choices, to be not discriminated against in benefit design. My plan for my employees 

would lead them to health. But I can’t offer it under the employer 

mandate. 

Now, the IRS is blatantly ignoring the law and rewriting it to include the subsidy in the State—in the Federal exchanges, triggering a penalty against me, the employer. Missouri opted out of 

the State-based exchange, therefore protecting my employees from 

unhealthy benefit design and higher cost and protecting my company from the onerous fines. I am not a criminal. I don’t need to 

be fined for helping my employees achieve health and save for the 

future. 

The Federal Government’s mandates discourage personal responsibility necessary for good health and enables self-inflicted illness. 

The Oregon Medicaid expansion enabled beneficiaries to resume 

smoking, since they could again afford cigarettes, and there were 

no disincentives. These are the reasons my company and other 

health advocates has joined Halbig v. Sebelius to overturn the 

usurpation of your Congressional authority by the IRS in rewriting 

the law. 

I have dedicated my career to reforming healthcare from the 

marketplace. With relief from this illegal aspect of the law, we at 

Innovare Health Advocates could continue our plans for a very high 

quality, low-cost healthcare plan for many non-Medicare people in 

our—in our town. 

Our experience in patient care, including understanding the economics of that care, cannot be replaced by nameless, faceless, faraway bureaucrats. This is America. It is demoralizing and 

humiliating for me to have to beg for the liberty for me to do what 

I know best and for that which I am well trained. You must defend 

us from government and free us to take care of our patients and 

please join me in my oath to first do no harm. 

Respectfully, thank you. 

Mr. LANKFORD. Thank you. 

[Prepared statement of Dr. Willey follows:] 

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Mr. LANKFORD. Mr. Lazarus. 

Mr. LAZARUS. Thank you very much. 

Mr. LANKFORD. Want you to click your microphone on right there 

in front you, the top button. 

Mr. LAZARUS. Thank you. 

Mr. LANKFORD. Thank you. 

STATEMENT OF SIMON LAZARUS 

Mr. LAZARUS. Thank you very much, Mr. Chairman, and members of the committee for inviting me today. I look forward to trying to help evaluate whether the Affordable Care Act premium assistance tax credits and subsidies should be fully available to all 

eligible individuals on ACA proscribed exchanges, whether they are 

facilitated by State governments or by the Federal Government. 

I believe that they should be. I believe that the Treasury Department’s interpretation is correct, that reviewing courts must defer to 

it, and that they should not and will not overturn it. 

Now, my copanelists have a contrary claim. And they do so, I believe, because they adopt what I would respectfully call the quarantine approach to a statutory interpretation. They zero in selectively on certain provisions of the act, and one in particular, lift 

that provision out of context, and then impose on it an interpretation which, in the context of the entire statute and certainly its 

purposes, its purpose, highly implausible interpretation. 

When you look at the statute in the context that it should be examined, and which I think courts will certainly do, other relevant 

provisions confirm that the text of the ACA is not at war with its 

central purpose. It does not sabotage that purpose; it rather effectuates it. 

So let’s just take a quick look at what we all know the purpose 

is. When Congress passed the ACA its fiercest critics concurred 

with its supporters that it had a simply-stated purpose, and that 

was to achieve near universal health insurance coverage, which is 

a quote from my copanelist, Professor Adler’s lengthy article on 

this subject. 

In addition, all sides recognized that the exchanges were a central mechanism for achieving that goal. It was not until November 

2011, one and a half years after President Obama signed the ACA 

into law, that Professor Adler and his co-author, Michael Cannon 

of Cato, surfaced their discovery that there was an apparent glitch, 

as they called it, in the act, and that this glitch supported a 180- 

degree contradictory interpretation of the law’s critical exchange 

mechanism. And as Michael Cannon has proclaimed, that result 

could drive a stake through the heart of Obamacare. 

But the truth is we were all right the first time. The text and 

purpose of the ACA are in harmony. The Congress that adopted 

this law did not intend and the statute its authors drafted does not 

put this supposed stake in the hands of health reform opponents 

in State capitals, who are very sincere, I don’t doubt that for a 

minute, but opponents such as Attorney General Pruitt, and in effect stiffing the core constituency that the law was enacted to benefit. 

Now, statutory interpretation is not for the faint of heart, and 

I’m going to try to spare us all—try just to summarize very briefly, 

18 

if I can, what the gist of my argument is and leave details to my 

written statement for those who have the heart to try to plow 

through that. So I’m going to focus on the textual argument that 

the opponents, the ACA opponents make. 

To begin with, as your opening statement I think very succinctly 

and clearly put it, Mr. Chairman, that—the opponents’ argument 

zeros in on section 1401, which enacts a new section 36B of the Internal Revenue Code. And it targets a provision that is in there to 

define how to calculate the amount of premium assistance. And 

that provision pegs the premium assistance amount to monthly 

premiums for insurance policies which cover the taxpayer and 

which were enrolled in through an exchange established by the 

State under section 1311 of the ACA. It’s no wonder that it took 

a year and a half to find this particular provision, I must say. 

Now, the theory of my colleagues here is that because this subsection calculates premiums for policies that are issued through an 

exchange established by the State under section 1311, therefore, 

they say, Federally facilitated exchanges, which are directed in another section of the act to stand in where States fail to set up exchanges of their own, cannot be considered their equivalent and 

their policyholders and applicants who need premium assistance 

are left out in the cold. 

If this seems like an implausible interpretation, it becomes much 

more so if one looks at the act as a whole, which I have done, but 

I’m not going to go through all of the things that I have learned 

by doing that. I’m going to focus on one provision which I feel particularly undermines the self-defeating spin that my colleagues 

here would put on section 36B and section 1311. And the section 

I would like to focus on of course is section 1321. And this is a section which says that if a State fails to establish an exchange, then 

the Secretary of Health and Human Services shall establish and 

operate such exchange and shall take such actions as are necessary 

to implement such other requirements. 

Now, a key part of our position is simply that the use of the word 

‘‘such exchange’’ and the use of ‘‘Exchange’’ with a capital E, showing that it’s a defined term, that the logical, common sense interpretation of that language is that the exchange under HHS stewardship shall remain such exchange as it would have been under 

State stewardship and shall be its functional equivalent. It shall be 

subject to the same requirements. It shall have the authority necessary to take such actions as were necessary to implement its 

functions. 

As the steward of such exchange, our position is, the Secretary 

stands in the shoes of or acts on behalf of a defaulting State Government. This type of surrogacy or stewardship is very commonplace in the law. And so that is what—that—that is what we feel 

1321 and the statute as a whole contemplates. 

There’s really no reason to impose this cramped interpretation 

that, again, is—as Professor Adler’s co-author, Michael Cannon, 

has said, would bring Obamacare’s exchange engine to a screeching 

halt. 

Mr. LANKFORD. Sorry to interrupt you. How much time do you 

have left? Because we want to receive all of your statement. 

Mr. LAZARUS. I’ve overshot? 

19 

Mr. LANKFORD. 2 minutes over. 

Mr. LAZARUS. I apologize. 

Mr. LANKFORD. That’s all right. Do you have a final statement 

there? Because we want to be able to receive questions from you 

as well. 

Mr. LAZARUS. I just wanted to say that opponents recognize that 

they need more than this text-only argument. They’ve gone to a 

purpose argument. And they claim that Congress deliberately designed the exchange provisions so that they would essentially fail 

in Federal exchange States. And I just would like to suggest that 

it’s rather implausible to think the ACA sponsors, and we’re talking about people like Harry Reid, Senator Chuck Schumer, Max 

Baucus, Patty Murray, would have intentionally handed over to 

ACA opponents in State capitals, like Attorney General Pruitt, the 

power to sabotage the law in their States. But I think you have 

to—you have to think that’s true in order to sustain the argument 

to the contrary. 

Mr. LANKFORD. Thank you. 

Mr. Adler. 

Mr. LAZARUS. I apologize for going over so much. 

Mr. LANKFORD. That’s all right. 

[Prepared statement of Mr. Lazarus follows:] 

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STATEMENT OF JONATHAN ADLER 

Mr. ADLER. Thank you, Mr. Chairman and members of the subcommittee. Thank you for the opportunity to testify today. This 

subcommittee has asked for my views on the legal basis for the IRS 

and Treasury Department rule purporting to extend the availability of tax credits and cost-sharing subsidies to Federal exchanges. 

I’ll be brief. There is none. The IRS rule is directly contrary to 

the plain language of the PPACA and is not otherwise authorized 

by law. The plain text of not only Section 1401 but the entire act 

as a whole authorizes tax credits for the chase of qualifying health 

coverage and exchanges established by the State, under section 

1311 of the act. This language is repeated not in a single provision 

but in multiple provisions of the act. Nowhere does the act authorize tax credits for the purchase of coverage in exchanges established by the Federal Government. The text of the statute does not 

support the IRS rule. 

When the IRS finalized its tax credit rule, it offered no substantive defense of its decision to extend tax credits to Federal exchanges. In a cursory statement, it identified no statutory provisions authorizing a provision of tax credits, nor did it identify any 

relevant legislative history to support its position. It us hard to see 

how this rulemaking satisfied the APA requirements of recent decisionmaking. 

And to this day, neither the IRS nor its supporters have been 

able to come up with a single statement prior to or contemporaneous to the passage of the act asserting that tax credits would be 

available in Federal exchanges. There are many statements that 

tax credits would be available in all 50 States, just as there are 

many statements that all 50 States would willingly and eagerly, 

even, create and implement exchanges. There are even statements 

that States would be required to create exchanges, something that 

we know the Federal Government could not compel. What there is 

not is a single statement saying that tax credits would be available 

in Federal exchanges because no one assumed that Federal exchanges would be necessary, which also explains why the act did 

not provide any funding for Federal exchanges. 

Months after the rule was issued, after prodding from members 

of this committee, the administration and others began to advance 

arguments in support of the IRS rule. These arguments strained to 

find hints of authorization or spots of ambiguity that could be used 

to sustain the rule and ignore relevant statutory provisions. Some 

of these arguments were even mutually contradictory. None of 

these arguments can overcome the statute’s plain text. 

My copanelist in his testimony misrepresents both the timing 

and the substance of the argument I had made with Mr. Cannon 

and its relevant facts and statutory provisions that undermine his 

claims. Our argument is not based on a single provision but a careful reading of every provision in the statute. Indeed, the only way 

to read the statute without generating surplusage, that is, without 

generating language that must be rendered nugatory or irrelevant, 

is to recognize that when the statute says ‘‘established by the 

State,’’ it means established by the State. 

32 

Some claim it would be absurd to condition access to healthcare 

on State cooperation— certain condition access to healthcare on 

State cooperation with Federal policy. This is called sabotage. But 

that is precisely what multiple provisions of the act do. The best 

example of this are the Medicaid provisions. As originally written, 

the Medicaid provisions threatened to withhold not only the Medicaid expansion but all Medicaid funding in State if a State refused 

the expansion. That would clearly have significant consequences on 

the most vulnerable populations. 

Even with the expansion, the statute denies tax credits to the 

poorest of the working poor because there is a minimum income requirement for tax subsidies. My copanelist may think this is absurd policy, but it is indisputable that this is, in fact, what the text 

of the statute does. 

Some say it would be—absurd to impose community rating requirements without also subsidizing the purchase of healthcare, 

but that is also what multiple provisions of this act clearly, indisputably do, such as the CLASS act provisions, such as the childonly coverage provisions. Some may think that the way the act was 

designed was absurd or bad policy, but that does not make it any 

less the law. 

The relevant statutory language was not an accident or an error. 

It was a deliberate choice of those in the Senate who wanted Statebased exchanges to play a key role in healthcare reform. Others 

preferred a Federal model, as I know many here in the House did. 

And had a House-Senate conference bill ever been enacted, a model 

based on Federal exchanges with unconditional tax credits might 

have been the law of the land. But that never came to pass. 

After the loss of a filibuster-proof majority in the Senate, PPACA 

supporters opted to rely on the Senate bill and its provisions, clearly and expressly conditioning tax credits on State cooperation. If 

there was an error, it was in believing that a majority of States 

would cooperate and create their own exchanges at their own expense. Such a miscalculation cannot justify rewriting statute by administrative fiat the after the fact. Yet that is what the IRS has 

done. 

This rule, if allowed to stand, will have substantial fiscal and 

economic consequences. Whether or not extended tax credits and 

cost-sharing subsidies is sound policy is not an issue here; whether 

the IRS can unilaterally rewrite a law it is entrusted to implement 

and enforce is. The majority in Congress believe such tax credits 

are worthwhile in Federal exchanges, then Congress may so provide in a statute. Unless and until it has done so, neither the IRS 

nor any other Federal agency has the legal authority to do so. 

Thank you for your time, and I am willing to answer any questions 

you might have. 

Mr. LANKFORD. Thank you. 

[Prepared statement of Mr. Adler follows:] 

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Mr. LANKFORD. And as I mentioned before, when Ms. Speier arrives, she will obviously have first priority an opening statement as 

well. 

Let me press on with questioning on this. 

Attorney General Pruitt, you had mentioned the effect on the 

State of Oklahoma, as well as on businesses in Oklahoma and individuals on the act. Can you highlight that a little bit more? What 

is effect of this if this rule, as is being proposed and final rule 

that’s out there if it is implemented, what is the impact on the 

State of Oklahoma? 

Mr. PRUITT. Well, particularly with Oklahoma, and it’s been referenced on the panel today, Mr. Chairman, the law provided a sovereign choice to the State of Oklahoma with respect to the establishment of State healthcare exchanges. The law did not initially 

provide that choice under Medicaid. And the U.S. Supreme Court, 

by a 7 to 2 vote said that the Congress and the ACA could not, 

through the spending power of Congress, coerce or intimidate or 

threaten the States to expand Medicaid at the risk of losing the entirety of the Medicaid. 

And so there are now two sovereign decisions that the States can 

make, one is whether to expand Medicaid and, two, whether to 

adopt a State healthcare exchange. So, Mr. Chairman, in our arguments before the court in Oklahoma, we are arguing that that decision that Oklahoma has made, the Governor and the legislature of 

the State of Oklahoma has balanced the competing interest, the 

penalties that would issue in the State of Oklahoma, the cost to the 

State of Oklahoma, the regulatory burden that exists, they balanced those factors and made a sovereign, informed decision not to 

adopt a State healthcare exchange. 

The IRS action, Mr. Chairman, effectively takes that decision 

away. As you know, the IRS by rule of May of last year simply 

says, whether it’s a State or Federal exchange, we’re going to issue 

the subsidies and assess the employer mandate penalty. We think 

that’s clearly against the clear reading of the statute and takes 

away the decision that Oklahoma as made. But as far as the businesses in our State, Oklahoma is also a large employer; therefore, 

we are subject to the tax provisions. We are in the process of evaluating and have already evaluated the cost of compliance and implementation and have made a decision as a State that we seek not 

to establish an exchange and avoid those costs and burdens. And 

we have made that argument as well before the court in Oklahoma. 

Mr. LANKFORD. Mr. Adler, you made comments before about the 

commandeering principle between the States and the Federal Government. Can you elaborate on that? 

Mr. ADLER. Certainly. Under several Supreme Court precedents, 

it is—Supreme Court has held that the Federal Government may 

not coerce a State to implement a Federal program. And cases such 

as New York v. United States and Prince v. United States established this principle, and it was reaffirmed in NFIB v. Sebelius. 

What this means is that if the Federal Government wants the 

State to participate in or cooperate with a Federal program, it must 

offer some inducement. And what the Federal Government regularly does is offer spending or threaten certain consequences for 

States that don’t cooperate. And one approach that we’ve seen used 

45 

in multiple laws is for the Federal Government to threaten adverse 

economic treatment of private actors in a State if the State doesn’t 

cooperate. This is—we see this in environmental laws, like the 

waste—Low-Level Radioactive Waste Act amendments that were 

issued in New York v. The United States, and it’s what the text 

of the law does here by withholding certain benefits that—to individuals in exchanges and to insurance companies in States that 

don’t cooperate. 

Mr. LANKFORD. So you’re saying this was not a compulsory thing 

to be able to put down on the States. This was a benefit that was 

put out in front of them and also a consequence to say there is a 

consequence if you don’t; there’s a benefit if do. And the assumption of the Federal Government was, based on prior laws, that if 

we lay this benefit and consequence in front of States, the States 

will then choose to do this on their own. 

Mr. ADLER. Yes. That is something that is, again, commonly done 

throughout environmental law. It’s done in other portions of this 

statute. It’s how the Medicaid provisions, for example, operate. And 

certainly experts in healthcare reform, when the law was being 

written, actually proposed that this precise mechanism could be 

used as a way of inducing State cooperation and that this would 

be an alternative to trying to find an additional pot of money to try 

and induce State cooperation. 

Mr. LANKFORD. Okay. 

Mr. Lazarus, as I go through your testimony—thank you for 

being here as well and your preparation—it seems to be in your 

opening statement you try to look at the law as a whole and say 

Congress purpose to—or use the term it was the purpose of or it 

was the intent of versus the actual plain text reading of the statute, as Mr. Adler has said as well. 

Can you identify—you mentioned this—this statement in there 

that the ‘‘such exchange’’ portion of it, but Section 1401 puts out 

the specific payments and specifically enumerates it has to be a 

State, from 1311, not the 13—it doesn’t say from a State from 1311 

or Federal from 1321. 

Is there a section of the text that you look at that makes it plain 

that this should apply to Federal, or are you taking it based on 

what you assume is the intent or the purpose of the law as a 

whole? 

Mr. LAZARUS. No. The text of the whole statute, and I focused in 

particular on 1321 and the ‘‘such exchange’’ language, shows and 

should be interpreted to mean that’s a textual argument, it’s not 

just some airy, some theoretical purpose point. That language 

should be interpreted to mean that a federally facilitated exchange 

stands in the shoes of and has all the same attributes and responsibilities as a State facilitated exchange. 

Mr. LANKFORD. So when 1401 says a ‘‘State-based exchange’’ like 

1311, it should have also said ‘‘State-based exchange like 1311 or 

1321.’’ 

Mr. LAZARUS. No, it didn’t need to say that. Because in 1321, 

where the Federal exchange is explained and its role is explained, 

it says, ‘‘The Secretary shall establish and operate such exchange.’’ 

And the word ‘‘such’’ is a reference to the exchange in 1311 and, 

therefore, it’s appropriate to interpret that to mean that it becomes 

46 

the same. And furthermore, Mr. Chairman, the fact that ‘‘Exchange’’ in 1321 here is capitalized, has an initial capital, is very 

important because that is a reference back to the definition of what 

a capital ‘‘E’’ Exchange, is which is made in 1311. And everywhere 

‘‘Exchange’’ with a capital ‘‘E’’ appears throughout the statute, that 

means it is referring to that—to that defined concept. So that’s a 

basic textual argument. There are some provisions, such as the 

provision of the reconciliation supplement to the ACA, which was 

enacted later in the year which—— 

Mr. LANKFORD. But that would have been later on. I do need to 

interrupt because we’re running long in time again. 

Mr. LAZARUS. May I make one comment on a little point that—— 

Mr. LANKFORD. I’m going to honor some of the other members. 

We’ll come back. There will be other moments. 

With that, I would recognize, let’s see, who is up next here. I 

think Mr. Gosar. 

Mr. GOSAR. Thank you, Mr. Chairman. 

Can I get the slide up on the screen, please? 

Mr. Adler, in the background of the 1401, Section 36B, is the 

most important part of the statutory interpretation in the law is 

text? 

Mr. ADLER. Yes. Text is the most important part of statutory interpretation. 

Mr. GOSAR. So is the text of the law clear that the tax credit 

should be linked to States that create their own exchanges, and can 

you explain that? 

Mr. ADLER. It’s very clear. In the relevant provisions it says ‘‘Exchange,’’ and it’s a capital ‘‘E’’ Exchange. But then it goes on to say 

‘‘established by a State.’’ So it is—even if one accepts that—that 

the word ‘‘exchange’’ in section 1401 incorporates by reference both 

section 1311 and section 1321, the statute then goes on to enumerate additional requirements. It repeats the section number, section 1311, and on top of that says ‘‘established by a State.’’ And I 

would point out that ‘‘State’’ is also capitalized. And is also defined 

in the text of the statute. And the interpretation offered by my copanelist requires us to forget or ignore the fact that ‘‘State’’ is defined in the statute and ignore the fact that the phrase ‘‘established 

by a State’’ is repeated, not merely in the definition of ‘‘exchange,’’ 

but in the relevant provisions authorizing the tax credits. 

And I would go on to say that in the reconciliation bill that 

amended the act, Congress recognized that it had to enumerate 

both Section 1311 and Section 1321 if that’s what it meant. So 

when adopting reporting requirements in the HCERA, the Congress did not simply say ‘‘exchange,’’ did not simply say ‘‘Section 

1311 exchanges.’’ It, rather, referenced both Section 1311 and Section 1321, showing that the authors of that recognized that these 

were separate and needed to be enumerated separately. 

Mr. GOSAR. So when the administration and Mr. Lazarus, who 

is do doing their bidding here in regards to this, talk about ‘‘such 

exchanges’’ is equivalent to ‘‘State exchanges,’’ your answer is? 

Mr. ADLER. It is not. And even if I—even if I accepted that ‘‘such 

exchanges’’ meant that 1321 exchanges and 1311 exchanges were 

equivalent, even if we accept that premise—again, I don’t—but 

even if we do, the fact that Section 1401 repeats the ‘‘established 

47 

by a State’’ requirement means that even if we accept Mr. 

Lazarus’s argument, we have this additional language we have to 

account for. And the only way his argument can work is if we ignore that language and ignore an expressly defined term in the 

statute, which in his testimony he says we can’t do. 

Mr. GOSAR. Now, I’m a dentist, not an attorney. I think most 

people out in the real world want to hear it in plain terms. The 

administration’s whole terminology was or program was to drive individual exchanges so that you had all these 50 different marketplaces. Is that true? 

Mr. ADLER. That was the intent of the Senate bill. As we all 

know, there was a House-Senate conference that may have been intending to make changes to that. But that bill was never—was 

never brought out, never voted on. But certainly the Senate bill 

that became the law was designed to have every State create an 

exchange and then to use the State-based exchanges as the means 

for providing subsidies and tax credits. 

Mr. GOSAR. Can you briefly summarize the findings of your research on Obamacare’s legislative history? 

Mr. ADLER. The history is entirely consistent with the intent that 

to have States, encourage States to create their own exchanges and 

to use State-run exchanges as the mechanism for providing subsidies and tax credits. And that no provision was made for providing these subsidies and tax credits through Federal exchanges, 

either in the text or in the funding. Because we must remember 

that while the statute did authorize subsidies to States to help 

them set up exchanges initially, it provided for no funding for the 

creation of Federal exchanges, which further reaffirms the plain 

understanding that no one thought the Federal Government would 

have to create exchanges. Secretary of Health and Human Services 

repeatedly said that every State would do it. That was what people 

expected. 

What was—the mistake here was not in the drafting of the law; 

it was in not realizing that a majority of States had no interest in 

creating their own exchanges. 

Mr. GOSAR. So what was the consequence of Scott Brown’s election in Massachusetts? 

Mr. ADLER. The consequence was that the Senate bill, which I 

know many Members of the House did not like, and many 

healthcare reform supporters—— 

Mr. GOSAR. Can you be more specific? 

Mr. ADLER. Well, the Senate bill adopted the State-based exchange model. It had passed the Senate before Scott Brown’s election. The plan at the time was to have that bill go to a House-Senate conference—a version of the House bill, which adopted a different approach. And there was certainly an account suggesting 

that at least when it came to exchanges, that the House approach 

was more likely to emerge from that conference. Scott Brown’s election meant there were no longer the votes in the Senate to pass 

a conference bill. And so, in fact, the New York Times in a story 

about healthcare benefits for Congressional staff and Members of 

Congress this week pointed out that there are many provisions in 

the law that are a result of Congress being stuck with the Senate 

48 

bill as the basis for healthcare reform. And exchange provisions are 

among them. 

And the choice was made to take a Senate bill that had many 

provisions that many people thought were inadequate if the only 

alternative was no bill. And that was the choice. Because there 

were not the votes to do anything else. And so the Senate bill may 

have provisions that some may think don’t work very well. But 

that was the choice that was made. 

Mr. GOSAR. Thank you. 

Mr. Chairman. 

Mr. LANKFORD. Thank you. 

And Ranking Member Ms. Speier, recognize her for an opening 

statement, and then you may move directly to questions if you 

choose. 

Ms. SPEIER. Thank you, Mr. Chairman. 

Thank you, witnesses, for appearing. I apologize for not being 

present at your opening statements. As you know, the President of 

the United States came to speak to the Democratic Caucus. That 

happens maybe once or twice a year. And so it is obviously important for us to meet with him and be available to answer—ask questions as well. So I apologize for not being here. Hopefully, in the 

future, we can accommodate both sides of the aisle. 

Congress passed the Affordable Care Act to make affordable 

health care available to all Americans. It is the law of the land, 

and I am pleased to say it is already working. More than 3 million 

young adults who would otherwise have been uninsured are now 

able to stay on their parents’ health insurance. My son is one of 

them. More than 20 million children with preexisting conditions 

can no longer be denied health insurance. Seniors could save more 

than $7 billion on their prescription drug costs. Those are just a 

few of the benefits that have already kicked in. The full impact of 

the ACA will not be felt until next year. 

Many States have embraced Obamacare and implemented their 

own exchanges and have already announced lower premiums, in 

some cases, dramatically lower than ever was expected. And that 

is despite offering better enhanced benefits, including free preventative care, no lifetime limits on coverage, and not being able to 

deny customers because they have a preexisting condition. 

In California, average premiums in the exchange for 2014 are 

from 2 percent to 29 percent lower than average premiums this 

year. In New York, they will drop to as much as 50 percent lower. 

The law is working. And maybe that is what the opponents are 

afraid of. 

What happens when Congress passes laws? Agencies implement 

them. That is why the Treasury Department issued regulations implementing provisions of the Affordable Care Act that relate to premium tax credits the act authorizes to make health insurance affordable to low-income earners. I know that when I voted to the 

law it never occurred to me that Americans could be treated differently simply because of where they live. No one ever debated 

using these subsidies as a carrot or a stick to get States to implement their own exchange. I expected as many Americans as possible to get affordable coverage and help if they needed it. Why 

would we give a tax credit to a taxpayer seeking health insurance 

49 

in one State and not a similarly situated taxpayer in another 

State? 

Since the fall of 2012, this committee has been scrutinizing 

Treasury’s implementation of the Affordable Care Act’s tax provisions, including the provision of the tax credits to those who meet 

certain income criteria. Treasury has produced documents, given 

high-level briefings, and permitted committee staff to study sensitive documents without redactions. What we found was that 

Treasury followed the same transparent procedures in issuing this 

regulation that it has used in implementing other laws Congress 

has enacted. We have found no evidence to the contrary. 

Chairman Issa also consulted CBO last year, which confirmed 

that its score of the Affordable Care Act at the time it was passed 

in March 2010 assumed that tax credit would be available to residents in all States, including States where exchange was established by the Federal Government. 

I ask consent at this point, Mr. Chairman, to enter the CBO’s response to Chairman Issa’s question into the record. 

Mr. LANKFORD. Without objection. 

Ms. SPEIER. As we all know, there are detractors who have never 

liked the Affordable Care Act. That’s part of politics. They have 

marshalled their best arguments and vigorously advocated to anyone who would listen. First, they tried to stop the Affordable Care 

Act in Congress. That failed. Then they took to the courts and pursued their case all the way to the United States Supreme Court. 

They lost there, too. 

The continual effort to roll back time has become frustrating 

even to members of the majority’s own party. Senators Coburn and 

McCain now categorize the House’s efforts to defund ACA as dishonest and hype. Dr. Coburn stated: ‘‘The worst thing is being dishonest with your base about what you can accomplish, ginning everybody up, and then creating disappointment.’’ Further: ‘‘It’s a terribly dangerous and not successful strategy.’’ 

Those attempting to sabotage Obamacare aren’t giving up. With 

all they are left with now are their second best legal arguments. 

Today’s hearing was called by the majority to put the best light on 

one of these arguments. Indeed, two witnesses called by the majority on today’s first panel are litigants in pending lawsuits on this 

very topic. 

While I appreciate that these witnesses have traveled today to 

give us their interpretation of the legality of certain aspects of the 

healthcare law, I want to make this abundantly clear, this hearing 

is not the proper forum to litigate the merits of these cases. This 

subcommittee hearing room is not a courtroom. 

I hope that no members intend to use this hearing or any of the 

documents obtained in the committee’s investigation to try and influence the litigation. That would be really above and beyond the 

scope of our authority as Members of Congress. 

Mr. Chairman, as you know, I am a strong believer in the importance of Congressional oversight, but I do not believe that we 

should insert this subcommittee into active litigation under the 

guise of oversight. I hope that you will exercise your discretion as 

chair of the committee and direct the members today to avoid askVerDate Aug 31 2005 10:04 Nov 26, 2013 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 C:\DOCS\85358.TXT APRIL
50 

ing questions which could jeopardize in any way a fair trial for all 

litigants. 

Otherwise, I believe you may, intentionally or not, permit the 

legal process to be tainted by political interference. Simply does not 

serve any legitimate goal of this committee or of Congress. 

That said, these arguments present real-world implications for 

millions of hardworking Americans who will be seeking access to 

affordable health insurance over the next several months and into 

the future. If Mr. Pruitt’s lawsuit were to prevail, all he would 

achieve is making health care unaffordable to over 300,000 Oklahomans, who would no longer be able to receive premium tax credits 

to help them buy health insurance in Oklahoma. Contrary to any 

ideological victory some may think could be won by his lawsuit, the 

reality of legal victory is a terrible loss for the lower-income people 

of Oklahoma who pay the attorney general’s salary and whose 

taxes are even underwriting the very lawsuit that would deny them 

benefits. We are all public servants, and we should be better than 

that. We should be looking to implement the law so that the reality 

attaches to the purpose—matches the purposes and that it be done 

in effective and efficient manner as possible. 

Unfortunately, this Congress will be voting this week for the 

40th time to repeal or defund the Affordable Care Act, in whole or 

in part. So while I may disagree with the attorney general’s pursuit 

of this litigation that is so contrary to the general welfare of the 

people of his State, I have to concede that the current House of 

Representatives in its desperate attempt to gut this law is not setting much of an example. 

I thank the witnesses today for their appearance, and that concludes my comments, Mr. Chairman. 

Ms. SPEIER. And with that, would it be appropriate now for me 

to ask my opening set of questions? 

Mr. LANKFORD. Absolutely. Without objection. 

Ms. SPEIER. Thank you. 

So, Mr. Adler, I understand that your reading of the Affordable 

Care Act is that it does not permit the IRS to provide premium tax 

credits to individuals who participate in health insurance exchanges administered by the Federal government. In fact, you believe the IRS has no authority to make such a rule. Is that correct? 

Mr. ADLER. Correct. 

Ms. SPEIER. The Congressional Research Service has also examined this issue, and it did not come up to the same conclusion. According to its report, which I would like to enter into the record, 

on page 8—— 

Mr. LANKFORD. Without objection. 

Ms. SPEIER. The report states that the IRS rule, quote, ‘‘appears 

to be an exercise of the authority delegated to the agency to implement Section 36B, which includes the authority to provide refundable tax credits for taxpayers enrolled in health insurance exchange.’’ 

Have you seen the CRS Robert, Mr. Adler? 

Mr. ADLER. I have. And I would note that earlier in that report, 

the CRS makes very clear that a plain reading of the statutory text 

would likely lead one to the conclusion that the IRS does not have 

the authority to do what it did, it does. The language that you just 

51 

quoted is language that the CRS then points to in case, a quote, 

were to include that the language sufficiently ambiguous to allow 

the IRS to make that interpretation. 

But, again, prior to that, the CRS strongly suggests that the 

plain reading of the text, which is where one must start when looking at a statute, would foreclose the IRS rule. So I’m glad you cited 

the CRS report. 

Ms. SPEIER. Actually, I think you are cherry-picking here. Because, in fact, what the CRS does in many cases is provide both 

sides of an issue, and then it comes up with conclusions. And what 

I read just now was the conclusion. ‘‘Thus, if reviewing the’’— 

‘‘Thus, if a reviewing court determines that there is ambiguity surrounding the issue of whether premium credits are available in 

Federal exchanges and reaches step two of the Chevron analysis, 

with respect to the regulations issued under 36B, the regulation 

will very likely be considered a reasonable agency interpretation of 

the statute and accorded deference by the court.’’ 

Mr. ADLER. Yes. And the first word of what you just quoted was 

the word ‘‘if.’’ And the CRS, as I said, earlier in that report notes 

that it is unlikely that a court would reach that conclusion. 

And I would add that it is important to remember in the context 

of Chevron deference, that the question of whether a statute is ambiguous is a question that courts owe no deference to agencies on. 

The D.C. Circuit has been explicit on that point. Time and time 

again it is a question of law purely for the courts. 

And so the fact that the IRS believes it has found ambiguity in 

the statute is not relevant in asking the question. Whether or not 

the text is plain, I believe the text is plain—— 

Ms. SPEIER. Thank you, Mr. Adler. 

Mr. Lazarus, I’d like to ask you a question. You believe Congress 

provided the IRS authority to provide premium tax credits to individuals who participate in Federal exchange. Is that right? 

Mr. LAZARUS. I certainly do. 

Mr. LAZARUS. Certainly do. 

Ms. SPEIER. All right. So you obviously differ from Mr. Adler. 

Would you like to explain why? 

Mr. LAZARUS. Well, in my statement, I—— 

Ms. SPEIER. And, again, I regret that I wasn’t here to hear your 

statement. 

Mr. LAZARUS. Well, I don’t know what you missed. But basically 

we would make—I would make two points. First of all, the text of 

the statute, of the whole statute, not just the particular phrase 

that Professor Adler and his colleagues zero in on, the text of the 

whole statute supports strongly the sensible interpretation that tax 

credits and subsidies are to be available to all Americans whatever 

state they live in and whether they’re in a Federal exchange State 

or a State with a State-facilitated exchange. 

Secondly, Professor Adler has come up with an argument that 

Congress—it wasn’t just a glitch that supports his interpretation, 

but that there was actually a deliberate design by the sponsors of 

the act. And he needs that, because the text doesn’t really support 

his point. And this is a completely baseless and really—it’s hard to 

say absurd, because it’s much more than absurd. The notion that, 

as I said in my statement, that Senator Schumer or Senator Reid 

52 

or Senator Murray or Senator Bachus deliberately designed an exchange mechanism that would cause the statute to fail and deliberately put in the hands of their opponents, such as Attorney General Pruitt here, the power to sabotage the act entirely is so absurd 

that I can’t imagine why any judge would spend 3 minutes paying 

attention to it. 

So those are the two basic reasons that I feel that this interpretation, ingenious though it may be, will not be accepted. 

Ms. SPEIER. Well. I would concur with you, Mr. Lazarus. And 

while I do represent a district in California, I also feel an obligation 

to represent all the people of the United States of America, and 

that’s the way I looked at this legislation. 

I yield back. 

Mr. LANKFORD. Mr. McHenry. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

I’d say to the ranking member’s question, looking at page 8 of the 

Congressional Research Service: ‘‘The plain language of 36B suggests the premium tax credits are available only where a taxpayer 

is enrolled in an exchange established by the State. As noted previously, a strict textual analysis of the plain meaning of the provision would likely lead to the conclusion that the IRS’ authority to 

issue the premium tax credits is limited only to situations in which 

the taxpayer is enrolled in a State-established exchange. Therefore, 

an IRS interpretation that extended tax credits to those enrolled in 

federally facilitated exchanges would be contrary to clear congressional intent, receive no Chevron deference, and likely be deemed 

invalid.’’ 

Ms. SPEIER. However. 

Mr. MCHENRY. I would say that that—I appreciate the ranking 

member entering that into the record. I think it makes the case 

very clearly on why we’re having this very important hearing. 

Look, make no mistake about it, Obamacare is a mess, is an absolute mess. And what we’re trying to do on my side of the aisle, 

and I think reasonable Americans have come to this conclusion, is 

that it’s broken. For us to force this on the American people when 

they’re having a hard time finding work is the wrong approach, absolutely the wrong approach. 

And so whether it’s Attorney General of Oklahoma or other elected officials around the country, when they see this being committed 

on their people and when they look at the clear letter of the law 

and you see their Federal Government going in a very different direction, they have an obligation to step forward. So I commend the 

Attorney General of Oklahoma for stepping forward today and for 

the work that he’s done. 

Look, the administration’s argued that the information reporting 

requirements added to 36B that I reference here means that these 

subsidies are available both to Federal and State exchanges, and 

that’s not what the letter of the law says. So, Mr. Adler, does the 

administration have the authority to simply decline to implement 

a provision of law, of the law, required? 

Mr. ADLER. No. I mean, the executive branch is required to faithfully administer the laws that are passed by Congress, provided 

those laws are constitutional, and that is true of this administration and prior administrations. If Congress passes a law that in 

53 

hindsight seems to be unwise or perhaps even absurd, it is not the 

prerogative of individual agencies to try and rewrite the law 

through regulation. 

Mr. MCHENRY. So the Congressional Research Service put together a 10-page memo on this legal question. The IRS put out— 

IRS or Treasury put out a one-paragraph explanation of their legality. Is the evidence provided by the administration, the IRS, and 

the Treasury, is that sufficient? 

Mr. ADLER. No, it shouldn’t. I mean, in addition to the limitations imposed by the clear text of the statute, the IRS, like all Federal agencies, is also under an obligation to engage in reasoned decision-making under the Administrative Procedure Act. That 

means when the IRS is involved in issuing a regulation, it has to 

make clear the reasoning it goes through—or that it went through 

in coming up with that regulation. And courts have applied that 

test to statutory interpretation engaged in by agencies, and—— 

Mr. MCHENRY. And that’s your reference to Chevron? 

Mr. ADLER. Right. Right. And so the scant paragraph that the 

IRS provided in finalizing the rule, even if it were a permissible interpretation of the act, and I don’t believe it was, I believe it still 

failed the reasoned decision-making requirement that all agencies 

are under. And this requirement is a part of the Administrative 

Procedure Act because it’s important that when agencies issue regulations or interpret Federal statutes that they make clear to the 

American people the reasons why they are interpreting a statute 

a particular way. 

Mr. MCHENRY. So, you know, this administration, this is not 

something new for the administration, right? 

Mr. ADLER. Well, I think it’s fair to say that there are oftentimes 

when administrations of both parties have failed to engage in reasoned decision-making or failed to fully explain the reasons for 

their decisions. And I think that more often than not when an 

agency fails to provide an adequate explanation for its choice, it’s 

because it realizes that there is no adequate explanation. And I 

think that’s what explains the IRS—— 

Mr. MCHENRY. My time is limited. And Attorney General Pruitt, 

I’m not going to have time to ask you, but I’m deeply concerned 

about this case that you’re pursuing, I’m very supportive of the 

case you’re pursuing of folks that have strong moral convictions, 

that own businesses, being forced to buy healthcare policies counter 

to their moral principles and beliefs. And I encourage you to continue your good work on that. And there are a lot of folks that have 

been harmed by this, including in my district, and they’re very, 

very closely watching your actions and the good work you’re doing. 

So thank you, Mr. Chairman. I yield back. 

Mr. LANKFORD. Thank you. 

Ms. Lujan Grisham. 

Ms. LUJAN GRISHAM. Thank you, Mr. Chairman. 

And I want to thank the panel for being here today and your 

time. But I have to say, I’m going to start my comments, I don’t 

really have a question, I completely disagree, since we have matters of opinion here on the dais and we have matters of opinion 

there by the panel where we’re picking a phrase out of a report in 

any context that we wish. 

54 

I think the Affordable Care Act is and continues to work effectively. And the businesses in my district in New Mexico finally 

have the support to protect the women and other employees to 

make sure that insurance companies don’t, A, discriminate against 

them, and B, provide the bulk of their profits back into the direct 

delivery of care, which they should have been doing all along. 

And so as you can see, I have my own opinions about the Affordable Care Act and the benefits, and I have my own opinion about 

the statutory language and its legislative history support for the 

IRS rule, which allows everyone, regardless if they’re living in a 

State with a State-administered or federally administered exchange, to have access to the benefits of the Affordable Care Act. 

And I’m not going to ask questions about that, because I agree 

with my colleague from San Francisco, this is not an appropriate 

forum. The courts now will decide this issue. Instead, I want to 

make these two points. 

First, this week will mark the 40th time, as we’ve all said, the 

Republicans have attempted to repeal in whole or in part the Affordable Care Act. It’s unprecedented for elected officials to devote 

this much time to impede, delay, and stop the implementation of 

Federal law and the benefits that the law will provide to millions 

of Americans. They are wasting precious time and government resources by impeding the effective and efficient implementation of 

Federal law. I see this hearing as part of that effort. 

Second, the Affordable Care Act is the law of the land. Our job 

is to oversee in this committee the Affordable Care Act implementation and to make legislative recommendations and/or changes 

which make that process more efficient and more effective. Instead 

of holding a hearing on an issue that is subject to ongoing litigation, let’s clarify this work and work on legislation that would ensure that everyone who lives in a State with a federally administered exchange can receive the same benefits as someone who lives 

in a State with a State-administered exchange. 

I think we should be productive, not destructive, and I think we 

should remember the equal protection laws of this country, which 

indicate unequivocally that we should be treating everyone the 

same. 

Thank you, Mr. Chairman. 

Mr. LANKFORD. Thank you. 

Mr. Jordan. 

Mr. JORDAN. Thank you, Mr. Chair. 

Mr. Adler, Mr. Lazarus in his 10-minute opening statement referred to the rest of you as ACA opponents. I don’t know if you are. 

I mean, I assume these guys are. They’re in a lawsuit. But I don’t 

know, Mr. Adler, if you’re an opponent. I certainly am an opponent. 

I think it’s a bad law, it’s going to harm families, and not help our 

healthcare system. But regardless of whether you’re for or against 

the law, that doesn’t change your interpretation of how the law was 

written, correct? 

Mr. ADLER. Correct. In fact, I first wrote about these provisions 

of the law many months before the op-ed that Mr. Lazarus referenced, and at that time, when pointing out these provisions, the 

IRS had yet to propose its rule, and I at the time was not aware 

of the potential consequences of restricting tax credits and subVerDate Aug 31 2005 10:04 Nov 26, 2013 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 C:\DOCS\85358.TXT APRIL
55 

sidies in terms of the employer mandate. It was to me merely a 

question of statutory interpretation, and one that had been pointed 

out by others as well. 

Mr. JORDAN. And that’s as basic as it gets. I mean, I remember 

first year law students that you teach at that fine university in 

Ohio. Frankly, kids in grade school know that the legislative 

branch writes the law and the executive branch carries it out as 

written. Correct? 

Mr. ADLER. Correct. 

Mr. JORDAN. We all learn that in grade school, for goodness sake, 

and certainly any first year law school student would understand 

that. 

Let me ask you this. Do you think that the employer mandate, 

which is part of the law scheduled to take effect starting January 

of next year, do you think the President has the ability to simply 

waive the employer mandate? 

Mr. ADLER. I think that the justification for that that has been 

provided by the administration is inadequate. I don’t believe it’s 

subject to legal challenge, or I’m not sure that it could be subject 

to legal challenge, but I certainly have not seen an explanation 

that would justify that sort of blanket refusal to implement a clear 

statutory provision. 

Mr. JORDAN. And it seems we’ve got two examples of where the 

language says one thing, the legislative branch wrote one thing, 

and the executive branch is doing something different. 

Mr. ADLER. Yes. And I would just note, I mean, I have been critical of Republican administrations for doing similar things. To me, 

the executive branch should not—— 

Mr. JORDAN. That’s my point. Whether you’re for or against the 

law, it doesn’t matter. We have the way things work in this wonderful system in America, legislative branch writes the laws, appropriates the dollars, executive branch carries out the laws and 

spends the dollars. 

Mr. ADLER. Correct. 

Mr. JORDAN. Pretty simple. And when the executive branch 

doesn’t do what the legislative branch says, they’re doing—they’re 

behaving in an unconstitutional fashion. Correct? 

Mr. ADLER. They’re certainly not discharging their obligation. 

Mr. JORDAN. Let me go back to—and, again, you’ve talked about 

this several times with other people, but I’d just like to hammer 

this point home: Interpreting a statute, the first thing you look at 

is the clear language of the statute. Mr. Lazarus says that you’re 

taking it out of context, but tell how these five words are taken out 

of context: exchange established by the State. 

Mr. ADLER. Yeah. I don’t think—I don’t think that when that 

phrase is used repeatedly—— 

Mr. JORDAN. Yeah. 

Mr. ADLER. —not just once, in multiple places, that it can mean 

anything other than what it clearly says. 

Mr. JORDAN. Yeah. 

Mr. ADLER. And if the defining of terms is as important as Mr. 

Lazarus says it is, then the fact that ‘‘State’’ is a defined term in 

the statute should be just as important as his emphasis on the 

word exchange being defined in the statute. 

56 

Mr. JORDAN. Yeah. The other side has accused Republicans of 

sabotaging the law, working against the law. I mean, I am, but I 

would just like to ask a few questions of Mister—I am working 

against it, I’m trying to sabotage it, I’m trying to stop it because 

I think it’s bad. But I just want to ask Mr. Willey if he would 

agree—and, frankly, I’d love to get my colleagues on the other side, 

their reaction—is Mister—is Democrat Senator Max Bachus trying 

to sabotage the law when he says, I just see a huge train wreck 

coming down the road? I would ask Mr. Willey if he thinks that 

union president Jimmy Hoffa is sabotaging the law when he says: 

‘‘This will destroy the very health and well-being of our members, 

along with millions of other hardworking Americans.’’ And, frankly, 

I’d ask, is Howard Dean trying to sabotage the law when he says 

the Independent Payment Advisory Board is essentially a 

healthcare rationing body. 

So, I mean, the simple fact is this law is not working, even 

though the other side says it is, it’s not working. And you don’t 

have to take Republicans’ word for it, you can take Democrats’ 

word for it. 

So, Mr. Willey, I’ll ask you, do you agree with those statements 

from Democrats? 

Mr. WILLEY. Completely. And as in my testimony, there’s clear 

design in this law that will put the government in the—Federal 

Government in the business of promoting illness and maintaining 

it as an entitlement. It’s bad all the way around. It’s distorting 

what’s happening in health care already. It’s causing the least efficient, most expensive, most dangerous sector of the healthcare industry to be the winner. That’s hospitals, hospital cartels. 

Mr. JORDAN. I’ve got 10 seconds. I just want to get Mr. Lazarus. 

And you can have time past my 5 minutes if the chairman says so. 

But is Max Bachus, do you agree with Senator Bachus when he 

says this is a train wreck coming? Do you agree with Mr. Hoffa 

when he says it will destroy the well-being of our members, along 

with millions of other hardworking Americans? And do you agree 

with Howard Dean that the Independent Payment Advisory Board 

is a problem? 

Mr. LAZARUS. Well, I—— 

Mr. LANKFORD. We need your microphone on again, Mr. Lazarus. 

Mr. LAZARUS. I’m sorry. I consider myself a lawyer of sorts. And 

I’m not a health policy expert and—— 

Mr. JORDAN. Well, no, but in your opening statement, in that 

long opening statement you made, you accused the other three 

guys of being opponents. I assume that means you’re a proponent. 

So I’m asking you, do you agree with those statements that I read? 

Or do you think Senator Bachus has lost it and he doesn’t know 

what he’s talking about, do you think Mr. Hoffa’s wrong, and do 

you think Mr. Dean’s wrong? 

Mr. LAZARUS. I am a very strong supporter of the Affordable 

Care Act. I don’t really know what Senator Bachus was referring 

to. 

Mr. JORDAN. I just read it to you. He’s talking to Kathleen 

Sebelius. 

57 

Mr. LAZARUS. I don’t know what he had in mind. I am completely 

unfamiliar with the statements by Mr. Hoffa and Mr. Dean, so I 

really have no ability to comment on them. 

Mr. JORDAN. Okay. All right. 

Thank you, Mr. Chairman. 

Mr. LANKFORD. To the chairman of the full committee, Chairman 

Issa. 

Mr. ISSA. Thank you, Mr. Chairman. 

I’ll start off with—I guess I’ll start off, Mr. Adler, do you live in 

Cleveland Heights? 

Mr. ADLER. I used to. Not anymore. 

Mr. ISSA. Okay. I grew up there. 

Mr. ADLER. Oh, great. 

Mr. ISSA. So my brother’s a Case graduate and my sister-in-law 

is with the university, so I guess I’m a strong proponent of Case 

Western Reserve. 

Mr. ADLER. Glad to hear it. 

Mr. ISSA. But having said that, I’d really like to ask you constitutional questions. And one of them is not constitutional, but more 

a balance of opinions. The Congressional Budget Office when scoring the Affordable Care Act scored it assuming that all States were 

going to buy into this and participate. With a little checking, we 

asked the CBO how many lawyers they had on it, and they said 

they had basically one and a half lawyers’ time, full-time equivalents, none of whom were constitutional lawyers. And those lawyers did not issue a decision or an opinion as to why they were 

scoring that everyone was going to participate. 

From a standpoint of the law, is there any evidence, when people 

talk about CBO scoring, that CBO issued an opinion, and even if 

they did, if that opinion wasn’t published to Members of Congress, 

would it really bear any credibility as to, for example, Attorney 

General Pruitt’s point of it’s not in the foursquare of the law? 

Mr. ADLER. Yeah. I am not aware of any legal precedent for relying upon a CBO score in interpreting a statute. I would note that 

the CBO often scores statutes in ways that it is directed to by Congress even if that involves adopting implausible assumptions. 

I would also note that the CBO scoring statute, as I understand 

it, did not account for any Federal spending necessary to create 

Federal exchanges. So if the CBO had considered the possibility 

that the Federal Government would be creating exchanges, I would 

think it would have had to account for all of the spending the Federal Government would have had to engage in to do that. 

Mr. ISSA. I think you’ve made my point very well. 

Now, in preparation for this hearing we asked for documents, 

and we found out through public disclosure that we received 500 

documents. Just before coming here, I had a count done. We received 386 documents, and you’d be pleased to know that 70 of 

those pages were your work already publicly posted. So you’ve been 

presented as responsive to our inquiry as to the administration’s 

decision. Clearly they didn’t read what they sent us. 

Let’s get back to my Democratic friends on the other side are always saying the law is the law. Is there case law that you know 

of where a law very specifically does or doesn’t do something and 

the executive branch creates a rule that is outside of the actual— 

58 

any actual text that they can cite in the law? And I’m not trying 

to make the Attorney General’s case, but we’ve looked through the 

entire 2,400 pages or more that we had to pass before we could find 

out what was in it. We now know that there’s nothing in there that 

says it. 

Have you found anything? And I know your thesis on this goes 

to great lengths to say you didn’t find it. But have you looked 

again? Is there, in fact, anything in there that would allow somebody in good faith, maybe Mr. Lazarus, who’s a strong supporter 

and would like to find a scintilla of justification, did you find that? 

Mr. ADLER. I don’t. There is nothing in the statute. And we also 

looked, and to be honest, we expected to find in the legislative history statements that went against our thesis. We expected to find 

Members of Congress saying, oh, there will be subsidies in Federal 

exchanges, and then in that case the argument would have been 

do we go by congressional statements or do we go by the plain text 

of the statute. We couldn’t find even that. 

And those that have criticized our paper have not been able to 

find a single contemporaneous statement where any Member of 

Congress or supporter of the law said there will be credits in Federal exchanges. The closest they can find is statements saying 

there will be tax credits in all 50 states. But those same sources 

usually say that every State will willingly create an exchange, 

which would be the reason for tax credits in all 50 states. 

So it is striking how little there is in either the statute itself, 

which is of course what we should focus on, or in the surrounding 

legislative history to support the—— 

Mr. ISSA. Let me just close with a quick series of questions. The 

Constitution exclusively gives the right of appropriation of funds to 

this branch. Is that correct? 

Mr. ADLER. Correct. 

Mr. ISSA. And if we choose not to appropriate funds, we make a 

statement, notwithstanding previous law. Is that correct? 

Mr. ADLER. Correct. 

Mr. ISSA. So our absolute right not to appropriate funds for portions of the Affordable Care Act that we believe do not mean today 

what the President has out of thin air caused them to mean is exclusively our jurisdiction under the Constitution? 

Mr. ADLER. Yes. And I’ll just add that Congress has for the past 

several decades regularly opted to defund portions of authorized 

laws that Congress did not want to see implemented, and this has 

been done under both Republican and Democratic majorities. 

Mr. ISSA. So I’ll leave the doctor out of it. The other two lawyers 

were correct that it’s exclusive jurisdiction of the Congress, and 

that Congress has a right not to fund anything it doesn’t want to 

fund, particularly if it’s outside the four squares of existing legislation. Is that correct, Mr. Attorney General? 

Mr. PRUITT. Yes, Mr. Chairman. 

Mr. ISSA. Mr. Lazarus, I know you love the Affordable Care Act, 

but isn’t it our right not to fund that which we believe should not 

be funded, and isn’t it the right of every successive Congress to 

start anew as to appropriations since George Washington was leading a ragtag army and asking for money a very long time ago? 

59 

Mr. LAZARUS. Well, I think it’s quite clear that Congress has the 

power—— 

Mr. ISSA. The right and responsibility. I was asking, and I know 

I need to yield back, but the power is a different question. The 

right and responsibility under the Constitution, wouldn’t you say 

that is clearly within the four squares of our Constitution? 

Mr. LAZARUS. Well, I think particularly the word ‘‘responsibility’’ 

is putting a spin on it that I don’t think is necessary and I wouldn’t 

necessarily want to add to. But certainly you have the power. 

That’s what Congress is for and that’s what politics is all about, 

so—— 

Mr. ISSA. Well, Mr. Chairman, I don’t want to engage in politics, 

but the term ‘‘responsibility’’ to me means a lot. I know to my 

Democratic friends and to you, Mr. Chairman, right and responsibility under the Constitution means a lot to us. And I yield back. 

Mr. LANKFORD. Mr. Cartwright. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. Mr. Chairman, this 

hearing is nothing but another partisan attack on the Affordable 

Care Act, the gentleman’s comments about not engaging in politics 

notwithstanding. Isn’t it a coincidence that it corresponds with the 

40th attempt to repeal the Affordable Care Act this month. 

And, you know, I understand my colleague from Ohio has once 

again referred to the Senator Max Bachus statement about a train 

wreck, and I think, once again, it’s important to put that statement 

into context. At the time, Senator Bachus was objecting to the cutting by HHS to the—of the PR budget for implementation of the 

Affordable Care Act, and what he said was: ‘‘A lot of people have 

no idea about all of this. People just don’t know a lot about it, and 

the Kaiser poll pointed that out. I understand you’ve hired a contractor.’’ He was addressing Kathleen Sebelius, Secretary Sebelius. 

‘‘I’m just worried that that’s going to be money down the drain, because contractors like to make money. I just tell you, I see a huge 

train wreck coming down,’’ And what he was talking about is, if 

people don’t know about the Affordable Care Act and sign up, it is 

going to be a problem, and I don’t think anybody disputes that. 

Opponents of Obamacare are trying to deny low-income people in 

certain States, like my State, Pennsylvania, the tax credits they 

need and deserve under the law to make health care affordable. If 

they succeed in the courts, all they will have achieved is creating 

a two-tier society with profound effects in my home State and 

throughout the Nation. What matters most is that it does nothing 

to address the real issues. 

The real issue is that four out of five in the U.S. Will live in poverty or long-term unemployment at some point in their lives, and 

the majority has yet to pass a single jobs bill in the 113th Congress. The real issue is that in places like Scranton and WilkesBarre and Easton and Pottsville, my district, unemployment is 9.2 

percent. The real issue is that over 70,000 people in my district 

don’t have health insurance. About 6,500 of those people are children. In fact, 9.4 percent of families and one in five children in my 

district live below the poverty line. These are the exact people who 

need these tax credits. 

60 

Instead, we’re sitting here wasting time and taxpayer dollars trying to find any possible reading of the law, a technicality, to take 

away health care from the people who need it most. 

Many of my Republican colleagues believe that the ACA should 

be repealed or defunded and have voted nearly 40 times already to 

do so. The efforts to defund have become frustrating even to members of the Republican Party. Senators Coburn and McCain have 

expressed their distaste for the continual futile votes to eliminate 

funding for the ACA. 

And, Mr. Lazarus, my question for you is, are you aware that despite the Supreme Court’s ruling upholding the ACA, the House 

this week is going to vote for the 40th time to repeal the act? You 

aware of that? 

Mr. LAZARUS. Well, I’m now aware of it, because you’ve just told 

me. 

Mr. CARTWRIGHT. Thank you. 

The ACA was clearly designed to provide all Americans with a 

path to affordable health care regardless of where they live. The 

ACA represents immeasurable progress and has already bettered 

the lives of millions of Americans. 

Now, Mr. Lazarus, if the opponents of the ACA are successful, 

what will happen to the millions of Americans who are already 

benefiting from health reform? 

Mr. LAZARUS. Well, in States like Attorney General Pruitt’s, 

where the Federal Government is going to be operating the exchange, if the opponents such as he are successful, then the large 

majority of people who are supposed to be benefited by the law and 

supposed to be able to get access to affordable health insurance 

policies on the exchanges simply won’t be able to do so. I mean, 

this is why you’d have to call this not only a poison pill theory of 

how to interpret the statute, but it’s really a self-administered poison pill theory. 

Mr. CARTWRIGHT. Thank you, sir. 

And I’d say this: What a sad state we would be in if we regressed 

again to a time when children are denied coverage for preexisting 

conditions, where hard-working people are forced to bankruptcy because of one health emergency, and where the emergency room 

again in this country serves as the primary care facility. 

With that, I yield back, Mr. Chairman. 

Mr. LANKFORD. Thank you. 

Dr. DesJarlais. 

Mr. DESJARLAIS. Thank you, Mr. Chairman. 

Today we’ve heard basically infomercials or commercials for 

Obamacare from the other side of the aisle, but the purpose of today’s hearing is about the separation of powers in government, the 

checks and balances, and the authorities bestowed upon the Constitution the legislative branch to use those executive—the legislative and executive branches. 

What we had here was a very unpopular law that was pushed 

through in a hurry with the election of Scott Brown. They know the 

law was flawed when it was passed. The House had different ideas 

about how this should go forward. And the perception by the people 

at that time—and I, like Mr. Willey, was a practicing physician 

61 

when this was passed for 18 years prior to coming to Congress, and 

so I look at it through that perspective. 

But the people in the country did not like this concept. They 

didn’t like it in the 1990s, they didn’t like it about 4 or 5 years ago, 

because it represented in their mind a Federal or government takeover of health care. 

The Senate knew, in fact they implied in letters that I’ll introduce in just a minute, that it would be better if they had a Federal 

exchange or a national single payer, but this was widely rejected 

by the American people. And therefore, it is my contention that it 

was their intent to avoid using the term, opposed to what Mr. Lazarus was saying, to avoid using the term ‘‘Federal exchange’’ and 

focused on State exchanges, because ‘‘State’’ sounded less like government takeover of health care. So this was by intent. 

I’d like to enter into the records a Law Review article from Professor Timothy Jost. 

Mr. LANKFORD. Without objection. 

Mr. DESJARLAIS. Okay. Mr. Adler, have you—can we put that up 

on the screen, please? 

[Slide] 

Mr. Adler, have you seen this Law Review article? 

Mr. ADLER. Yes, I have. 

Mr. DESJARLAIS. Okay. On page 7, Professor Jost writes that a 

way to get around the commandeering problem would be for Congress to exercise its constitutional authority to spend money for 

public welfare either by offering tax subsidies for insurance only in 

States that have complied with Federal requirements or by offering 

explicit payments to States that established exchanges for the Federal requirements. 

Can you comment on whether or not what you found in your research would suggest that the Senate bill—did it do this? 

Mr. ADLER. The Senate bill is certainly written to do precisely 

what Professor Jost suggested that it could, and that had been 

done in prior contexts, as he notes, as with health savings accounts. 

Mr. DESJARLAIS. Okay. Who is Timothy Jost and why is he relevant? 

Mr. ADLER. He is a law professor who is a very prominent expert 

on health law, and as far as I’m aware, was very involved in 

healthcare reform and in helping to develop ideas that were part 

of healthcare reform. 

Mr. DESJARLAIS. Okay. 

Mr. Chairman, I’d also like to enter into the—or ask unanimous 

consent to enter into the record a story from NPR that references 

Democratic House members from Texas who wrote President 

Obama urging that the House approach be preserved in the final 

bill. 

Mr. LANKFORD. Without objection. 

Mr. DESJARLAIS. And also would like to introduce into the record 

a letter from U.S. Rep. Doggett and six of his colleagues, Democratic colleagues. 

Mr. LANKFORD. Without objection. 

Mr. DESJARLAIS. Okay. Basically this letter is describing where 

in Texas they saw this problem coming as well, and suggested 

62 

that—they urged the President that the House approach should be 

preserved in the final bill. They worry that because leaders in their 

State oppose the health bill and they won’t bother to create an exchange, leaving uninsured State residents with no way to benefit 

from the new law. 

So it wasn’t an accident that ‘‘Federal exchange’’ was left out, as 

Mr. Lazarus suggests. And for him to suggest that you, Mr. Adler, 

and the others on this panel are just engaging in self-defeating 

spin or are just looking to find a glitch to bring this healthcare law 

down, would you disagree with that, and what is your intent? 

Mr. ADLER. Well, as I mentioned before, I first wrote about these 

provisions in the law before I was aware of the way these provisions interacted with, for example, the employer mandate and before it was clear that a majority of States would refuse to implement exchanges. To me, as a scholar of administrative law and federalism, it was interesting to see different ways in which Congress 

has tried to induce State cooperation in different Federal—in various Federal programs. 

And I’m also someone that’s very concerned about the nature of 

congressional delegations of authority to agencies. And here, as in 

other contexts, if an agency departs from clear statutory text, that’s 

a problem. And it doesn’t matter whether it’s the healthcare law 

or the Clean Air Act or any other statute, and it doesn’t matter 

whether it’s a Democratic or Republican President. That’s something that agencies should not do. 

Mr. DESJARLAIS. Thank you. 

Mr. Pruitt, could you quickly give us an update on where the 

lawsuit that you’re engaged in is going and what do you expect to 

occur in the near future? 

Mr. PRUITT. Well, thank you, Congressman. We have fully 

briefed a motion to dismiss filed by the Federal Government and 

that case was argued before the court back in June, and we’re 

awaiting the decision by the court at this time. 

If I could, Mr. Chairman, I think it’s important to remember that 

this Congress and Congress routinely uses spending power to accomplish something called cooperative federalism. And it’s not unfamiliar to this committee, it’s not unfamiliar to Congress. 

And I would say, Congressman Cartwright, with respect to the 

statement that’s been made a couple of times that all citizens 

across the country were intended to be treated equally under the 

ACA, you know, in the Medicaid arena, routinely States engage in 

cooperative federalism with Congress. Citizens are treated differently quite often. As you know, eligibility determinations are 

given to the States, and there’s incentives to the States to match 

the appropriations of this Congress to cover at times more individuals. 

It might be surprising to the Congressman that in the State of 

Oklahoma we’ve had a program called Insure Oklahoma that’s 

been around since 2003, and it covers 30,000 individuals that could 

not otherwise afford health insurance. But CMS has notified the 

State of Oklahoma, despite that program being very successful at 

providing access to health care, because the State of Oklahoma has 

not expanded Medicaid under the ACA, CMS has killed that program and told the State of Oklahoma to cease operations under the 

63 

1115 Medicaid waiver that exists in the State of Oklahoma since 

2005. 

So it is somewhat incongruent to say that a State, when it makes 

a decision that’s been reserved to the State by Congress to decide 

whether a State healthcare exchange should issue in that State, 

we’ve made the decision we’re a proponent of the rule of law. It’s 

not an opponent of the policy decisions that you have made in this 

Congress. We are seeking to give life and meaning to what you 

have passed in this body. And when an agency makes a decision 

that’s inconsistent with that, when it makes a decision that’s clearly against the plain reading of the statute—Mr. Lazarus has said 

on more than one occasion that the context of the statute justifies 

his position. 

It only justifies his position if you don’t read the plain language 

under 1401, Section 1401. You have to count that as surplusage in 

1401 to say that somehow these statutes are harmonious with one 

another as far as providing benefits under a Federal exchange. 

So this is something that on a couple of occasions this morning 

the motives perhaps of the State of Oklahoma in bringing this lawsuit have been brought to bear. I want you to know that the motives of my office—I did not, the Attorney General’s office did not 

make a decision about whether to expand Medicaid, it did not 

make a decision about whether to adopt a healthcare exchange. We 

are simply giving life and meaning to the plain reading of the statutes, honoring the decisions that have been made by our Governor 

and by our legislature and by this Congress. 

And I believe that every member of this committee should take 

seriously the language that’s been passed by Congress to make 

sure that agencies heed that, otherwise rule of law is degradated, 

and that’s what we’re a proponent of. 

Mr. LANKFORD. Thank you. 

Mr. Woodall. 

Mr. WOODALL. Thank you, Mr. Chairman. 

I’d say to the Attorney General, it’s tough to take the statute seriously. You have Mr. Adler tell the tale again, as it has been sadly 

told so many times before, of how this law came into being. And 

it was not a serious work product on the day it passed this House 

and went to the President’s desk. It could have been a serious work 

product. We could have sorted these things out. We could have 

solved a lot of these problems. But politics trumped good policy and 

we didn’t. Candidly, Attorney General, it embarrasses me that you 

have to sort this out in the courts, that we’re not able to sort this 

out here on Capitol Hill. It ought to be an Article I and Article II 

decision, not an Article III decision. And we have failed the citizens 

of Oklahoma in that respect. 

I’d say to you, Dr. Willey, I too got the same word from the White 

House that if I had only been smarter, I would not have chosen a 

health savings account, I would have chosen a plan that had more 

first dollar coverage, that didn’t expose me to so much risk, and 

didn’t require me to be as responsible for my decisions. But thankfully the Federal Government has intervened, counseled me, and 

I’m going to do better starting January 1st, and I’m told I will be 

much happier as a result. 

64 

I so appreciate what Mr. Lazarus said about not impugning anyone’s motives here at the table, that you have no doubt folks believe what they say when they’re trying to do the best for their citizenry. That’s not what I heard from my friends on the other side 

of the aisle this morning, and that’s very frustrating to me. Because here you are, you are trained in ways that, with the exception of Dr. DesJarlais behind me, the rest of us only wish we had 

those skills and insights to the human condition, and yet folks say 

perhaps you’re out to get your employees, that your desire to help 

them to be well is inferior to the government’s desire to treat them 

after they get sick. 

And it is incredibly frustrating to me that we second guess, 

again, folks who have spent not just years, but decades of their 

lives becoming experts in this field, and we supplant the judgment 

of our physicians with the judgment of our attorneys. Incredibly 

frustrating to me, speaking as an attorney. 

Let me ask you, Mr. Lazarus, because, again, I appreciate the 

honesty with which you’re approaching this. Obviously we’re on different views—different sides of this issue. Let me ask you, I could 

probably stipulate that the capital ‘‘E’’ in Section 1401 makes a difference. I might not believe it, but I would stipulate it for the purposes of this conversation. Why, then, do we need to include ‘‘established by a State’’? Why don’t we just say ‘‘exchange’’ and be done 

with it? It seems that including that language almost by definition 

tells me we’re trying to distinguish this capital ‘‘E’’ exchange from 

all of the other exchange conversations we’re talking about in the 

statute. Do you not find that troubling? 

Mr. LAZARUS. I don’t find it troubling. I understand how you 

could see it that way. I think that my point and the point of those 

who read the statute the way I do is simply that when in 1321 it 

says that the Secretary shall establish ‘‘such Exchange’’ with a capital ‘‘E,’’ it’s referring back to the definition of a capital ‘‘E’’ exchange in 1311, which includes established by the State. And that 

would be the interpretation, which I think is a completely reasonable, not necessarily the only interpretation. But once you admit 

that it is a potential interpretation, then you have to look at the 

whole context and the purpose of the statute and what—— 

Mr. WOODALL. Well, you drive home the point about the dangers 

of sloppy legislating. Again, going back to Mr. Adler’s tale of here 

we are, we’re in a conference, we’re trying to sort out two different 

congressional positions, we’re trying to bring this language to perfection, and then we just jettison that effort altogether and say 

whatever those other guys passed, even though we didn’t expect it 

to be ready for primetime, that’s going to be good enough. 

In fact, I was sitting in this very same chair earlier this year, 

I don’t know if you’re familiar with the navigator and assister language here, and by assister language I mean there’s no assister 

language in here whatsoever, and yet HHS read that in. This isn’t 

the first time we’ve had this conversation. If you feel the frustration of my colleagues, it’s because this isn’t the first time someone’s 

read something into the statute that doesn’t exist. We see it time 

and time and time again. 

And folks wonder why Washington doesn’t function. If the administration would have come here on any of those occasions and 

65 

said, we made a mistake, would you work with us to help us craft 

a solution, we would be in a different case today. 

Let me ask you, Mr. Adler, I’m looking at 10 pages of CRS analysis of the legality surrounding Section 1401. I see one paragraph 

of Treasury analysis on that same topic. What’s your assessment 

of the seriousness with which Treasury analyzed this issue? 

Mr. ADLER. Well, based on what the Treasury Department published in the Federal Register, it does not appear that they engaged 

in the sort of reasoned decision-making that is required of agencies 

when they issue regulations and purport to provide authoritative 

interpretation of the statute. They were derelict in their responsibilities in providing that major justification. 

Mr. WOODALL. With the chairman’s indulgence, let me ask you 

why—because there are a lot of serious public servants over there 

implementing congressional mandates, it’s not a new job for 

them—why in the world is it that you believe such a cavalier work 

ethic was applied to this topic when folks are so serious about others? 

Mr. ADLER. You know, I don’t know, to be honest. I mean, there 

are many instances, and we quote several in our article, where the 

IRS was quite forthright about not being able to implement the law 

in particular ways because the text prevented them from doing so 

and went on at length discussing the relevant statutory provisions. 

The way this provision is treated is an anomaly. And I don’t 

mean to impugn anyone’s motives, I don’t know why they did it 

this way, but as someone that’s looked at the statute and the legislative history and on, I think a partial explanation may be that the 

evidence to support their theory wasn’t there. And I think that’s 

further confirmed by the fact that months later, when the Treasury 

Department first began providing explanations for the rule, it 

adopted mutually inconsistent explanations. The ‘‘such Exchange’’ 

justification and the reliance on the HCERA reporting requirements that apply to both Section 1311 and Section 1321 are mutually inconsistent. They can’t both be correct. And yet in, I believe 

it was October 2012, Treasury Department offered them both simultaneously, and I believe that was because there really isn’t anything there. 

Mr. WOODALL. I thank you all for being here. Candidly, if the 

435 of us and the 100 folks on the Senate side and the White 

House and the agencies approached this issue with the same seriousness and sincerity that the four of you do, I think we would 

have an entirely different conversation about this and the American people would be better served. 

Thank you, Mr. Chairman. 

Mr. LANKFORD. Thank you. 

Gentlemen, thank you very much for being here for the morning. 

It’s very important to be able to bring up and be able to walk 

through. This is a conversation that we can deal with on how is 

the law interpreted, how is the law written, and how will it be applied in the days ahead. This has billions and billions of dollars of 

impact on our Federal budget. And as Mr. Cartwright has rightly 

assessed as well, it also affects a tremendous number of lives of 

people around the Nation. And so this is very significant for us to 

66 

hear. And thank you for your contribution, both your written and 

your oral testimony. 

We will take a short recess while the clerks set up for the second 

panel. 

[Recess.] 

Mr. LANKFORD. We’ll now recognize our second panel. 

Ms. Emily McMahon is the Deputy Assistant Secretary for Tax 

Policy of the U.S. Department of Treasury. 

Thank you for being here. Pursuant to all committee rules, all 

witnesses are sworn in before they testify. If you’d please rise and 

raise your right hand, please. 

Do you solemnly swear or affirm that the testimony you’re about 

to give will be the truth, the whole truth, and nothing but the 

truth, so help you God? 

Thank you. You may be seated. 

Let the record reflect the witness did answer in the affirmative. 

To allow time for discussion, you’ve testified before hearings before, there will be a clock in front of you counting down to 5 minutes. We’d ask for you to be able to get as close as you can to 5 

minutes, but obviously you’re the sole witness on this panel. You’re 

here for us to be able to hear from you and to be able to ask you 

questions. So your entire written statement obviously will be made 

a part of the permanent record as well. With that, I’d like to go 

ahead and recognize you for your opening statement. 

STATEMENT OF EMILY S. MCMAHON, DEPUTY ASSISTANT SECRETARY FOR TAX POLICY, U.S. DEPARTMENT OF THE TREASURY 

Ms. MCMAHON. Thank you, Chairman Lankford, Ranking Member Speier, and members of the committee. I appreciate the opportunity to testify regarding the premium tax credit created as part 

of the Affordable Care Act. 

The ACA established affordable insurance exchanges, also known 

as health insurance marketplaces, where consumers can choose a 

private health insurance plan beginning in 2014. So that this insurance is affordable, Congress also included in the ACA a premium tax credit that it has been estimated will help approximately 

20 million Americans to afford private health insurance. These premium tax credits may be worth over $4,000 per covered individual 

each year on average. 

On August 17th, 2011, the Treasury Department and the IRS 

issued proposed regulations implementing the premium tax credit 

under Section 36B of the Internal Revenue Code. Final regulations 

were issued on May 23rd, 2012. These regulations provide that the 

premium tax credit is available to eligible individuals enrolling 

through all exchanges, whether directly operated by a State government or a federally facilitated exchange operated on behalf of a 

State. 

The regulations were developed in accordance with our standard 

procedure for developing regulations under the Internal Revenue 

Code. Career IRS staff attorneys and attorneys from Treasury’s Office of Tax Policy conducted a rigorous analysis of the statutory 

provisions, drawing on their extensive collective experience interpreting and implementing the code. Public comments were solicited 

67 

on the proposed regulations and were carefully considered during 

the development of the final regulations. 

Treasury and IRS believe that the final regulations interpret the 

statutory language in a manner that is appropriate to its context 

and consistent with the purpose and structure of the statute as a 

whole, pursuant to longstanding and well-established principles of 

statutory construction. This interpretation takes into account the 

fact that Section 36B(f)(3), added by the ACA, requires federally facilitated exchanges to report to the IRS data related to eligibility 

for the premium tax credit and the receipt of advance payments, 

a requirement that would be pointless unless the enrolling individuals were eligible for the premium tax credit. 

The regulations also reflect the fact that where a State chooses 

not to establish an exchange pursuant to Section 1311 of the ACA, 

Section 1321(c) of the ACA provides that the Secretary of Health 

and Human Services shall establish and operate such Exchange 

within the State. In other words, Congress made the federally facilitated exchange the equivalent of a State exchange in all functional respects, including making qualified individuals eligible for 

tax credits to purchase insurance through those exchanges. 

I also note that the relevant legislative history does not indicate 

that Congress intended to limit the premium tax credit to State exchanges, or more specifically, to exclude the federally facilitated exchange. 

And finally, the regulations are consistent with the explanation 

of the ACA released by the nonpartisan Congressional Joint Committee on Taxation and with the assumptions made by the Congressional Budget Office in estimating the effects of the ACA, a 

point that CBO Director Elmendorf recently confirmed in a December 6th, 2012, letter to Chairman Issa. 

I understand that some members of this committee will have 

questions about our legal interpretation. While Treasury appreciates the committee’s important oversight role, it is important to 

remember that our conclusions also are subject to ongoing active 

litigation. In fact, I understand that some of those plaintiffs were 

on the earlier panel. 

As such, it is important to recognize that only the Justice Department speaks to the administration’s official legal positions as 

to the merits of our conclusions. I will do what I can to answer the 

committee’s questions today subject to the Treasury Department’s 

legitimate confidentiality interests and sensitivities concerning active litigation. 

As you know, the Affordable Care Act is projected to provide 

health coverage for nearly 30 million additional Americans. Agencies throughout the administration are implementing the ACA to 

build on the progress already made toward better and more affordable coverage. We welcome the opportunity to continue our work 

with this committee to achieve these objectives. Thank you. 

Mr. LANKFORD. Thank you. 

[Prepared statement of Ms. McMahon follows:] 

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Insert offset folio 31 here 85358.031
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Insert offset folio 32 here 85358.032
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Insert offset folio 33 here 85358.033
71 

Mr. LANKFORD. Ms. McMahon, thank you for being here. And we 

will have obviously questions about how the rule came together. 

You’re a part of that team that actually helped pull the rule together. Obviously there are other attorneys and other folks that 

were involved in that process. What was your role in the proposed 

rule and then the final rule when it was done? 

Ms. MCMAHON. Mr. Chairman, at the time that both the proposed regulation and the final regulation were issued, I was the 

Acting Assistant Secretary for Tax Policy, and in that role, it was 

my responsibility to approve regulations implementing the Internal 

Revenue Code. 

Mr. LANKFORD. Great. Well, part of the process that we’re trying 

to go through today is not only the final decision of it, obviously, 

and there will be a legal conversation on that, but how that was 

pulled together. You used the term there was a rigorous analysis 

of IRS legal and folks at Treasury and such to be able to look 

through it and go through the law. Obviously, it’s a long law. It’s 

new in its format in a lot of ways. 

We have asked Treasury for a tremendous number of documents 

just in trying to gather how was the decision made between the 

State exchange issue or whether this ‘‘such Exchanges,’’ as you 

mentioned, also includes, where was that conversation? 

What we have found so far is a half-page memo that included 

that one piece of justification of ‘‘such Exchanges.’’ That’s around, 

if I’m guessing correctly, around a $600 billion decision that was 

made to be able to include that in, and so we asked for the background of that. 

Today we actually received a letter from Treasury saying they’ve 

given us 500 pages of documents so far to provide the background 

on that. We actually went and looked, and we’ve actually received 

386 pages of documents, a little bit of a miscount there; 154 pages 

of that was the draft proposed rule itself. 

So let me just walk through a little bit of what else we received. 

So 386 pages that we’ve received from Treasury and IRS about how 

this discussion came to be, 154 of that was the draft proposed rule, 

70 pages of that were a draft of Cannon and Adler’s Law Review 

article. Obviously, we had Mr. Adler here today, 70 pages of that 

was his. Five pages were Professor Jost’s response to the Law Review article, so that was, again, after this was done. Fifty-nine 

pages were law cases found through Westlaw when a senior Treasury official asked Cameron Arterton, the Treasury employee tasked 

with defending the rule, to find good Chevron cases. Eleven pages 

were letters from House Republicans and Senator Hatch to the IRS 

raising questions about the rule. Forty-five pages were from public 

hearings on the 36B regulation. Eight pages were from the public 

comments that people made about the rule. Three pages of emails 

about setting up a meeting to discuss this issue with Energy and 

Commerce staff. Eight pages were an article from the Centers of 

Budget and Policy Priorities on the subject, written, again, after 

the final rule. Three pages were a Wall Street Journal op-ed from 

Cannon and Adler. Three page of the debates at a Senate Finance 

hearing between Senator Bachus and Ensign. 

So, again, our request for documents were about the conversation 

when this was being discussed early on. What we received was 369 

72 

pages of public material or relevant—or material that was obviously after that. Two pages showed us that 6 months prior to the 

release of the final rule Treasury was considering Chevron’s applicability of this case. The remaining 15 pages of documents were 

mostly emails from Treasury staff forwarding or commenting on articles from Cannon and Adler and Professor Jost. 

What we need to know is, how was the conversation accomplished? What happened in that conversation? Was there active 

discussion? Were there notes taken from that? What we’ve asked 

for were the notes about that. What we’ve received is everything 

well after that and things that are not relevant. Or most of this 

is public information that we could download from the Internet, not 

based on those conversations. 

How can we determine what that conversation was like leading 

up to this decision? 

Ms. MCMAHON. Well, a couple of things, Mr. Chairman. First of 

all, we did provide additional materials for review by your staff. 

Mr. LANKFORD. In camera. 

Ms. MCMAHON. In camera. And those materials included two— 

at least two legal memoranda relating to both the proposed and 

final regulations, the memos that accompanied the clearance packages as the regulations—at the time the regulations were published. 

I understand, as you mentioned, Treasury sent a letter this 

morning explaining our concerns with providing additional documentation—— 

Mr. LANKFORD. Not just additional, just documentation at all on 

it, because all this is not relevant actually to the question that we 

asked. We have a lot of pages, but just not—they’re just not relevant to what we asked for. 

Sorry. Go ahead. 

Ms. MCMAHON. Well, Mr. Chairman, we did, I can assure you, 

we did have an extensive discussions of the Federal exchange question, both before the proposed regulations were issued and between 

the issuance of the proposed and final regulations. There was an 

IRS–Treasury working group that—comprised of career staff, IRS 

attorneys, and attorneys from Treasury’s Office of Tax Policy, who 

analyzed very carefully a number of issues that were presented in 

the development of the 36B regulations. This was one of them. We 

considered the issue carefully before, as I said, the proposed regulations were issued. And we received a number of public comments 

on proposed regulations. And so the issue was reconsidered before 

issuance of the final regulations. 

A lot of the discussion was oral in meetings and, you know, personal—the in-person discussions. But, you know, to the extent that 

there are additional documents that may relate to the—our internal deliberations, as I think as our letter of this morning explained, 

we have concerns about confidentiality and the chilling effect that 

release of those additional documents might raise—or might 

present if we—on the rulemaking process, if we were to provide 

them. 

Mr. LANKFORD. So there is not any written evidence. There’s oral 

on that, as far as the conversations between those. Can we get a 

73 

list of those individuals that were involved in that conversation 

specifically about this issue? 

Ms. MCMAHON. Mr. Chairman, I can’t provide you off the top of 

my head a list of all of those? 

Mr. LANKFORD. I understand that. 

Ms. MCMAHON. —individuals. There are a number of people involved and people came and went at different times. I can take 

that request—— 

Mr. LANKFORD. That would be great. Obviously, there are a lot 

of issues, I discussed it’s a large law, and there’s a lot of things 

that apply to it. This is the specific issue that we’re trying to identify. How was that conversation, what was the diligence that was 

put to that? You’ve use words like ‘‘extensive’’ and ‘‘diligence.’’ Terrific. We just want to get a chance to get in the feel of that and 

what actually happened with that. 

With that, I’d like to recognize Mr. Cartwright. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 

And thank you for coming today, Ms.McMahon. I have some 

questions for you. 

First, Ms. McMahon, the Treasury Department issued a final 

regulation allowing premium tax credits to be available to all people, regardless of the origin of their exchange participation. Am I 

correct in that? 

Ms. MCMAHON. Yes, that’s correct. 

Mr. CARTWRIGHT. All right. Now, under the interpretation of the 

Affordable Care Act put forward by Professor Adler, residents of 

States with federally operated exchanges would not qualify for the 

premium assistance tax credits. Now, Ms. McMahon, has our government ever provided tax credits on a State-by-State basis or denied citizens tax credits based solely on their State of residence? 

Ms. MCMAHON. I am not aware of any code provision that operates in that manner, no. 

Mr. CARTWRIGHT. And now how about this, was the Treasury Department ever consulted on a carving out of premium tax credits? 

Ms. MCMAHON. To the best of my knowledge, no. 

Mr. CARTWRIGHT. I want to talk about regulation drafting a bit. 

The Departments of Treasury and HHS have both conducted stakeholder outreach to solicit comments and guidance on a broad range 

of the ACA’s provisions. Ms. McMahon, Treasury invited comment 

and questions from the public, from scholars, from business owners, from individuals. Am I correct in that? 

Ms. MCMAHON. Yes, that’s correct. 

Mr. CARTWRIGHT. Will you tell us, how were these comments and 

questions utilized in the formation of the ACA regulations? 

Ms. MCMAHON. Congressman, we always take into consideration 

public comments that we received. In a number of cases, with respect to ACA provisions, we actually solicited public comment before the issuance of proposed guidance to make sure that our proposed guidance reflected public input, stakeholder input. When 

we’ve issued proposed guidance, including the 36B regulations in 

particular, we received over a hundred comments on various issues 

relating to the regulation. And we have taken all of those into account in accordance with our standard rulemaking procedure. 

74 

Mr. CARTWRIGHT. And you followed the standard rulemaking procedure, did you? 

Ms. MCMAHON. Yes, we did. 

Mr. CARTWRIGHT. So was the process—were the efforts by Treasury to design the regulations for the ACA similar to other Treasury 

regulations? 

Ms. MCMAHON. Yes, Congressman. The process was essentially 

the same as the process that we always use in developing tax regulations. 

Mr. CARTWRIGHT. Okay. Now, was the Department of the Treasury aware of the argument that premium tax credits should be 

available only in State-run exchanges? Was this alternative interpretation considered during the rulemaking process? 

Ms. MCMAHON. Yes, Congressman. We became aware of that argument in the course of developing the proposed regulations. And 

we considered it very carefully at that point and, as I said, again, 

between the publication of the proposed and final regulations. 

Mr. CARTWRIGHT. Okay. Good. Now, would you characterize the 

administration’s efforts as transparent and fair in the rulemaking 

process? 

Ms. MCMAHON. Yes, Congressman. I would. We published our 

proposed guidance for public comment. We received a number of 

public comments. We held a public hearing, at which a number of 

people testified. And we took into account all of the comments that 

we received. 

Mr. CARTWRIGHT. Well, now, the—when you think about it, the 

fundamental purpose of the Affordable Care Act is to create an inclusive, accessible market for health insurance that makes affordable care available to all. The law achieves this aim in a variety 

of ways, including expansion of Medicaid, development of health insurance marketplaces, and providing incentives for participation in 

the health insurance market. All of these provisions support the 

goals of universal access and a strong, sustainable healthcare system. Ms. McMahon, do you consider the purpose and intent of the 

law when you go about drafting regulations? 

Ms. MCMAHON. Yes. Yes, we do. And the purpose of the Affordable Care Act, as we understand it, was to achieve universal 

healthcare coverage, affordable healthcare coverage for citizens in 

every State. 

Mr. CARTWRIGHT. Well, thank you for that. Again, thank you for 

coming today. And I yield back. 

Mr. LANKFORD. Mr. Jordan. 

Mr. JORDAN. Thank you, Mr. Chairman. 

Ms. McMahon, in the previous questions, you indicated that you 

knew about this constitutional concern when you were putting together the proposed rule and then the final rule. Correct? 

Ms. MCMAHON. Congressman, we were aware of the question regarding Federal exchanges. I wouldn’t characterize it as a constitutional question. It was a—— 

Mr. JORDAN. You knew there was a controversy about how this 

was going to be interpreted, exchanges established by the State. 

You knew there was a concern, a controversy. 

Ms. MCMAHON. We knew that the issue had been raised. The 

first time—— 

75 

Mr. JORDAN. I guess what I’m getting at, you were aware of it 

but you didn’t think it rose to any level where it would require any 

different type of process to reach a conclusion. You just kept it 

within the same process that the IRS has when figuring out how 

we’re going to establish rules to implement legislation. Nothing 

unique done. 

Ms. MCMAHON. Well, we became aware of it by reading an article in a—— 

Mr. JORDAN. Did you do anything different than you would do for 

anything else is what I’m asking. 

Ms. MCMAHON. No. We followed our standard process—— 

Mr. JORDAN. Your established process. And just refresh my— 

quickly, if you can—what is that established process? I mean, do 

you have the final say? Is there a group of people who look at, 

here’s how we think—this is what we think the law says, here’s 

how we think it should work. A group gives you a recommendation. 

You give it a thumbs up or thumbs down, and then I assume ultimately it winds up on Doug Schulman’s desk, and he gives it the 

final okay. Is that sort of how it works? 

Ms. MCMAHON. Well, the process begins with an IRS–Treasury 

working group of staff attorneys who consider relevant issues arising in connection with the implementation of a particular code provision. They do—— 

Mr. JORDAN. Is that working group a formal number, or is it sort 

of ad hoc? It can be five people one day? It can be 20 the next? How 

does that work? 

Ms. MCMAHON. Well, usually, at the beginning of the rulemaking 

process, a group is identified, people who are subject matter experts. And that group comprises the working group for development of the regulation. 

Mr. JORDAN. Do you know who those people are? I mean, Mr. 

Lankford was hinting at this. Do you know some names off the top 

of your head, or are you going to get that to us? 

Ms. MCMAHON. As I said earlier, I can take that request back. 

Mr. JORDAN. Did you personally—did you get some of these—we 

had a letter that was signed by 24 Members of Congress, several 

doctors, Dr. Roe, Dr. DesJarlais signed the letter, Dr. Burgess and 

others. Do you know if that group or did—if you personally reviewed that letter citing concerns about this very issue? 

Ms. MCMAHON. Congressman, I’m not sure exactly which letter 

you’re referring to. If you give me the number—— 

Mr. JORDAN. We can make it available—— 

Ms. MCMAHON. —comment letters from Members of Congress, 

which we did consider. 

Mr. JORDAN. You did take a look at that. 

Do you know if—the proposed rule was, I guess, August 17th or 

sometime in August of 2011. The final rule was this May—or, excuse me, May of 2012. Is that—that—that right? 

Ms. MCMAHON. Yes. 

Mr. JORDAN. And in this decisionmaking process, we know that 

the director of implementation for the Affordable Care Act, Sarah 

Hall Ingram, came on board in December 2010 to help implement 

the Affordable Care Act. Was Miss Hall Ingram involved in the 

process of making the determination about this issue? 

76 

Ms. MCMAHON. Yes, Sarah Hall Ingram was involved in discussions about—generally about the development of the Section 

36B—— 

Mr. JORDAN. So there’s one of the people who was involved. So 

you can give us one name. Any other names you can give? We got 

Ms. McMahon; we know you were involved. We got Sarah Hall 

Ingram. Anyone else? Was Doug Schulman directly involved in this 

as well? Was Steve Miller? 

Ms. MCMAHON. Neither of those individuals was involved in the 

working group. But the—— 

Mr. JORDAN. But Sarah Hall Ingram was. 

Ms. MCMAHON. She was not involved, to the best of my recollection, in the working group of lawyers that worked on development 

of the regulation. But in the course of that process, a number of 

people, both within the IRS and Treasury who had involvement 

with ACA implementation, were briefed—— 

Mr. JORDAN. Was she extensively involved in this? 

Ms. MCMAHON. Unfortunately, I don’t recall. 

Mr. JORDAN. Thank you, Mr. Chairman. 

Mr. LANKFORD. Dr. DesJarlais. 

Mr. DESJARLAIS. Ms. McMahon, thank you for being here today. 

Secretary Lew’s chief of staff, Chris Weideman briefed the committee in November 2012 and stated that a thorough legal analysis 

was not conducted related to the availability of tax credits and Federal exchanges because it wasn’t one of the most significant issues 

considered in the 36B regulation. Was this also your perspective? 

Ms. MCMAHON. Congressman, I’m not familiar with Mr. 

Weideman’s comments. I could say for—from my own perspective, 

we did consider this question a serious issue. We analyzed it in a 

serious manner. 

Mr. DESJARLAIS. So you feel that you did do a thorough legal 

analysis. 

Ms. MCMAHON. Yes. 

Mr. DESJARLAIS. And can you give me examples of what that 

was? What was the thorough legal analysis? 

Ms. MCMAHON. Well, members of the IRS and Treasury working 

group looked very carefully at the provisions of 36B itself, at other 

relevant provisions of the Affordable Care Act, including sections 

1311 and 1321, which addressed the establishment of exchanges 

and, as I said earlier, make clear that the Federal exchange is intended to be the functional equivalent of State exchanges. There 

are other provisions of the ACA as well that relate to the advance 

payments, the premium tax credits. 

Mr. DESJARLAIS. Excuse me. Did anyone raise the issue that IRS’ 

and Treasury’s interpretation of tax credit availability in Federal 

exchanges would have enormous tax and spending implications? 

Ms. MCMAHON. Congressman, we believe that our interpretation 

of the statute is consistent with the way that the Affordable Care 

Act was scored by the Congressional Budget Office and the Joint 

Tax Committee. 

Mr. DESJARLAIS. Okay. That’s not the question I asked. Did the 

IRS or Treasury’s analysis at any point factor—at any point factor 

or consider whether Congress made tax credits available only in 

77 

State-based exchanges as an incentive for States to create exchanges? 

Ms. MCMAHON. When we became aware of the—this question, we 

also became aware that that was the rationale that was being suggested. 

Mr. DESJARLAIS. Do you have any evidence that the IRS or 

Treasury ever considered that Congress made tax credits available 

in the State-based exchanges as an incentive for States to create 

exchanges? 

Ms. MCMAHON. Congressman, in the course of our rulemaking 

process, we did look very carefully at all of the legislative history 

relating to the Affordable Care Act, and we found nothing to suggest that the incentive rationale that you’re suggesting—— 

Mr. DESJARLAIS. Is there any evidence to support that you did 

this—you say you did this, you say there was a thorough investigation. Is there evidence to support a thorough investigation? And remember we got, like, a half-page brief. Is there anything to show 

this? You say this, but we’re not seeing it. 

Ms. MCMAHON. I—Congressman, I would simply refer you to the 

letter that we sent this morning regarding our concerns with release of additional documentation. 

Mr. DESJARLAIS. Did Treasury factor into its analysis that 

Obamacare’s author created large financial incentives, such as an 

exchange establishment grants, to cover the cost of States creating 

exchanges and that the author failed to create any specific funding 

for the creation of Federal exchanges? 

Ms. MCMAHON. Congressman, I don’t recall whether that point 

was explicitly considered during our rulemaking process. 

Mr. DESJARLAIS. All right. On October 12, 2012, Mark Mazur, 

Assistant Secretary for Tax Policy, wrote a letter to Chairman Issa 

on the tax credit rule. Mazur wrote, Throughout the ACA, Congress 

refers to the exchanges as exchanges, exchanges established by a 

State and exchanges established under the ACA. There is no discernible pattern that suggests Congress intended the particular 

language in Section 36B to limit the availability of the tax credit. 

Did you review this letter? 

Ms. MCMAHON. Yes, I’m familiar with the letter. 

Mr. DESJARLAIS. Can you tell us how the IRS and Treasury 

searched for a pattern for references to ‘‘exchanges’’ in Obamacare? 

Ms. MCMAHON. Well, Congressman, IRS and Treasury staff attorneys looked through the Affordable Care Act and examined all 

of the references to ‘‘exchanges,’’ to try to determine whether there 

was any particular convention that Congress had used in describing State or Federal or exchanges or both. And as the letter indicates, we were not able to find it—— 

Mr. DESJARLAIS. When an agency looking on a complicated rule 

is searching for a pattern in the way Congress referred to certain 

terms, would you expect them to categorize or organize these results? I assume you would, but I don’t mean to put words in your 

mouth. 

Ms. MCMAHON. Well, Congressman, as I’ve said, our working 

group did a very thorough analysis—— 

Mr. DESJARLAIS. Did you categorize or organize the results? 

Ms. MCMAHON. I am not familiar with—— 

78 

Mr. DESJARLAIS. Okay. Do you know that the IRS and Treasury 

employees have admitted to committee staff that no one at either 

IRS or Treasury ever categorized or organized references to exchanges or exchanges established by a State and exchanges established under the ACA in any way? 

Ms. MCMAHON. Congressman, I am not familiar with the comments that you are referring to. 

Mr. DESJARLAIS. Do you think—do you think that it’s a problem 

that no one in IRS or Treasury categorized or organized all the references to exchanges established by the State under section 1311 

in order to determine whether a discernible pattern exists? 

Mr. LANKFORD. You can answer the question. I think we’re running close on time, but you can answer that. 

Ms. MCMAHON. Congressman, I—the IRS and Treasury working 

group did a very thorough analysis. And I am satisfied that their 

work appropriately looked at all of the relevant ACA provisions 

and I am satisfied with their conclusion that no discernible pattern 

existed. 

Mr. DESJARLAIS. But you can produce no evidence of such. 

Ms. MCMAHON. Congressman, I would simply refer you again to 

the letter we sent this morning in which we described our concerns 

with producing additional documentation. 

Mr. DESJARLAIS. Thank you, Ms. McMahon. 

Mr. LANKFORD. Mr. Cardenas. 

Mr. CARDENAS. Thank you very much, Mr. Chairman. 

My first question is, when it comes to the issue of availability of 

premium tax credits, which have been of interest to the majority 

since last fall, I understand that Treasury has responded to the 

majority’s request by providing documents, briefing, and in camera 

review of sensitive documents since last August, when the chairman made his first request for information. Ms. McMahon, would 

you recount for the committee the number of requests for information made by the majority on this issue? 

Ms. MCMAHON. Congressman, we have received a number of requests for information, both formal and informal. We have provided 

hundreds of pages of documents, including legal memoranda, some 

of which we made available for review in camera. Our staff has 

also met three times, for a total of 8 hours, with staff of this committee to explain our process in developing these regulations and 

the legal research and analysis that we conducted. 

Mr. CARDENAS. So when it comes to all of those requests between 

you and your staff and your team, how could your response be categorized? Is that you have been responsive to those requests or 

irresponsive? 

Ms. MCMAHON. Congressman, we have done the best that we can 

to provide the committee with the information that it needs, including answering many, many questions presented by the staff and 

providing a number of documents, including memoranda that describe our legal analysis. We are happy to continue working with 

the committee to provide additional information that you may 

need. But I believe that today we have been very responsive. 

Mr. CARDENAS. Thank you. 

While I still have time, Mr. Chairman, I want to take the opportunity to ask that we enter into the record this letter, dated July 

79 

31, the heading of Department of the Treasury, addressed to the 

Honorable Darrell Issa, Chairman of the Committee on Oversight 

and Government Reform. And it’s signed by Alastair M. Fitzpayne. 

If we can add that to the record. 

Mr. LANKFORD. Without objection. 

Mr. CARDENAS. Thank you. Thank you very much. 

In addition to that, I have some more questions. I understand 

that you and your staff have also participated in a number of briefings with committee staff. How many of these briefings have been 

held, and what amount of time had these briefings totaled for you 

and your staff? 

Ms. MCMAHON. Congressman, we participated in three separate 

briefings. I believe the total time that our staff spent was over 8 

hours. We had—— 

Mr. CARDENAS. In meetings, not including preparation. 

Ms. MCMAHON. No, in actual meetings with committee staff. 

That’s correct. 

Mr. CARDENAS. Isn’t it also true that Treasury has made available to committee staff a viewing of sensitive documents without 

redactions? 

Ms. MCMAHON. Yes, Congressman, that is correct. Some of the 

memoranda that we originally provided in physical copies were redacted. And when the committee staff requested to review the redacted material, we made unredacted versions of those memos 

available in camera for review. 

Mr. CARDENAS. I appreciate your responsiveness to this committee and to the staff and the efforts you have made to detail your 

rulemaking process as it relates to health insurance premium tax 

credits. 

Are the kinds of documents that Treasury has made available to 

the committee staff also potentially of interest to the plaintiffs in 

the two lawsuits in Oklahoma and the D.C. Federal Court? 

Ms. MCMAHON. Congressman, my expectation is that they—yes, 

they would be of interest to the plaintiffs in the litigation. 

Mr. CARDENAS. Because those documents are of the same issue; 

correct? 

Ms. MCMAHON. Yes, the documents that we provided at least in 

part relate to this question. 

Mr. CARDENAS. Okay. As my time is running short, one last 

question. Isn’t it true that the plaintiffs in those lawsuits have not 

yet started the discovery process because there are legal questions 

about whether or not their lawsuits have standing? 

Ms. MCMAHON. Congressman, the Department of Justice is handling the litigation for the administration. But I believe you’re correct, the litigation is at the very early stages. 

Mr. CARDENAS. Basically, it was a question, but I just stated a 

truth and a fact. 

Thank you very much, Mr. Chairman. 

Mr. LANKFORD. Mr. Woodall. 

Mr. WOODALL. Thank you, Mr. Chairman. 

Ms. McMahon, I very much appreciate you being here. Hope one 

day we’ll have a Republican administration. But I hope never to be 

sitting in the chair where you’re sitting. So I’m grateful to you for 

doing that, and your team that came with you; $600, $700 billion 

80 

question is a pretty heady material. I remember we had a former 

IRS Commissioner sitting in that chair who said he was absolutely 

satisfied that a very thorough examination had been done. It 

turned out he never even picked up the phone to call to find out 

if a thorough examination had been done. 

I know that’s not the case with you today. But you’ve said that 

several times. ‘‘The working group did a very thorough analysis,’’ 

you’ve said several times. ‘‘I’m satisfied,’’ you’ve said several times, 

‘‘I assure you that we had extensive discussions.’’ And yet we have 

so very little paperwork to support all of that. I reviewed the in 

camera materials that we’ve had a chance to see. But can you tell 

me, because this is—this is—is so important to my folks back 

home. They do read statutes that they get published as plain language. If it says ‘‘State exchange,’’ they think it means State exchange. 

Do you remember when these conversations were beginning, do 

you remember this being an important issue that this working 

group, this team was trying to sort out because the language of the 

statute was so plain? 

Ms. MCMAHON. Congressman, I do remember when the issue 

was first identified, largely because I was the one who first became 

aware that some individuals were suggesting as a possible interpretation of the relevant provisions that the credit would not be 

available in a Federal exchange. I read an article—— 

Mr. WOODALL. So the working group was already going on, the 

analysis had already begun, this thing was already robustly established and producing. And then you heard that this might be an 

alternative interpretation. Is that kind of the timeline? 

Ms. MCMAHON. Well, this was—at the time that we identified 

this issue, we were also at—in the early stages of the process, I 

would say. And were identifying a number of issues that would 

need to be resolved. 

Mr. WOODALL. Do you remember any discussion that said, golly, 

if we don’t resolve this in the affirmative, our entire vision of how 

these subsidies are going to be deployed across the country is going 

to come unraveled? I mean, again, this is a huge decision. If you 

decide the other direction, folks in my home State of Georgia aren’t 

going to receive any subsidies whatsoever. So that the import is— 

cannot be overstated. Do you remember any discussion that if said 

if we don’t get this right we are going to sweep out the foundation 

on which the President’s healthcare plan is established? 

Ms. MCMAHON. Congressman, I would say that we recognized 

that the interpretation that the credits would not be available on 

Federal exchanges was inconsistent with our understanding—— 

Mr. WOODALL. I’m asking a very different question. 

Again, I know you have a staff of professionals that you work 

with, but this is not an ordinary issue. This isn’t a—this isn’t a 

501(c)(4) issue, this isn’t a, can I claim a homeowner tax credit 

issue. This is the President’s landmark social agenda program 

going to be held to the statutory standard under which it was—was 

passed by Congress and signed by the President, I can’t imagine 

that this discussion was held at—at IRS headquarters and 

throughout the Treasury Department, and there was not some discussion of we’ve got to get this done. Is it your recollection that 

81 

that was never a topic of conversation? No one ever felt that sense 

of urgency that we’ve got to get this right because otherwise the 

President’s social agenda comes unraveled. 

Ms. MCMAHON. I—Congressman, we analyzed this question—— 

Mr. WOODALL. I understand that. And you’ve said that several 

times. But I’m asking a question that no one else has asked, so I’m 

expecting the answer to be something different than what you’ve 

given to everyone else, and that is, do you recall that topic ever 

coming up in all of these extensive discussions that you’ve had, the 

thorough analysis that you had, all of those conversations that satisfied you that this was done properly? And if the answer is no, 

that’s okay. I just wanted to know. 

Ms. MCMAHON. Congressman, as I’ve said, we appreciated the 

fact that the interpretation that you are suggesting would be inconsistent—— 

Mr. WOODALL. I don’t think you’re going to answer my question, 

and that frustrates me. 

Could I get the slide up here? Because I’ve just got four sentences that I’d like to put there on the board. This is the analysis 

that I saw in the pre-proposed regulatory language. Four sentences 

up here in this analysis. My friends at CRS, who are not burdened 

with the actual responsibility of implementing this, produced 10 

pages for us of pros and cons helping us work through what the 

issues were, what the patterns were, what the legal adoption was. 

Four sentences is what I—is what I’ve gotten from you all from the 

very extensive discussion groups, the very thorough analysis. And 

it says in sentence 4, The phrase ‘‘established by a State’’ may be 

interpreted to refer to an exchange established to operate in a 

State. 

Can I just ask you, what are the other exchanges? We’re going 

to interpret the phrase ‘‘established by a State’’ to mean these can 

be the ones that are established to operate in a State. What are 

the other exchanges that this phrase doesn’t refer to? ‘‘Established 

by a State’’ may be interpreted to refer to an exchange established 

to operate in a State. What are the other exchanges that we’re concerned about. We’re going to interpret this one to mean these exchanges. What are the other exchanges that it could be interpreted 

to mean? 

Ms. MCMAHON. Well, Congressman, in addition to the exchanges 

established by a State, there are obviously Federally-facilitated exchanges. 

Mr. WOODALL. The different exchanges. The ones that aren’t 

these, the ones that are the other ones. Because I think that’s exactly what my folks back home think, that you’re exactly right. 

They’re the ones that are established by a State, then there are all 

the other ones that aren’t established by a State, which is why we 

had this language in here. 

Mr. Chairman, there’s no mention of this issue in the proposed 

reg clearance package. And I just find it unbelievable that as a 

freshman member on this committee, first-year member of this 

committee, I can’t see the documentation that was produced for 

folks that say it was an extensive discussion, it was a very thorough analysis. I get four sentences and some in camera documents 

for something that is the largest single dollar value issue that this 

82 

Congress and this Nation are going to consider in 2013. I thank the 

chairman. 

Mr. LANKFORD. Thank you. 

With that, I recognize ranking member Mrs. Speier. 

Ms. SPEIER. Mr. Chairman, I must say that I am deeply troubled 

by the attack approach that is taken by virtually every other member of the Republican side of the committee, with the exception of 

you. You, for the most part, have shown great deference to the witnesses, speak politely to them, ask questions in a manner that they 

can answer. 

This is not a courtroom. I think bullying witnesses that come before us is inappropriate as colleagues that sit here in an effort to 

try and find out information. 

Now, having said that, I find it particularly interesting that we 

will dice and splice the language and the law and regulation here 

in the Affordable Care Act, but in the IRS code that specifically 

says that a 501(c)(4) will be exclusively for the social welfare purposes in this country, and then the IRS comes in and by regulation 

changes ‘‘exclusively’’ to ‘‘primarily,’’ we haven’t had one iota of an 

interest in delving into that particular issue. Instead, we have 

spent months looking at the IRS and trying to find a link between 

the White House and the IRS with the establishment of 501(c)(4)s 

that were conservative in nature. And then, lo and behold, we find 

out that they were treating 501(c)(4) applications that were progressive and conservative the same. And they were looking at 

them. Well, the reason why they were looking at them is because 

it’s really hard to understand where that line is drawn. 

But the discussion that went on earlier today about how it would 

be absolutely outrageous for a regulatory entity to obscure a statute, which was what our first panelists were talking about, for the 

most part, it kind of like doesn’t relate when it comes to the IRS. 

And I think that’s just quite entertaining, at the very least. 

Now, Ms. McMahon, I thank you for being here. I want you to 

know you’re not being treated any differently than any other administrative person that comes to this committee and is raked over 

the coals by my colleagues on the other side of the aisle. And I regret that, and I apologize on their behalf, with the exception of the 

chairman, who has always shown great discretion. 

Now, let’s go on and discuss this issue. 

Is it not true that this particular bill, the Affordable Care Act, 

was debated ad nauseam in the Congress of the United States? 

Maybe not ad nauseam, but deliberatively and extensively. 

Ms. MCMAHON. Yes. 

Ms. SPEIER. All right. So we had a robust legislative debate on 

this issue. The Senate Finance Committee alone marked up the bill 

for more than 3 weeks, producing a transcript of nearly 3,000 

pages. The subsequent floor debate lasted more than 1 month. 

Now, I recognize many of my colleagues weren’t here at the time. 

I was. And it reflected more than 400 pages in the Congressional 

record. 

If, in fact, the intention was to create a carrot-and-stick relationship with the States, don’t we think that at some point in time that 

would have been raised by someone? 

83 

Ms. MCMAHON. Yes, Congresswoman Speier, we—we reviewed 

the transcripts of the floor debates to try to find out if there was 

any discussion of the carrot/stick approach that you mentioned. 

And we did not find any discussion of that approach or any evidence that that was the approach that was intended. 

Ms. SPEIER. And wouldn’t it be something that would reflect 

poorly on Members of Congress that we would only want to give 

the value of affordable health insurance to some people in the 

country and not all people in the country? 

Ms. MCMAHON. Congresswoman, we believe that the Affordable 

Care Act was intended to provide affordable health insurance for 

individuals across the country. We agree with that objective, and 

we are doing our best to implement the ACA in a manner consistent with that objective. 

Ms. SPEIER. So copious documents were reviewed, the references 

to a premium tax credit that would be offered to exchanges in the 

State was not ever set forth as one that was going to be a benefit 

only to those States that offered exchanges. Correct? 

Ms. MCMAHON. That’s correct. We did not find any evidence in 

our review of legislative history that there was any intent to exclude the Federal exchanges from the scope of the premium tax 

credit. 

Ms. SPEIER. We had a request of the chairman of this committee 

to the Congressional Budget Office, and the CBO wrote back, ‘‘To 

the best of our recollection, the possibility that those subsidies 

would only be available in States that created their own exchanges 

did not arise during the discussions CBO staff had with a wide 

range of Congressional staff when the legislation was being considered.’’ 

Is that consistent with your experience in having researched this 

issue as well? 

Ms. MCMAHON. Yes, Congresswoman, that is consistent, that letter is consistent with our understanding. 

Ms. SPEIER. All right. So, based on the transcript from the Senate Finance Committee, the floor debates, and the full Congressional record, do you believe that Treasury’s interpretation of exchanges was reasonable? 

Ms. MCMAHON. Yes. I believe it was reasonable and indeed the 

better interpretation of the statute. 

Ms. SPEIER. Thank you, Mr. Chairman. 

You’ve been very generous. I yield back. 

Mr. LANKFORD. Dr. Gosar. 

Mr. GOSAR. Well, presentation of facts. 

Ms. McMahon, are you—are you aware that the IRS and Treasury’s analysis of relevant legislative history considered the House 

bill and House floor statements prior to December 24th of 2009? 

You actually reviewed prior bills before—— 

Ms. MCMAHON. I believe that the prior bills were taken into account—— 

Mr. GOSAR. Isn’t it true that the House passed the exact same 

version of Obamacare as the Senate passed? Let me rephrase it 

again. Isn’t it true the House passed the exact same version of 

Obamacare as the Senate passed? I mean, Scott Brown may—have 

I think it’s an easy answer. 

84 

Ms. MCMAHON. I believe that’s correct. 

Mr. GOSAR. It is a yes. 

Isn’t it also true that the House debate prior to the passage of 

Obamacare in the Senate on December 24, 2009 cannot be considered relevant legislative history? So prior to taking this up, so prior 

to December 24th, that history prior to that cannot be brought up. 

It’s not relevant. 

Ms. MCMAHON. I’m not sure that we can make—I can make an 

equivocal statement—— 

Mr. GOSAR. How long have you been in your post? 

Ms. MCMAHON. I have been in my particular job at the Treasury 

Department for 4 years, approximately. 

Mr. GOSAR. Okay. Do you recognize that a search of the House 

debate prior to December 24, 2009 was inappropriate and could not 

be considered relevant legislative history? 

Ms. MCMAHON. Congressman, I’m afraid I—— 

Mr. GOSAR. The answer is yes. The answer is yes. 

Ms. MCMAHON. Well, Congressman, I’m afraid I don’t really understand the question—— 

Mr. GOSAR. Well, you’re taking prior information, you’re taking 

that what was actually debated on the House that had nothing to 

do with the Senate version. Because what I asked you is, the House 

passed the exact version of the Senate, did it not? It did. So the 

relevant aspect does not apply. It is not inappropriate to consider 

that discussion prior to December 24th, 2009 in discussions of what 

the law means. 

Ms. MCMAHON. Congressman, with all due respect—— 

Mr. GOSAR. See, I’m really having problems here because, see, 

I’m a dentist. And details are a lot to me. The beauty is in the detail. And I’m having some real problems here that we pick and 

choose whatever information we want to and the facts that we 

want to. So let’s continue. In the briefings, Treasury and IRS employees told committee staff that the review of the legislative history did not review—include a review of PPACA’s two antecedent 

bills. To the best of your knowledge, is it true that the review of 

the legislative history did not include a review of PPACA’s antecedent bills? 

Ms. MCMAHON. Congressman, I would have to go back and ask 

that question of the Treasury staff. I can’t recall at this point the 

answer to that question. 

Mr. GOSAR. This is—I mean, here we’re talking about something 

that I know a little bit about, about healthcare, about something 

so personable to people that we ought to get this right. 

I’m going to ask you again. Are you aware that the antecedent 

Senate bills condition premium tax credits on State compliance? 

Ms. MCMAHON. Congressman, I am unfortunately not prepared 

to discuss the antecedent bills. I’m happy to take the question back 

and provide you with an answer later. 

Mr. GOSAR. Do you think the questions I’m asking are relevant? 

These antecedent bills, are they not relevant? 

Ms. SPEIER. Mr. Chairman. 

Mr. GOSAR. I do not yield. 

85 

Ms. MCMAHON. Congressman, I am not suggesting that your 

question is irrelevant. You are obviously entitled to ask any question that you like. And we will do our best to answer your question. 

Mr. GOSAR. This is very important, don’t you think? I mean, you 

know, in constructing this legislative agenda and looking at this, 

the beauty is in the details. And this is very, very pertinent information very, very pertinent information. Because what I see here 

is we have this Senate bill, and it came over to the House, and they 

passed it verbatim. No changes. Because they couldn’t afford the 

changes. Because, I mean, that’s where I want to go to next, is this 

letter from the House. 

At the April briefing you had with committee staff, you were 

shown a letter that Texas Democrats in the House sent to President Obama, then Speaker Nancy Pelosi, and then Majority Leader 

Steny Hoyer. During that briefing, you stated that that was the 

first time you had seen the letter. Is that correct? 

Ms. MCMAHON. That is correct. 

Mr. GOSAR. Did anyone at IRS and Treasury consider that unusual circumstances of the passage of PPACA, more specifically, 

the election of Scott Brown in January of 2010, meant House 

Democrats needed to pass a Senate bill that they knew was flawed 

or not pass a bill at all? You are aware of the numbers in the Senate, right? So it wasn’t going to move unless it was exactly the 

same bill. 

Ms. MCMAHON. I am aware of generally of the process that led 

up to enactment of the Affordable Care Act. I cannot tell you in detail whether the particular—the political aspects of that that were 

considered in a manner you are suggesting. 

Mr. GOSAR. I think this is very important, ma’am. Because it is 

very pertinent to the law. Because the Senate bill is very poignant 

to State-run exchanges. It doesn’t talk about Federal exchanges or 

those States that opt out. It only talks about State exchanges. And 

that’s what’s so interesting about this context, is the beauty is in 

the details. We’re not entitled to pick and choose if it doesn’t exist 

in statute. And that’s why this is meaningful. And that’s why we 

want answers to all these questions. So I would expect the answers 

back. 

I yield back, Mr. Chairman. 

Mr. LANKFORD. Thank you. 

Ms. McMahon, let me ask a separate question. And it deals with 

the advance subsidy of the tax credit. Those tax credits are going 

to be sent to those who qualify monthly. Doesn’t get sent to them; 

it gets sent to their insurer, correct, their qualified health plan? 

Ms. MCMAHON. That’s right, to the insurance. 

Mr. LANKFORD. So I’m going to give you a hypothetical situation, 

just trying to process through this. We’ve got a person that qualifies for it. They sign up. They go through the process. Payments 

start getting sent. Four months into it, the individual stops paying 

their portion; the government still continuing to pay theirs. The individual stops paying their portion. Is there a system in place for 

the insureds to notify the IRS to let them know, hey, this person 

stopped paying? And do we know yet how that is going to function? 

I know that is separate—somewhat connected to I think where 

86 

you’re at. But do we know yet how it’s going to work? That’s a recent question that’s come up. 

Ms. MCMAHON. Congressman, that is an aspect of the implementation of the Affordable Care Act that I am not personally involved 

with; the IRS is handling, I believe, those sorts of questions. 

Mr. LANKFORD. Okay. It’s an interesting thing that we’re just 

processing. I didn’t know if you were connected in that group at all, 

what it may be. We don’t know yet how, if someone stops paying 

at some point, how everybody is going to be notified or what the 

consequences for that are or how it’s going to work. 

The reference that we’ve talked about a couple times about the 

‘‘such exchanges’’ piece, Treasury has argued that the ‘‘such exchange’’ in 1321 refers back to 1311, really puts them as equivalent. Is that correct? 

Ms. MCMAHON. Yes, that’s correct. 

Mr. LANKFORD. In the memo, that seems to be the crux of the 

argument to say that they connect it to. In the reconciliation report, though, it lists them separately. It lists a 1311 and a 1321 

and keeps them separate. And I think part of the struggle that we 

have is trying to figure out the reconciliation language seems to 

keep the Federal and the State exchanges different. They don’t just 

refer to the—if they are equivalent, why refer to both and keep 

them separate? So there is some ambiguity in the law. And I know 

the earlier panel, you weren’t privy to be able to hear some of the 

earlier conversation. But this ongoing conversation about what 

does the statute say and what does the statute mean or what is 

the purpose of it? A couple times you’ve referenced that you felt 

like it was the purpose of the law to be able to provide this coverage. We’re struggling with what the text of the law says. And 

that’s a part of the challenge of it. 

You also mentioned you went back through legislative history 

and couldn’t find anything that had the carrot and the stick approach. Did you also find anything through the legislative history 

that you can recall about suggesting there would be tax credits for 

those that are in Federal exchanges? 

Ms. MCMAHON. In our review of the legislative history, we did 

not find any specific references to the premium tax credit being 

available in either State exchanges or Federal exchanges, is my 

recollection. They are—our review of the legislative history was 

consistent with our understanding of the purpose of the Affordable 

Care Act, which was that the credits would be available in all exchanges, whether State or federally facilitated. 

Mr. LANKFORD. Okay. During the briefing, you mentioned the 

three different briefings and the request for documents that came 

up. That there were about 50 emails that Treasury considers privileged emails that are related to this topic. Would there be a day 

at some point we could see those things even in camera, evaluate 

these 50 emails? Do you know why they would be considered privileged information? 

Ms. MCMAHON. Mr. Chairman, the letter that we sent this morning explains our concerns with the release of additional documents. 

That being said, I mean, we are still in ongoing discussions with 

your staff about providing you with any additional information that 

you may need, and we’re happy to continue those conversations. 

87 

Mr. LANKFORD. Okay. I just note that I’ve dealt with counsel before. And attorneys, they take copious notes, as your staff behind 

you is currently taking copious notes as well, rightfully so, the 

right thing to do. And that’s part of our challenge of this, is that 

we know that those notes would have occurred because it’s important when you deal with issues this large. And obviously $600 billion-plus decision is going to have some sort of note taking through 

the conversation, how that actually occurred and then track with 

it. We’d just like to have to opportunity to be able to know did that 

function in the days ahead. 

With that, I recognize ranking member Ms. Speier. 

Ms. SPEIER. Mr. Chairman, I’m going to forgo asking any additional questions but reserve my right, depending on how the rest 

of the questioning goes. 

Mr. LANKFORD. Mr. Woodall. 

Mr. WOODALL. Thank you, Mr. Chairman. 

The—I think that Ms. Speier is absolutely right, that for everybody who works in the executive branch—you do deserve an apology. You deserve an apology from Democrats, who refuse to do good 

oversight on Democratic administrations, and Republicans, who 

refuse to do good oversight on Republican administrations. That— 

that issue that Ms. Speier cites is spot on. It’s outrageous that the 

Congress passed a statute that said ‘‘exclusively,’’ and we’ve been 

operating under an IRS regulation that says ‘‘primarily,’’ and absolutely no one is doing anything about it. And for the life of me, I 

don’t understand how we advantage those of you in public service 

when we pass statutes and then refuse to follow up and make sure 

those statutes are implemented. 

I want to ask my question again because I think you’re very 

proud of your team and I think you’re very proud of the work your 

team has done. And I’m thinking only one of two things are true 

of all the discussions you’ve been involved in on this issue: Either 

folks have talked about how important this is to the President’s 

agenda, and that we need to come down on that side of the issue 

in order to make that domestic social policy a reality, or those conversations have never occurred at all. It would be shocking to me 

that folks—we all like to work on a team. I’ve sat on the same row 

that your staffers have sat on behind you. We all want to see our— 

our ideas succeed, and we want to see the American people served. 

Do you recall, in all of these extensive conversations, all of this 

aggressive review of the $600 to $700 billion question, do you recall 

any conversation about how important it was to get to this interpretation because without this interpretation, the President’s chief 

domestic policy agenda would crumble? 

Ms. MCMAHON. Congressman, I do not recall conversations of the 

specific type that you describe. We did, as I’ve said, a very careful 

and thorough analysis of the statute. We recognized that the interpretation that was being put forward that the credit would not be 

available in Federal exchanges would have been a very different 

approach than we believe was contemplated by the Affordable Care 

Act. We appreciated that it would have been a very significant difference. However, we analyzed this question, applying longstanding 

principles of statutory construction—— 

88 

Mr. WOODALL. I appreciate your answer earlier, where you said 

no reasonableness. This wasn’t a reasonable interpretation, this 

was a proper interpretation. Right? We don’t want folks to try to 

get to the reasonable interpretation; we want them to get to the 

proper interpretation. I appreciate your emphasis on that. 

Let me go pack to something Mr. Cartwright asked earlier, and 

Ms. Speier may have touched on it as well, talking about how Tax 

Code treats people in different States differently. I remember when 

we passed the sales tax deduction. And up until then, we only gave 

a deduction for State taxes to those citizens in States that had 

State income taxes. If you didn’t have a State income tax, you 

didn’t benefit from this proposal. In the statute that we’re talking 

about today, we said, if you do what we want you to do, you’ll get 

your full Medicaid allotment of dollars. But if you don’t do what we 

want you to do, you’re not going to get any Medicaid dollars at all. 

Quite contrary to that larger purpose of trying to provide care for 

everyone in America, this statute said explicitly not only are you 

not going to get care tomorrow, we’re going to take away the dollars that you’re using to get care today. And the Supreme Court 

rightfully said that’s an outrageous use of Federal power. 

So it seems like there are lots of examples in our history, in our 

present, of using the Tax Code to treat some people in some States 

differently than we do people in other States. And to use the Affordable Care Act as a hammer, not a carrot approach, but the 

stick. 

Did you consider those things—and do you agree with my analysis of those two circumstances as they exist today? And did you 

consider those in the analysis that you performed? 

Ms. MCMAHON. Congressman, I mean, yes. We are aware of the 

provisions that you describe relating to Medicaid and the State—— 

Mr. WOODALL. The stick approach as opposed to the carrot approach. 

Ms. MCMAHON. However, as I’ve said, in our review of the legislative history, including the floor debates, we found no evidence 

that there was any discussion of the carrot/stick approach in connection with the premium tax credits. 

Mr. WOODALL. But it is consistent with past IRS practice to treat 

folks in some States differently than we treat folks in other States 

based on statute. Only those with income taxes get to deduct income taxes; only those with State exchanges get to deduct insurance premiums. That’s consistent with past practice. 

Ms. MCMAHON. Congressman, you are correct that taxpayers in 

States that have no income tax are entitled to deduct their sales 

taxes. That is not an IRS practice. It is a provision of the Internal 

Revenue Code. 

Mr. WOODALL. Because the statute chose to treat people in some 

States differently than it chose to treat people in other States. 

Again, I thank you very much for being here. Thank you, Mr. 

Chairman. 

Mr. GOSAR. [Presiding.] I think the gentleman. 

Ms. Speier. 

Ms. SPEIER. I’m going to thank Ms. McMahon for being here. You 

did yeoman’s work under taxing circumstances. And we thank you 

for your service to our country. 

89 

Ms. MCMAHON. Thank you, Congresswoman. 

Mr. GOSAR. Thank the gentlelady. 

I thought for a second I saw a smile. Warm a dentist’s heart. I’m 

going to ask a few more questions, and you’re holding up well. So 

continue that smile. 

Prior to the release of the proposed rule in August of 2011, 

Treasury produced a proposed regulation clearance package, August of 2011. In this clearance package, the issue of whether subsidies would be available in Federal exchanges is not even mentioned. Why not? 

Ms. MCMAHON. Congressman, I don’t recall. I did not prepare 

the memo that you are referring to. I don’t recall why the issue was 

not included in the memo. However, I do know that the issue was 

discussed and considered actively before the issuance of the proposed regulations. 

Mr. GOSAR. Who at Treasury produced this clearance package? 

Ms. MCMAHON. I don’t have it in front of me, but it is usually 

the staff attorney within the office of tax policy who is the principal 

liaison to the IRS Treasury working group that works on the regulations. I think the memo that you were referring to was produced 

by David Gamage, who was that attorney at the time. 

Mr. GOSAR. Make sure we have that access, please. That answer. 

Make sure it’s specific. I know you gave us the answer but you 

were kind of unsure. 

Ms. MCMAHON. I can certainly provide that. 

Mr. GOSAR. Thank you. You were part of a team that briefed 

committee staff in April on IRS and Treasury’s decision to extend 

tax credits in Federal exchanges. Do you recall Rebecca Ewing or 

your staff telling committee staff that in the early stages, there 

were no real discussions of whether tax credits would be available 

in Federal exchanges, and that a conclusion was quickly made that 

tax credits would be available in all States? 

Ms. MCMAHON. Congressman, to the best of my recollection, 

what our staff said at that briefing was that originally the working 

group had assumed that the premium tax credits would be available in both State and federally facilitated exchanges, because that 

was consistent with their understanding of the Affordable Care 

Act. However, when we identified this interpretive question after 

reading a press article, at that point there was discussion of that 

question and analysis performed. 

Mr. GOSAR. And as a follow-up, if 1311 and 1321 exchanges are 

equivalent, as the administration argues, why was it necessary to 

mention both Sections 1311 and 1321 in the reporting requirement 

added by reconciliation? 

Ms. MCMAHON. Congressman, I really don’t know why there was 

a difference in the language used in the reporting—information reporting provision that you cite and other portions of Section 36B. 

As I’ve said, we did look at not only 36B, but other provisions of 

the ACA, and we were not able to find a clear pattern for when 

references to ‘‘exchange’’ or ‘‘exchange established by a State’’ or 

‘‘Federal and State exchanges’’ were used. 

Mr. GOSAR. I just guess my point is, if they were the same, 

wouldn’t mentioning 1311 be sufficient? I mean, I’m also one of 

those clear path of least resistance, two points of reference. If 

90 

they’re all the same, 1311, that’s all you’d have to do. So it shows 

us a moniker that there’s some kind of problems here statutorily. 

Ms. MCMAHON. Well, Congressman, there are other relevant provisions of the ACA that refer simply to an exchange, including provisions relating to advance payments of the premium tax credit and 

determinations of eligibility for the premium tax credit. And the 

term ‘‘exchange’’ is defined broadly to include both State and Federal exchanges. 

Mr. GOSAR. But the Senate bill is about State exchanges, not 

about Federal exchanges. 

Now, did anyone at IRS or Treasury consider that Congress referenced both 1311 and 1321 exchanges because they intended those 

exchanges to be treated differently? 

Ms. MCMAHON. Congressman, our interpretation of Sections 

1311 and 1321 was that, in fact, Congress intended them to be 

functional equivalents, that the Federal exchange would be a functional equivalent of—— 

Mr. GOSAR. So I guess my point, not to interrupt you here, but 

I have to, is, is that the Federal bill or the Senate bill talks only 

about State exchanges for these subsidies. I mean, this is a sticking 

point. 

See, we have this balance. There’s the judicial branch, the executive branch, and the legislative branch. And what we have to start 

doing is, is when we write poor legislation, we have to acknowledge 

we have got poor legislation. And we can’t have the judicial branch 

stepping in or the executive branch messing into that. It has to go 

back and redefined. There are consequences for writing bad language. Do you understand that? We can’t go in here with judicial 

branch going and intercepting the legislative branch. It doesn’t 

work. And that’s why we’re in a sticking point right here. Do you 

understand that? 

Because it seems like we’re missing—we’ve got a bunch of eggs 

here, and we’re mixing eggs right and left, lemons, oranges, everything in that basket. We looked at details on House legislation 

prior to December 24th, 2009, and yet the House passed the exact 

same version of the Senate bill. This is where our problem is and 

this is kind of the sticking point. 

Prior to your April 2013 briefing with committee staff, did you 

ever raise a point that the law referenced exchanges established by 

the Senate under Section 1311 only when Congress was making requests for States for actions? 

Ms. MCMAHON. I’m sorry, Congressman. I’m not sure what 

you’re asking. Did I raise this question when? 

Mr. GOSAR. In April of 2013, this year in April, did you ever raise 

the point that the law referenced exchanges established by the 

State under Section 1311 only when Congress was making requests 

for States for actions? 

Ms. MCMAHON. Congressman, we considered the language of 

1311 and 1321 in conjunction with our development of the proposed 

regulations, which occurred in 2010 and 2011. 

Mr. GOSAR. Can you do follow-up for any evidence that you may 

be able to provide along those lines? 

91 

Ms. MCMAHON. Congressman, I can take your request for additional information back and we will see if we can provide you with 

additional information. 

Mr. GOSAR. I would hope so. 

Mr. GOSAR. Before it was ruled unconstitutional by the Supreme 

Court, the PPACA withdrew all Medicaid funds to States that did 

not expand Medicaid. Withdrawing all Medicaid funds in noncompliant States also appears inconsistent with the purpose to 

make health insurance affordable for all Americans who cannot 

otherwise afford it. 

Was the decision to withdraw all Medicaid funds consistent with 

the purpose to expand health insurance? 

Ms. MCMAHON. Congressman, I am not an expert on Medicaid, 

but I believe that the particular provisions relating to Medicaid 

and the situation you describe were well known at the time of the 

enactment of the Affordable Care Act, and the consequences to the 

States of expanding or not expanding Medicaid were discussed at 

the time. 

Mr. GOSAR. So did you see any parallels, did you personally see 

any parallels with how we restricted or looked at the restriction of 

Medicaid funds to States with parallels for exchanges in the 

State—in States? 

Ms. MCMAHON. Congressman—— 

Mr. GOSAR. Was that part of an analysis of it? 

Ms. MCMAHON. As I’ve said, we did not find any evidence in the 

legislative history that Congress intended a carrot-and-stick approach with respect to the premium tax credit. In contrast to that, 

the provisions you describe relating to Medicaid were discussed and 

debated at the time of the passage of the Affordable Care Act. 

Mr. GOSAR. So do you recognize that, looking at this law, that 

there are applications that would actually expand insurance under 

this law, health insurance under this law? Do you recognize that? 

Ms. MCMAHON. Congressman, the purpose of the Affordable Care 

Act overall—— 

Mr. GOSAR. I don’t want that purpose, I want your personal evaluation. There’s inadequacies here that are actually going to stymie 

health insurance for individuals. Do you agree with that? 

Ms. MCMAHON. Congressman, we are concerned, obviously, that 

States that choose not to expand Medicaid—— 

Mr. GOSAR. Well, even those States that take it, there’s a problem here. Do you not see that there’s a conflict in the way the application of the law, regardless of how we apply this, that there’s 

going to be an inadequacy about how we actually get insurance to 

individuals? Isn’t there individuals that are going to be hurt by this 

law in getting healthcare insurance? 

Ms. MCMAHON. Congressman, unfortunately, I am not an expert 

in Medicaid, and the Medicaid program is not within the jurisdiction of the Treasury Department. 

Mr. GOSAR. Okay. So let me go to this. Was the withdrawal of 

Medicaid funding ever discussed by the IRS or Treasury during 

their analysis? 

Ms. MCMAHON. I’m afraid I don’t recall whether that question 

was specifically discussed. 

Mr. GOSAR. If we could ask staff to follow up on that. 

92 

Mr. GOSAR. I’ve got two more. Okay. 

Prior to your April 2013 briefing with committee staff, did anyone at IRS or Treasury bring up that the reconciliation bill explicitly created equivalence between territorial exchanges and exchanges established by the Senate and State? 

Ms. MCMAHON. Congressman, I’m afraid I don’t know the answer 

to that question either off the top of my head. 

Mr. GOSAR. So will you supply the answer? 

Ms. MCMAHON. I can take that question. 

Mr. GOSAR. Yeah. And last but not least. Did anyone at IRS or 

Treasury consider that Congress, as they did with U.S. territories, 

could have explicitly offered tax credits in Federal exchanges 

through reconciliation? 

Ms. MCMAHON. Congressman, as I’ve said, we believe that our 

interpretation was consistent with the provisions of the statute as 

a whole, as it was finally enacted. I don’t know personally whether 

the working group considered the language of the antecedent bills 

in their analysis. 

Mr. GOSAR. Thank you. 

I’m going to yield back to the chairman of the full committee. 

Mr. ISSA. [Presiding] You’re nearly done. This is almost administrative, but I’d like to go through a couple of things with you. You 

used a term just now, perhaps you could repeat it: You tried to 

work consistent with the final enactment of the bill. Could you repeat what you said? Or I can have it read back. 

Ms. MCMAHON. I believe what I was trying to say was that in 

our rulemaking process we analyzed the Affordable Care Act in its 

final form in the manner in which it was finally enacted. 

Mr. ISSA. Okay. Well, let’s take that, because you’re a political 

appointee. Your job is to do the bidding of the President. The people who did the analysis, I assume, are political appointees who did 

the bidding of the President. The President wanted the Affordable 

Care Act and clearly wanted it to be as broad as he could even 

when States pushed back and said no. Is that a fair statement, at 

least from this side of the dais? 

Ms. MCMAHON. With all due respect, I do not believe that—— 

Mr. ISSA. Are you a political appointee? 

Ms. MCMAHON. I am personally a—— 

Mr. ISSA. Were the other individuals involved in the analysis primarily political appointees? 

Ms. MCMAHON. No. In fact, they were not. The working group of 

tax lawyers that did most of the work on development of these regulations included career IRS staff attorneys in the Office of Chief 

Counsel and nonpolitical staff attorneys in Treasury’s Office of 

Tax—— 

Mr. ISSA. Well, great. Then where the hell’s the paper on that? 

Quite frankly, you claim to have sent me 500 pages. We got 386 

pages, and 154 of them are the proposed rule itself. Where is the 

analysis? Congress doesn’t agree with you, at least the House of 

Representatives, that your rule is consistent with the law. We 

asked for the analysis. You’ve stonewalled us. Where is the analysis? 

Or are we going to get into the deliberative process? Are we 

going to get in to how you decide to make a decision that’s not supVerDate Aug 31 2005 10:04 Nov 26, 2013 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6633 C:\DOCS\85358.TXT APRIL
93 

ported in the law? You’re not going to give us papers that effectively tell where that is. Are you prepared today to say you’ve given 

us full discovery when you say you have career lawyers who 

worked on this? Where are the notes, recommendations, analysis 

that we asked for? 

Ms. MCMAHON. Mr. Chairman, Al Fitzpayne of the Treasury Department sent a letter to you and others this morning that explains 

our concerns relating to confidentiality and sensitivities relating to 

the active, ongoing litigation, concerns relating to our—your requests for additional documentation. 

That being said, his letter did describe the documents that we— 

additional documents to the ones that you have seen that we discovered in our internal search, and—— 

Mr. ISSA. Well, let’s go through your search. $600 billion this 

bill’s going to cost, and you tell us there’s 50 emails that are responsive to that. Is that really what you’re saying? Did you not use 

email at Treasury? 

Ms. MCMAHON. Mr. Chairman, I have not personally reviewed 

all of the documents that were discovered in the—— 

Mr. ISSA. Okay. So it’s very possible that there are more documents. 

Ms. MCMAHON. Mr. Chairman, I simply don’t know. I did not 

perform the internal search. That was not done by—— 

Mr. ISSA. Okay. Well, let’s go through it. The deliberative process 

behind—in this letter that arrives in anticipation of your being 

here, I suspect. Your letter also requests information concerning 

deliberative process behind 36B regulations. In addition, you describe a telephone conversation with Treasury staff from March 

2013 regarding such information. We disagree with your description, but you’ve given us no information. 

I’m going to send you back with a couple of things here today. 

One of them is this body has every right to the most sensitive information, period. Now, every day we have State Department deliver us classified information related to Benghazi. The keeper sits 

there, people who are cleared for classified information go through 

that. 

If Treasury wants to make sure that information that is known 

to be such that you do not want it subject to release because of ongoing litigation, tag it, bring it in here, let us look at it. 

If I do not get either in camera all discovery or hauling it back 

and forth as appropriate and full disclosure, not only will I issue 

a subpoena, but I’m going to have to do a lot more. 

The American people are about to spend more money on this program perhaps than any other program launched in its infancy. This 

is very expensive. 

And you mentioned Medicaid. Obamacare is effectively simply a 

Federal-pays-both-sides large Medicaid program. That’s really what 

it’s becoming. The Federal taxpayers are going to be on the hook 

for huge amounts of money. 

All we’re asking for is that you obey the law as written and you 

provide us information when we believe that you created a rule 

that the last panel couldn’t find actual language that would allow 

you to have that interpretation. 

94 

You’ve said here today under oath that in fact you had a significant number of people, career professionals who did analysis. 

You’ve given this committee no such analysis. 

I’m sending you back very simply. You were pretty close to a useless witness who came saying, I don’t know. And if history is of any 

indication, the things you said you’ll take back for the record, you 

won’t come back with any answers. You didn’t send 500 pages. You 

didn’t send 386 responsive pages. You sent almost nothing. 

The American people, if they’re going to spend trillions of dollars 

and if they’re going to have mandates that are not within the language of the legislation, they deserve that analysis, they deserve it 

to be nonpolitical, they deserve it to in fact have come out of something other than political appointees figuring out how to circumvent a change in the House of Representatives. It’s that simple. 

Thank you for being here. Do you have anything in closing? 

Ms. MCMAHON. No, Mr. Chairman. 

Mr. ISSA. Thank you. We’re adjourned. 

[Whereupon, at 1:59 p.m., the subcommittee was adjourned.] 

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