[Senate Hearing 114-215]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 114-215
 
                   KING V. BURWELL SUPREME COURT CASE
                  AND CONGRESSIONAL ACTION THAT CAN BE
                   TAKEN TO PROTECT SMALL BUSINESSES
                          AND THEIR EMPLOYEES

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 29, 2015

                               __________

    Printed for the Committee on Small Business and Entrepreneurship
    
    
    
    
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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED FOURTEENTH CONGRESS

                              ----------                              
                   DAVID VITTER, Louisiana, Chairman
              BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 JEANNE SHAHEEN, New Hampshire
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
                  Zak Baig, Republican Staff Director
                 Ann Jacobs, Democratic Staff Director
                 
                 
                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana..     1
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire..........    40

                               Witnesses

Cannon, Michael F., Director of Health Policy Studies, Cato 
  Institute, Washington, DC......................................     3
Blumberg, Linda J., Senior Fellow, Urban Institute, Washington, 
  DC.............................................................     9
Anderson, Jeffrey H., Executive Director, The 2017 Project, 
  Washington, DC.................................................    17

          Alphabetical Listing and Appendix Material Submitted

Anderson, Jeffrey H.
    Testimony....................................................    17
    Prepared statement...........................................    19
    Addendum 1...................................................   158
Blumberg, Linda J.
    Testimony....................................................     9
    Prepared statement...........................................    11
    Addendum 1...................................................   141
    Addendum 2...................................................   149
    Responses to questions submitted by Senator Shaheen..........   162
Cannon, Michael F.
    Testimony....................................................     3
    Prepared statement...........................................     5
    Addendum 1...................................................    52
    Addendum 2...................................................    64
    Addendum 3...................................................   111
    Addendum 4...................................................   121
    Addendum 5...................................................   134
Shaheen, Hon. Jeanne
    Opening statement............................................    40
Vitter, Hon. David
    Opening statement............................................     1


KING V. BURWELL SUPREME COURT CASE AND CONGRESSIONAL ACTION THAT CAN BE 
         TAKEN TO PROTECT SMALL BUSINESSES AND THEIR EMPLOYEES

                              ----------                              


                       WEDNESDAY, APRIL 29, 2015

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:36 a.m., in 
Room SR-428A, Dirksen Senate Office Building, Hon. David 
Vitter, Chairman of the Committee, presiding.
    Present: Senators Vitter, Risch, Fischer, Gardner, Ernst, 
Shaheen, and Hirono.

 OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chairman Vitter. Good morning, everyone, and welcome to the 
Senate Committee on Small Business and Entrepreneurship's 
legislative hearing, the ``King v. Burwell Supreme Court Case 
and Congressional Action That Can Be Taken To Protect Small 
Businesses and Their Employees,'' and special welcome and 
thanks to our three witnesses today.
    We will discuss that case, King v. Burwell, and its effect 
on small businesses and their employees if the Court rules in 
favor of the plaintiff, and we will also be examining and 
discussing alternative market-based solutions to health care 
reform as part of that.
    I want to thank Senator Jeanne Shaheen, our Ranking Member, 
and the other members of the committee for participating both 
before in setting up this hearing and during, and Senator 
Shaheen is going to be a little late, but will be here in a 
little bit.
    And, I want to welcome our three witnesses who are all 
involved in this area of public policy. I will introduce them 
in just a minute.
    The next few months will be really important as we await 
the Supreme Court decision in King v. Burwell. The effect on 
small businesses and individual employees is substantial and I 
appreciate all of you being here today to express your ideas 
and perspectives.
    By the end of June, we expect the U.S. Supreme Court to 
decide the legality of the IRS's regulation that enables 
Federal health insurance subsidies to be paid to individuals in 
34 States who have a Federal exchange, not having set up a 
State exchange. This case really is not about ObamaCare per se. 
It is about whether the executive branch executes and enforces 
laws passed by Congress as written, in my opinion.
    That is the fundamental issue in King v. Burwell, whether 
the IRS exceeded its authority under the Affordable Care Act by 
promulgating a final rule that expanded the provision of the 
health insurance subsidy beyond what was clearly in the 
statute. King is not a constitutional challenge, but, rather, a 
challenge to the IRS regulation as being inconsistent with the 
Act in light of the statutory language.
    If the Supreme Court decides in favor of the 
administration, then not much changes. But, our purpose here 
today is to review this question from the perspective of a 
Court decision in favor of the plaintiff and to examine the 
effects of such a decision, the consequences for individuals 
who have purchased insurance on the Federal exchange, the 
effect on other employees, and actions Congress may want to 
take.
    This litigation is set against the backdrop of a highly 
partisan legislative battle five years ago and continuing, with 
the final result the Affordable Care Act passed into law, 
apparently before it was thoroughly read or fully understood by 
many who voted for it. For those who did understand it and who 
opposed it, including, I think, a majority of Americans, it 
remains clearly unpopular.
    I think that is so for several reasons. It raised their 
taxes. It mandated that they buy a product that, in many cases, 
they did not want. And promised by their President that health 
insurance premiums would go down by $2,500 for those with 
employer-sponsored insurance, they instead went up an average 
of $3,500. For those in the individual markets, premiums went 
up 50 percent, on average, in the first year the law took 
effect. It also narrowed the selection of health care providers 
for many by forcing them into narrow networks. It limited the 
number of hours they could work for many folks and imposed 
penalties on individual Americans, their families, and 
businesses that provide their livelihood.
    So, clearly, a larger issue above and beyond the focus of 
the Supreme Court case and the effects of a ruling in favor of 
the plaintiff is a question of what is the best approach to 
health care reform. The creators of ObamaCare have come down on 
the side of those government mandates and price controls, I 
believe, because they do not fully trust people, giving them 
the choices and freedom that alternative approaches could yield 
them.
    On the other hand, when you do trust people, you enable 
greater freedom, freedom to choose that is at the center of an 
alternative approach to health care reform, and I think we will 
hear about those alternatives today from some of our witnesses.
    There are also alternatives to the subsidy currently being 
offered on the Federal exchange, a subsidy in the forms of an 
advanceable tax credit that actually flows directly from the 
government into the pockets of the insurance company, not into 
the hands of consumers under the present system. These 
alternatives, which we will hear about shortly, would help 
those who may be caught in the lurch if the Court sides with 
the plaintiff and throws down the gauntlet to the 
administration over this poorly constructed law and IRS 
regulation.
    At the end of the day, our greatest concern as Senators 
should be the folks we represent, our fellow Americans who sent 
us here to represent them and who, when all is said and done, 
will be directly affected by the Court's decision and our 
decisions. So, when the Supreme Court has made its decision, it 
will be decision time for us and we must ask ourselves, how do 
we best represent those fellow citizens.
    Again, I very much look forward to hearing from our 
witnesses and let me introduce them now.
    Michael F. Cannon is the Cato Institute's Director of 
Health Policy Studies. With Jonathan Adler, a Professor of 
Administrative and Constitutional Law at Case Western, Mr. 
Cannon conducted the legal and legislative research and wrote 
the leading scholarly treatise that laid the foundation for 
King v. Burwell and three similar challenges.
    After Mr. Cannon, we are going to hear from Linda J. 
Blumberg of the Urban Institute. She is a Senior Fellow there, 
having joined the Institute in 1992. From 1993 through 1994, 
she was the Health Policy Advisor to the Clinton administration 
during its health care reform effort, and she was a 1996 Ian 
Axford Fellow in Public Policy. She is an expert on private 
health insurance, both employer and non-group, on health care 
financing, and on health system reform.
    And, finally, we will hear from Jeffrey H. Anderson of the 
2017 Project. He is the Executive Director of the 2017 Project, 
a Washington, D.C. based organization that is operating at the 
nexus of policy and politics, advancing a conservative reform 
agenda. Mr. Anderson was the Senior Speech Writer at the U.S. 
Department of Health and Human Services from 2008 to 2009, and 
his other writings have been published in the Wall Street 
Journal, the Weekly Standard, National Affairs, National 
Review, and a host of other publications.
    Again, welcome to you all, and we will start with Mr. 
Cannon.

   STATEMENT OF MICHAEL F. CANNON, DIRECTOR OF HEALTH POLICY 
                    STUDIES, CATO INSTITUTE

    Mr. Cannon. Thank you, Mr. Chairman and Ranking Member 
Shaheen, for your invitation to discuss the King v. Burwell 
case concerning the Patient Protection and Affordable Care Act 
that is currently before the Supreme Court.
    King v. Burwell challenges as unauthorized by Congress both 
the premium subsidies that the Internal Revenue Service is 
issuing in 38 States whose health insurance exchanges are 
operated by Healthcare.gov and the tax penalties those 
subsidies trigger. The Court heard oral arguments on March 4 
and Court watchers expect a ruling by the end of June.
    If the Court sides with the challengers, more than 57 
million employers and individuals in those 38 States will be 
freed from the ACA's employer and individual mandates. They 
include Americans like Kevin Pace, a jazz musician whose income 
fell by $8,000 because his employer cut his hours to avoid the 
IRS's illegal taxes. They include small business owners who 
would like to expand and hire more workers, but are today 
prohibited from doing so by the threat of illegal taxes. Such a 
ruling would cause a smaller number of Americans, an estimated 
6.7 million, to lose access to subsidies that no Congress ever 
authorized but that the IRS is, nevertheless, dispensing 
illegally.
    The problem with current proposals about how to respond to 
a Supreme Court ruling in King v. Burwell is that Congress is 
right now sitting on top of a scandal bigger than Watergate and 
it is debating whether to let the burglars keep breaking into 
DNC headquarters for another two years. It is actually worse 
than that, because one side of this debate wants to give the 
burglars guns and badges and let them keep breaking into the 
DNC forever.
    What limited oversight Congress has conducted to date shows 
that the IRS is currently taxing and borrowing and spending 
tens of billions of dollars contrary to the clear limits the 
ACA imposes on the IRS's power. The IRS's actions lack--those 
investigations, limited though they are, show the IRS's actions 
lack any support in either the ACA or its legislative history 
or any other Federal law. Yet, in effect, the IRS pledged--
those investigations have found that the IRS pledged and 
ultimately spent taxpayer dollars on a multiyear, multi-
billion-dollar contribution to the reelection campaigns of 
members of Congress who enacted and a President who signed a 
law that voters and Congress otherwise would have scrapped as 
unworkable.
    By far, the most important thing that members of Congress 
can do to prepare for a King ruling is to launch an 
investigation that fits the scale of corruption exposed by King 
v. Burwell. Such an investigation would reveal that IRS 
officials made no serious effort to research the statute or its 
legislative history before expanding the reach of the ACA's 
taxes and subsidies beyond the clear limits imposed by 
Congress. Such an investigation would reveal the IRS did so 
repeatedly, offering premium subsidies not only in Federal 
exchanges, but to undocumented aliens and lawful residents 
below the poverty line who overestimate their income.
    University of Iowa law professor Andy Grewal recently 
revealed the IRS, quote, ``effectively provides the largest tax 
credits to persons who do not satisfy the statutory criteria.'' 
Those illegal subsidies, likewise, trigger illegal taxes 
against employers.
    Finally, such an investigation would reveal the IRS tried 
to hide its actions from the public and has been stonewalling 
Congress on this issue of monumental importance for nearly four 
years.
    I thank you very much for this opportunity, again, Mr. 
Chairman, and I look forward to your questions.
    [The prepared statement of Mr. Cannon follows:]
    
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    Chairman Vitter. Thank you very much, Mr. Cannon.
    And, next, we will be happy to hear from Ms. Blumberg. 
Welcome.

 STATEMENT OF LINDA J. BLUMBERG, SENIOR FELLOW, URBAN INSTITUTE

    Ms. Blumberg. Thank you very much. Chairman Vitter, Ranking 
Member Shaheen, and members of the committee, I appreciate the 
opportunity to testify today. The views that I express are my 
own and should not be attributed to the Urban Institute or its 
sponsors. My testimony draws on my own and my colleagues' 
research on the ACA, private insurance markets pre- and post-
2014, and the King v. Burwell case.
    Small employers historically have been much less likely to 
offer health insurance to their employees than large employers, 
and their employees historically have been much more likely to 
be uninsured. These differences have grown considerably over 
time, a trend that long predates the ACA, with offer rates 
among small employers, particularly small low-wage firms, 
falling dramatically over the last 15 years while remaining 
steady for large firms. For example, offer rates among low-wage 
firms with fewer than 25 workers dropped by 46 percent between 
2000 and 2013, while offer rates across all employers fell by 
16 percent.
    In June 2013, prior to implementation of the ACA's non-
group reforms and tax credits for the purchase of coverage, 
30.4 percent of the self-employed and 23.5 percent of small 
firm employees were uninsured, compared to only 7.6 percent of 
employees in large firms, according to the Urban Institute's 
Health Reform Monitoring Survey.
    Prior to implementation of the ACA's coverage provisions, 
many small firm employees, the self-employed, and their 
dependents had only their State's non-group insurance market as 
a coverage option. These were small markets with limited 
ability to meet insurance need due to very high administrative 
costs, coverage denials, and health status discrimination 
against those in less than perfect health. Thus, the ACA's 
reforms of non-group insurance markets benefit 
disproportionately small firm employees and the self-employed, 
those least likely to have access to employer-based insurance.
    By March of 2015, a year after implementation of the ACA's 
reforms, uninsurance among the self-employed had fallen by 10.8 
percentage points, or 36 percent, and among small firm 
employees it had fallen by 10.8 percentage points, or 44 
percent. Meanwhile, the share of employees receiving offers of 
health insurance from their employers stayed steady across all 
firm sizes. Thus, the ACA's non-group market reforms foster 
choice for employment and small firm or self-employment, 
facilitating hiring and entrepreneurship.
    If the ACA's premium tax credits and cost sharing 
reductions are eliminated in 34 States by a Supreme Court 
ruling, the number of uninsured in these States would increase 
by a total of 8.2 million people in 2016. Additional analyses 
by place of employment reveal that 5.8 million people losing 
premium tax credits under a decision for the plaintiffs, or 63 
percent of those losing them, have at least one family member 
employed by a small firm. Of these 5.8 million people, 4.1 
million, or 70 percent, would become uninsured. Two-and-a-half 
million people in self-employed families would lose tax 
credits, 1.6 million of whom would become uninsured. Those who 
retain insurance would face much higher premiums.
    Once tax credits are eliminated, the mix of health risks in 
these non-group insurance markets would change promptly. The 
healthy who lose tax credits would be first to drop their 
insurance, increasing significantly the market's average health 
care costs. As a consequence, the average premiums would 
increase for the non-group markets both inside and outside the 
new health insurance exchanges as they are treated as a single 
risk pool. As average premiums increase, even those who would 
not have received financial assistance would reassess their 
ability to afford coverage, and some would leave the markets, 
become uninsured, and drive premiums even higher for those who 
remained.
    Therefore, another 3.4 million people in small firm 
families who would not have received tax credits regardless of 
King would face substantially higher premiums under a ruling 
for the plaintiffs, and about 840,000 of them would become 
uninsured. About two million people in self-employed families 
would face large premium increases, and about 360,000 of them 
would become uninsured, even though they were never eligible 
for tax credits.
    If the King plaintiffs prevail, the median person or family 
buying non-group insurance fully with their own funds would pay 
a premium 55 percent higher to maintain the same coverage that 
they would have had otherwise. For those who otherwise would 
have qualified for the tax credits, the premium increases would 
be much larger.
    Small firm employees, the self-employed, and their family 
members benefit disproportionately from changes the ACA brought 
to the non-group insurance markets. Thus, they would be 
disproportionately harmed due to destabilization of these 
markets engendered by elimination of premium tax credits. New 
legislation to reinstate the ACA's financial assistance in any 
State in which it would be prohibited would be required to 
reverse such damage.
    Thank you very much, and I am happy to answer any 
questions.
    [The prepared statement of Ms. Blumberg follows:]
    
    
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    Chairman Vitter. Thank you very much. I appreciate your 
being here again.
    And last but certainly not least, we will hear from Jeffrey 
H. Anderson of the 2017 Project. Welcome.

STATEMENT OF JEFFREY H. ANDERSON, EXECUTIVE DIRECTOR, THE 2017 
                            PROJECT

    Mr. Anderson. Thank you, Chairman Vitter, Senators. It is 
good to be here. Thank you for the invitation.
    For many years, Americans have expressed a clear desire for 
real health care reform, reform that would lower costs, 
increase choice, and improve the quality of care. 
Unfortunately, the Patient Protection and Affordable Care Act, 
commonly known as ObamaCare, has taken us in the wrong 
direction in each of these areas. Moreover, ObamaCare 
consolidates and centralizes power at the expense of Americans' 
liberty. A nation conceived in liberty is living under a health 
care law predicated on coercion.
    Americans have been waiting for six years for ObamaCare 
opponents to unite around a free market alternative that deals 
with costs, deals with coverage, and deals with the individual 
market without disrupting the employer-based market. The 2017 
Project's winning alternative to ObamaCare would accomplish 
these goals, and the Supreme Court case of King v. Burwell 
provides a welcome opportunity to advance such an alternative.
    If the Court rules that, in states with Federal exchanges, 
the Obama Administration has been paying out subsidies in 
defiance of the law, Congress could choose to pass legislation 
that would do the following: Give the 37 affected States as 
well as the 13 others an off ramp from ObamaCare that would 
lower costs, secure liberty, and ensure that anyone who wants 
to buy insurance is able to do so. This off ramp should lead to 
a replacement that would fix what the government had already 
broken in our health care system even before ObamaCare was 
passed.
    For 70 years, the government has provided a tax break for 
millions of Americans with employer-based insurance, while 
millions of Americans who buy insurance on their own have been 
denied such a tax break. This is unfair and it has undermined 
the individual market.
    The alternative advanced by the 2017 Project, the group I 
run, would address this unfairness in the tax code by offering 
simple, non-income tested, refundable tax credits to 
individuals who buy insurance through the individual market. 
Unlike ObamaCare subsidies, which go directly to insurance 
companies, these would be actual tax credits going directly to 
individuals or families. For most Americans, they would come in 
the form of a tax cut.
    Because the tax credits would not be income-based, they 
would be far simpler, reduce the IRS's role, avoid 
disincentivizing work, avoid imposing a marriage penalty, and 
let every person or family quickly compute what they would be 
getting. Perhaps most importantly, they would finally address 
the longstanding inequality in the tax code for all Americans.
    The 2017 Project's alternative would offer tax credits of 
$1,200 for those under the age of 35, $2,100 for those between 
35 and 49, and $3,000 for those 50 and over, plus $900 per 
child. Those who find a policy for less could deposit the 
savings in a Health Savings Account. The alternative would also 
offer a one-time $1,000 per person tax credit for having or 
opening an HSA.
    According to a GAO report released on the eve of 
ObamaCare's implementation, tax credits in these amounts would 
be sufficient for healthy Americans to be able to buy insurance 
even if they paid no more than $15 a month of their own money 
toward the plans, except in five States, and people in those 
States could buy across State lines.
    If Congress were to respond to a ruling against the 
administration in King v. Burwell by offering such non-income 
tested tax credits, it would benefit millions of middle class 
Americans who get nothing from ObamaCare but the tab.
    According to the Kaiser calculator, the typical single 
woman who is 40 years old or younger and makes $35,000 a year 
or more does not get a dime in ObamaCare subsidies. She is too 
young and too middle class. Under the 2017 Project's 
alternative, she would get a $2,100 tax credit to help her buy 
insurance of her choice.
    Even though it would benefit far more people than 
ObamaCare, such an alternative would actually cost much less. 
According to the nonpartisan Center for Health and Economy co-
chaired by Princeton's Uwe Reinhardt and former CBO Director 
Douglas Holtz-Eakin, the 2017 Project's alternative would save 
$1.1 trillion in Federal spending over a decade versus 
ObamaCare while increasing the number of people with private 
health insurance by six million versus ObamaCare. It would also 
provide common sense consumer protections as well as funding 
for State-run high-risk pools to ensure that no-one could be 
denied affordable insurance on the basis of a preexisting 
condition.
    If Congress were to give States an off ramp that leads to a 
simple, flat, age-based tax credit for everyone in the 
individual market, protections for those with preexisting 
conditions, and the elimination of all of ObamaCare's liberty 
sapping mandates, it would be a very popular proposal.
    The millions of Americans who have been getting ObamaCare 
subsidies in defiance of the law's plain language and who will 
be getting nothing in the wake of a ruling against the 
administration would get a generous tax credit to help them buy 
affordable insurance of their choice. Moreover, because they 
were already covered, if they were to switch to a more 
affordable plan they could not be charged more or denied 
coverage because of a preexisting condition.
    Meanwhile, the millions, perhaps tens of millions, of 
middle-class Americans who have never gotten anything out of 
ObamaCare would get a long overdue tax break to buy insurance 
of their choice. Such tax breaks would be worth thousands of 
dollars to millions of Americans, would finally fix what the 
government has broken through the tax code, and would allow the 
individual market to flourish.
    States deserve an off ramp from ObamaCare that leads to a 
winning alternative. For six years, Americans have opposed 
ObamaCare and have waited to be offered something better. Now 
is the time to give it to them.
    Thank you.
    [The prepared statement of Mr. Anderson follows:]
    
    
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    Chairman Vitter. Thank you very much.
    Now, we will go to questions for members of the panel. I 
will get us kicked off.
    Let me ask Michael and Jeffrey, what specifically would be 
the legal impact of a decision in King v. Burwell in favor of 
the plaintiff on the employer and the individual mandate in 
those States affected that do not have a State exchange?
    Mr. Cannon. Well, Senator, unfortunately, as with many 
aspects of the ACA, the answer is complex. But, what King v. 
Burwell does is it challenges as unlawful an IRS regulation 
that purports to authorize premium subsidies--we call them tax 
credits or cost sharing subsidies--in exchanges established by 
the Federal Government. The way--so, if the plaintiffs win 
before the Supreme Court, then that rule is invalidated and 
those subsidies must end when the Court's mandate takes effect.
    Under the employer mandate, an employer is penalized for 
not providing adequate coverage to its workers only if one of 
those workers is eligible for a premium assistance tax credit. 
So, if the Supreme Court invalidates that IRS rule and all 
those premium assistance tax credits disappear in all 38 
States, 38 Healthcare.gov States, then no employer in any of 
those 38 States can be penalized under the employer mandate 
because there are no tax credits to trigger penalties against 
that employer.
    So, if the King v. Burwell challenges prevail, the employer 
mandate will be a dead letter in 38 States, and any State that 
wanted to exempt its employers from the employer mandate could 
do so by disestablishing their exchange, and there would be an 
incentive for them to do so because they might lose jobs to the 
States where the employer mandate does not operate.
    The connection to the individual mandate is even more 
complicated, but there is an exemption from the individual 
mandate for people whose coverage is unaffordable or for whom 
coverage would be unaffordable, and the availability of tax 
credits makes coverage affordable for more people. So, if those 
tax credits disappear, coverage will be considered unaffordable 
under the law's definition for more people and many more people 
will be exempt from the individual mandate.
    I have estimated that if the challengers prevail in King v. 
Burwell, then another eight million people, another eight 
million Americans in Federal exchange States will be exempt 
from the individual mandate. And what that suggests is that if 
Congress were to turn around and--I wanted to say reauthorize, 
but those premium assistance tax credits were never authorized 
in the first place--if Congress turned around and wanted to 
reinstate those premium assistance tax credits, make them 
legal, then it would be imposing the employer mandate in 38 
States where it would not be operating and imposing the 
individual mandate on eight million Americans. Likewise, any 
State that established an exchange after King v. Burwell that 
caused those premium tax credits to start flowing again would 
be imposing the employer mandate on their employers and the 
individual mandate on many of their citizens.
    Chairman Vitter. Okay. Mr. Anderson, number one, do you 
agree with that general legal analysis? Number two, the 
alternative you proposed, should the Court decide in favor of 
the plaintiff, would it specifically resurrect either the 
employer mandate or the individual mandate in those States?
    Mr. Anderson. I do agree with that, with Michael's 
analysis, and I--yes--well, no, I am sorry. The alternative 
that we are proposing would not resurrect the individual 
mandate or the employer mandate in any of the States. It 
would--the alternative would repeal those if it were passed as 
a stand-alone alternative.
    In the context of King v. Burwell, the proposal we have 
advocated is that an off ramp be provided to States that would 
eliminate all of the mandates, the employer mandate, the 
individual mandate, the coverage mandates, and would offer tax 
credits that people could use to buy insurance that they wish.
    Chairman Vitter. So, the alternative you are talking about 
would not resurrect the mandates because in the language you 
would specifically repeal them, among other reasons?
    Mr. Anderson. Correct.
    Chairman Vitter. Okay.
    Mr. Cannon. Senator, if I may, I am not a fan of health 
insurance tax credits because they resemble an individual 
mandate so closely. They effectively tell citizens, either buy 
a health insurance plan that is approved by the government or 
you will pay more money to the IRS.
    Chairman Vitter. Right.
    Mr. Cannon. So, I would dispute what Mr. Anderson said to 
the extent that I think that health insurance tax credits would 
effectively--creating a new health insurance tax credit would 
effectively reinstitute an individual mandate.
    Chairman Vitter. Okay. But, you would agree, it would not 
be a mandate per se. You are talking about--you are saying it 
would be sort of an incentive.
    Mr. Cannon. It would have the same economic impact as an 
individual mandate without Congress saying, you must buy health 
insurance.
    Chairman Vitter. Right. Okay. Mr. Cannon, you have also 
written about a related issue, which is the way Congress and 
Congressional employees get subsidized health care through the 
D.C. Small Business Exchange. Can you summarize your findings 
and views on the legality of that.
    Mr. Cannon. Well, that is actually a mirror image of the 
issue that is presented by King v. Burwell. In King v. Burwell, 
we have a case where the IRS exceeded its powers under Federal 
law to issue subsidies to people through the--under the 
Affordable Care Act, and in a way, that really prevents 
Congress from reopening the law, or if the IRS were not issuing 
these subsidies in Federal exchanges, then what all those 
subsidies do is they hide the cost of the ACA's individual 
mandate and its insurance regulations, and if the IRS were not 
issuing those subsidies, then many more people would be exposed 
to those costs and Congress would be forced to reopen the law.
    There is a parallel issue, or parallel problem here in 
Congress. The Office of Personnel Management, which administers 
the Federal Employees Health Benefits Program, has no authority 
under Federal law to contribute to the premiums for health 
plans that members of Congress purchase through the D.C. Health 
Insurance Exchange established under the ACA, and yet the 
Office of Personnel Management is doing so and it has the same 
effect. It is preventing those illegal subsidies--in both 
cases, are preventing Congress from reopening the law.
    I have likened those subsidies to bribes that members of 
Congress are taking not to reopen the ACA, because there are a 
lot of very important, very powerful special interest groups in 
Washington, D.C. The most important and powerful special 
interest group in Washington is members of Congress and their 
staffs. And, if they were being harmed by the ACA, if their 
premiums went up because of the ACA, you can bet your bottom 
dollar that they would reopen the ACA and change that.
    That is exactly why, I think, President Obama personally 
intervened and got the OPM to reverse its decision, because 
supporters of this law, or at least the powers that this law 
gives to the Federal Government did not want Congress reopening 
this law because they did not want Congress to make other 
changes that would take away some of those powers.
    So, I really think it is a--they are almost identical 
issues where executive branch agencies are spending taxpayer 
dollars without Congressional authorization to protect the 
powers that the ACA gives to the Federal Government and to--
and, as I said in my opening statement, they are really also a 
campaign contribution to the reelection campaigns of the people 
who voted for this law.
    Chairman Vitter. Okay. Thank you.
    Senator Hirono.
    Senator Hirono. Thank you, Mr. Chairman.
    I have to say, Mr. Cannon, that it is very astounding to me 
that you have this rather, I would say, a conspiracy theory of 
those who supported ACA. So, I will set that aside, but I find 
it astounding that you accuse those people who support ACA of 
engaging in illegal campaign contributions. You should pursue 
that with the appropriate authorities.
    Mr. Cannon. I think I am.
    Senator Hirono. I think that is through another system.
    Okay. Well, let us get to health care in this country. Both 
Republicans and Democrats agree that we had a broken health 
care system. So, I consider the ACA, among other things, to be 
remedial legislation that should be interpreted in a way to 
effect the purpose of the legislation, which is to enable more 
people to get health insurance. Forty million people in our 
country did not have any health insurance at all. So, we 
obviously have a very different perspective on what government 
action should occur.
    I did want to ask Ms. Blumberg, can you provide some more 
information on how individuals may be hampered by an inability 
to get and pay for health insurance if the decision in King 
eliminates the subsidies as they attempt to become self-
employed or start a small business. Can you talk a little bit 
more about the impact to these folks.
    Ms. Blumberg. Sure. As I was mentioning, there has always 
been a big divide in insurance coverage between workers in 
small firms and the self-employed and those who are employed in 
large firms or who have a family member in a large firm, and 
that is because the price differential of purchasing insurance 
coverage----
    Senator Hirono. Yes.
    Ms. Blumberg [continuing]. Is very large and always has 
been. So, the administrative cost of selling coverage, for 
example, to a small firm are significantly larger than to a 
large firm, because as someone goes to sell, if they are 
selling to 5,000 potential enrollees, they are getting a lot 
for that stop relative to if they are selling coverage for--a 
sales call for ten employees and their dependents. And, so, the 
administrative costs of actually selling that coverage are 
higher for a small firm.
    In addition, prior to the implementation of the Affordable 
Care Act's coverage provisions in 2014, the risk of--the 
greater risk of providing health insurance coverage in a small 
firm was also an issue with those small employers offering. So, 
a smaller employer had fewer workers over which to spread 
health care risk, and so if they had high-cost workers in their 
pool, they would be charged much higher premiums than a firm 
that had healthier younger workers.
    And, so, what the Affordable Care Act does is basically 
begin to spread the health care risk of those in a firm across 
all of those in the small employer market. It also brought down 
administrative costs, to some extent, but administrative costs 
will always be higher in small firms than large firms for 
health insurance coverage.
    So, when you provide a non-group market for the first time 
in the vast majority of States that is both stable, does not 
discriminate by health status, and has lower administrative 
costs and has more transparency in terms of what is being 
offered and insurers are held to be more accountable for what 
they are offering, then what you are doing is not only making 
it somewhat easier for small employers to offer, but you are, 
in particular, helping out the workers in those firms.
    Senator Hirono. So, basically, you find it totally 
appropriate that the ACA does provide more of a level playing 
field for small businesses and people in that situation to be 
able to afford insurance for their employees.
    Ms. Blumberg. I think it was completely necessary, because 
the way that the markets were structured before really 
discriminated against them and their workers.
    Senator Hirono. I hate to interrupt you, but I am running 
out of time. Are you familiar with the 2017 Project that Mr. 
Anderson proposes?
    Ms. Blumberg. I had not heard of it before finding out that 
he was going to be testifying here today. Am I familiar with 
the proposal?
    Senator Hirono. Well, you might want to take a look at it, 
and I----
    Ms. Blumberg. I have looked at the proposal, yes.
    Senator Hirono. Do you have any preliminary observations or 
comments?
    Ms. Blumberg. I think the main difference between his 
proposal and some of the other similar ones that are out there 
is that, as I was talking about, the ACA is really structured 
to spread risk more broadly, to share the costs of the sick 
among the majority who are healthy and to make it more 
accessible and affordable and adequate for everyone. A lot of 
the proposals, including the one that Mr. Anderson laid out, is 
really focused more on segmenting risk, separating the risks of 
the healthy and the sick. This can lower the cost, definitely, 
for those who are healthy, but it makes coverage less 
accessible and less adequate for those who have health problems 
or who have health problems at a given point in time.
    Senator Hirono. I have a really short question for Mr. 
Anderson. Hawaii has had the Prepaid Health Care Law, which 
mandates that all employers with full-time employees provide 
coverage for--health care coverage for their employees, and 
there is no exception for small businesses, and this law has 
been in place for 40 years. The world did not come to an end 
for businesses in Hawaii. And, in fact, it is one of the 
reasons that Hawaii people are among the healthiest in the 
country.
    Are you familiar with Hawaii's Prepaid Health Care Law?
    Mr. Anderson. Only what you just told me.
    Senator Hirono. I would ask you, just as I asked Ms. 
Blumberg to take a look at your plan, you might want to take a 
look at Hawaii's Prepaid Health Care Law, which has been in 
place for over 40 years. Thank you.
    Thank you, Mr. Chairman.
    Chairman Vitter. Thank you, Senator.
    Our Ranking Member has joined us, so we will now go to 
Senator Shaheen for any opening comments and also questions of 
our witnesses.

 OPENING STATEMENT OF HON. JEANNE SHAHEEN, A U.S. SENATOR FROM 
                         NEW HAMPSHIRE

    Senator Shaheen. Well, thank you very much, Chairman 
Vitter, and I apologize to the panelists for being late this 
morning. I had a previous commitment that, unfortunately, I 
could not change, so thank you all very much for being here.
    I would like to state for the record that I believe that 
the Affordable Care Act is working. Millions of Americans, 
including tens of thousands of New Hampshirites, now have 
access to affordable health care coverage.
    And despite the success of the law, I do understand that 
there are changes that need to be made to make it work better, 
especially for small businesses. Unfortunately, we have yet to 
have a real discussion about how to make well-intentioned 
changes to improve the Affordable Care Act and instead we have 
seen mostly attempts to repeal the law or have it destroyed 
through favorable court cases. King v. Burwell, which we are 
here to talk about this morning, is just another attempt to 
repeal the law with no plan on how to replace it.
    So, I believe this hearing is premature. I appreciate that 
our panelists and the Chairman are very interested in talking 
about the issue. But, we do not yet know how the Supreme Court 
will rule on King v. Burwell, and as someone who voted for it, 
I understand that the intent of the Affordable Care Act is 
clear, that it provide all Americans with access to affordable 
health insurance regardless of the State in which they live.
    A ruling for the plaintiffs in King v. Burwell will have 
enormously troubling consequences for families across the 
country, jeopardizing affordable access to coverage. In New 
Hampshire, we have 53,000 people who have received tax credits 
to help with the cost of their insurance premiums and almost 
three-quarters of them receive some kind of subsidy. If the 
Supreme Court rules for the plaintiffs, many of these people 
will not only pay higher premiums, but many will forego 
coverage altogether.
    And, it would impact small businesses and their owners. 
Take, for example, Steve, who is a self-employed real estate 
broker from Londonderry. Steve is 61 years old. He had a bypass 
11 years ago. Because of his medical history, he was unable to 
purchase health insurance. Once the ACA was enacted, he 
purchased a silver plan, and two months later, he had a 
quadruple bypass. This year, Steve pays $246 a month for 
coverage after the tax credit is taken into account. This 
insurance has saved Steve from financial ruin and it has 
allowed him to continue to work.
    Another example is Bill from Concord. Bill owns his own 
public relations company and he has three young children, one 
who has special needs. Since 2014, Bill and his wife have 
bought insurance on New Hampshire's marketplace. Prior to the 
ACA, Bill spent about $40,000 a year on health insurance for 
what he considered terrible coverage. He now receives a tax 
credit, saving about $1,200 a month on a better plan than he 
was able to afford previously. He says that the tax credit was 
``like getting a new client for me''--that is a quote from 
Bill--and it helped him through a slow year in business.
    Now, while I believe there are changes that can and should 
be made to the law, it is clear to me that the ACA is working 
for individuals, for business owners and for employees, and 
that a ruling by the Supreme Court that undercuts the law would 
be devastating to millions of Americans.
    Again, I thank you all for being here today. I look forward 
to having the opportunity to ask questions and to hearing the 
discussion.
    Thank you, Mr. Chairman.
    Chairman Vitter. Sure. Absolutely. Do you want to go ahead 
and go into your questions?
    Senator Shaheen. Sure. Ms. Blumberg, I think Senator Hirono 
was asking you about how the insurance reforms were working in 
the Affordable Care Act, but I wonder if you could talk about 
what would happen in both the individual market and also with 
small businesses if those tax credits were no longer available 
to people.
    Ms. Blumberg. Sure. Once the tax credits were eliminated 
under a decision for the plaintiffs, the first thing that would 
happen is we would see those who are low-income and who are 
receiving the tax credits to help them afford insurance 
coverage, the healthiest among them would be the first to drop 
their coverage. It would happen quickly because they are billed 
monthly for their share of the premium. So, from one month to 
the next when this change was implemented, if it was, they 
would see a huge increase in their out-of-pocket costs that 
they would have to pay for a premium. So, you would see a big 
drop in insurance coverage among that population.
    Since that is going to disproportionately occur among those 
who are healthy, what happens is the rest of the pool in the 
non-group markets in that State, on average, become sicker and 
more high-cost. So, the premiums need to go up in order to 
compensate that so that the insurers are bringing in the right 
amount of revenue. We could talk separately about what happens 
if that happens in the middle of a plan year when rates are 
already set, because that would be a complete situation of 
chaos for the insurers. But, let us say that is not happening 
in the middle of a plan year for now.
    So, then what happens is everyone else who, even those who 
were not receiving tax credits but were buying in that market, 
also see a big increase in their premiums because the risk pool 
has worsened, and so they, then, need to reevaluate their 
decisions to buy and what is affordable, and a number of them 
will also leave the market, making the premiums increase 
further and increasing the number of uninsured.
    And, many of these people--not all of them, but a very 
significant percentage of them, over half, are either families 
that have a small firm worker in their family or have a self-
employed worker or both. And, so, what you are seeing is a very 
big impact on that population precisely because they are among 
those that are least likely to have access to employer-based 
insurance. This is not going to do anything to change the offer 
decisions of small employers, since those are staying pretty 
steady and even historically have been dropping enormously for 
reasons outside of the Affordable Care Act, so----
    Senator Shaheen. When you say----
    Ms. Blumberg [continuing]. Have a lot of impact on that 
population.
    Senator Shaheen. Excuse me for interrupting, but when you 
say this is not going to change what small employers offer, 
what are you--you are referring to the decision, a Court 
decision?
    Ms. Blumberg. Yes. Small employers are historically much 
less likely to offer health insurance to their workers than 
large employers for a variety of reasons related to the 
composition of the workforce and the administrative costs 
involved in selling to small groups and risk-related issues. 
So, those small employers, just because this assistance 
disappears, is not going to change their decision and make them 
all offer. They are making those decisions for separate 
circumstances, and what the law has done by reforming the non-
group market and providing this assistance, it has made the 
non-group market for the first time in almost all of these 
States someplace where you can get adequate, affordable 
insurance coverage with stable premiums, which has not been the 
case in the past. So, it was basically a place to catch these 
folks without access to employer-based insurance, and without 
that, these markets would become much smaller again, much more 
expensive, and you would have a lot more uninsured.
    Senator Shaheen. So, I have a lot of small businesses in 
New Hampshire and one of the things that I do hear from them is 
concern about the current law with respect to small businesses. 
So, are there improvements to the law that you could suggest 
that would help small employers?
    Ms. Blumberg. I think I would come at this from two places. 
One, I think that the resources and attention of the early 
implementation of the Act have been focused with, I think, good 
reason, on the non-group insurance market. But, as a 
consequence of that, I do not think that the implementation has 
given enough attention and resources to the small group market, 
and we see that in how small the shop exchanges are in most 
States.
    And, I think there are some things we could do there. I 
think we could do better with regard to both informing small 
employers about the availability of this option. When we talk 
to folks in different States, many of these small employers do 
not even know anything about the shop. They do not know the 
value that it is supposed to bring. You know, having a concise, 
clear explanation about what that does that could be worked out 
across all of the States, I think, would be really helpful.
    I think we have to help brokers more see the value here and 
make it easier for them to use the IT system and for there to 
be more business functionality that they are used to getting 
directly from insurers there to make it more attractive to 
them, because they sell the vast majority of policies to small 
employers still.
    So, I think there are a number of ways there that we can 
bolster the functionality of the shop exchanges and get small 
employers to know more.
    I also think we have an issue in the small group market 
that needs to be addressed with regard to self-insurance, 
because as we spread risk more broadly in small group, those 
reforms, which ended price discrimination against those that 
had unhealthy groups, those rules do not apply to self-insuring 
firms of any size and they do not apply to reinsurance products 
that make it feasible for small employers to self-insure. And, 
so, as a consequence, I think there is a danger that we are 
setting up an adverse selection problem that also is going to 
cause trouble for--legal problems for these small employers 
that may be moving to self-insurance and do not know the legal 
ramifications of it. So, I think that is another area where we 
can do better to strengthen the small group market.
    Senator Shaheen. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Vitter. Thank you.
    And, next, we will go to Senator Ernst.
    Senator Ernst. Thank you, Mr. Chair.
    Thank you to our panelists for being here today. I 
appreciate your time and thought on this issue. This is a tough 
issue, and this summer proves to be very interesting, I think, 
for a number of us.
    Mr. Cannon, you mentioned in your statement University of 
Iowa law professor Andy Grewal, who had found that the IRS is 
also issuing subsidies to two other ineligible groups, certain 
undocumented aliens and lawful residents below the poverty line 
who overestimate their income, and you go on to talk a little 
bit more about that.
    And, interestingly enough, just a couple weeks ago in our 
Homeland Security and Governmental Affairs Committee, we spoke 
with the Commissioner of the IRS on the challenges regarding 
ObamaCare, and in this committee meeting I asked the 
Commissioner if the IRS had a backup plan if the subsidies to 
States with Federal health exchanges are struck down, and he 
reiterated, as so many others have, also, that the IRS nor the 
administration have a strategy or a plan if this should happen. 
And, actually, I think what happened in that committee meeting 
was everybody was doing this, it is not my problem, basically 
is what it was coming down to. Somebody else can deal with 
this.
    And, in addition, I asked him what the IRS had discussed 
about how ruling in favor of the plaintiff would impact States 
that have a hybrid State-Federal exchange, such as Iowa does, 
and again, he reiterated that the IRS has not thought this 
through, and again, basically, that it is not the IRS's 
problem.
    Can you discuss that--really, anyone on the panel, if you 
would, please, talk about some of those issues and how we 
resolve these issues.
    Mr. Cannon. I think that it has been, as you say, a 
consistent message from the administration that there is 
nothing they can do or will do to try to mitigate the impact of 
the ACA on people in Federal exchange States once those 
subsidies disappear, because, remember, all those subsidies do 
is hide the costs of the ACA from consumers, taxpayers.
    So, the administration is doing this for a pretty clear 
reason. It is to try to prejudice the Court against the 
plaintiffs. If the administration stands there and says that 
there is absolutely nothing we can do and premiums will go up 
for millions of people if you rule for the challenges--and, I 
should say, I probably agree with everything Ms. Blumberg said 
about what would happen after a ruling. Where we disagree is 
whether it is the ruling that does that or the ACA itself. The 
whole point of King v. Burwell and the meaning of a Supreme 
Court ruling for the challengers is that those subsidies are 
illegal and, therefore, what is happening to consumers and 
taxpayers is a result of the ACA itself. So, all that list of 
horribles is--and I agree, they are horrible--are results of 
the ACA and not of the King v. Burwell ruling.
    So, the administration, I think, figures that if it can try 
to scare the Court and thereby prejudice them against the 
challengers by saying there is absolutely nothing we can do, 
when, in fact, there are lots of things that the administration 
could do.
    Right now, the Secretary of Health and Human Services could 
announce that, as I have mentioned in my written testimony, 
that they will create a special enrollment period to allow 
people who lose--anyone in a Federal exchange State to switch 
to a lower-cost health plan if those subsidies disappear. She 
could announce that right now. She has not done so.
    She could say, we will offer hardship exemptions to anyone 
who loses a subsidy. She could announce that right--so that 
they would not be penalized under the individual mandate. Some 
would be automatically exempt from the individual mandate, 
others would not. She has not done so.
    I do not--I would not approve of this step, but the statute 
actually gives the Secretary of HHS the authority to protect 
every Healthcare.gov enrollee from losing their coverage 
through the end of 2015. All the Secretary has to do is change 
the periodic basis on which the Treasury Department--because 
the HHS makes its decision for Treasury--the periodic basis on 
which the Treasury Department makes those payments to insurance 
companies, what we call advance payment and tax credits to 
insurance companies, change it from a monthly basis to an 
annual basis. It could send that money to the insurance 
companies for the rest of the year. No-one would lose those 
subsidies or their coverage through the end of 2015. I think it 
would be unethical for them to do so, but I do not think they 
would think it is unethical because they think that their--or 
at least they argue that those subsidies are lawful.
    There has been no discussion of this. I think that the only 
explanation for that is that they are trying to intimidate the 
Court and trying to influence the outcome in that way. So, 
unfortunately, I do not think that the IRS Commissioner was 
being honest with Congress when he said there have been no 
discussions of this.
    Senator Ernst. Okay. I appreciate that very much.
    My time has expired. Thank you, Mr. Chair.
    Chairman Vitter. Thank you.
    Now, Senator Fischer.
    Senator Fischer. Thank you, Mr. Chairman.
    Mr. Cannon, how do you think individuals and businesses are 
likely to react if that subsidy is no longer available?
    Mr. Cannon. I think that they are going to be unhappy, 
because they will be exposed for the first time to the full 
costs of the very expensive coverage that the ACA requires them 
to purchase. I think that they will intuitively understand why 
their health insurance bills have doubled or tripled, and it is 
because, once again, the Federal Government misled them about 
this law and how it works, just as it did when it promised that 
if you like your health plan, you can keep it.
    If you remember what happened in November of 2013, when 
people started getting these cancellation notices, they said, 
wait a second. I was promised by countless supporters of this 
law that I would be able to keep my health plan. It turned out 
that, notwithstanding what supporters of this law said was 
their intent, their actual intent was to take away your health 
insurance--the health insurance plans from millions of people.
    In this case, we hear from lots of supporters of this law, 
our intent was to offer subsidies in Federal exchanges, but the 
same thing happened here. What they said did not reflect the 
law that they passed. The law that they enacted said, no 
subsidies in Federal exchanges. Those residents will be exposed 
to the full cost of the ACA. And, I think that the public will 
intuitively know who is responsible for that.
    Senator Fischer. Thank you.
    Mr. Anderson, should Congress be ready to have a response 
that is going to lessen that impact on individuals who may lose 
their subsidy, and would you recommend going beyond the scope 
of limited transition assistance?
    Mr. Anderson. Thank you for that question, Senator Fischer. 
Yes, I think Congress--I think it is essential that Congress 
have a response ready. There are families under ObamaCare--let 
me give an example. In Milwaukee, a family of five who makes 
$30,000 a year gets more than $20,000 a year in ObamaCare 
subsidies, and the notion that those subsidies could be ruled 
illegal, disappear overnight, and that nothing would happen, I 
think, is unrealistic. So, something is going to happen.
    One scenario is that States that have not set up State-
based ObamaCare exchanges might do so, which would presumably 
mean--well, it would mean an expansion of ObamaCare and more of 
a bipartisan quality to it, which, I think, would be very bad 
from the standpoint of those of us who think that we need to 
repeal ObamaCare and move in a totally different direction.
    I think another mistake would be to try to negotiate fixes 
to ObamaCare because this simply is not fixable.
    I think it is very important that Congress put forward a 
proposal that this is a great opportunity to finally unite 
around an alternative, something that I think Americans have 
wanted from the start of this debate, that actually deals with 
the issue of health coverage and costs. It does not have all of 
ObamaCare's intrusions upon liberty, its cost increasing 
mandates, et cetera.
    And, we think a proposal like the one that we advanced at 
the 2017 Project would be one that could unify people, and it 
would not only solve the problem of giving people assistance 
who lose these subsidies which could be ruled illegal, but 
would also finally fix this inequality in the tax code for the 
vast majority of the middle class who has really been left out 
of this whole equation. I mean, it does not make any sense that 
someone should get a generous tax break for employer-based 
insurance and then their next-door neighbor who goes out and 
buys insurance on their own does not get anything. And, that 
has been the case for 70 years. It did not change under 
ObamaCare and I think it is time to fix that, which has been 
the root of our problem and has helped really keep the 
individual market from being vibrant.
    Senator Fischer. I agree with you, there is a lot to fix. 
In fact, in Iowa and Nebraska, I do not know if you heard about 
Co-Opportunity and that co-op under the ACA, one of those 
established. We have a number of individuals and businesses who 
purchased insurance through that and are really now left high 
and dry. They are not receiving--it closed. They are not 
getting their money back. They have had to purchase insurance, 
many of them from private insurers, in order to cover their 
employees, and it has really been very disturbing that taxpayer 
dollars were pumped into these and then you see it fail and you 
see the impact on families in my State. And, I think it is just 
a glimpse into the future and what we are going to see unfold 
as we continue this.
    In your opinion, is there a philosophical difference 
between the approach to health care reform that is embedded in 
the ACA and maybe some of the alternatives that have been 
proposed out there by Senator Hatch, for example, or Senator 
Johnson?
    Mr. Cannon. I think there is a profound philosophical 
difference, and I think the quick version of that would be that 
ObamaCare basically is top-down control. Its entire treatment 
of the subject is to say, if we want something to happen, let 
us simply mandate that it happen. If we want people to have 
insurance, let us force them to buy insurance. The first time 
in all of American history the Federal Government has told 
private citizens they have to buy a product or service from a 
private company simply as a condition of living in the United 
States. That is the general approach, the belief that you can 
control a fifth or a sixth of the economy from a centralized 
planning apparatus in Washington, D.C.
    The other approach is one that respects Americans' liberty, 
wants to allow people as much freedom as possible to contract 
with one another, hopefully have as many options available as 
possible, start to see prices come available, actually have the 
sort of vibrant market that we have in most facets of our 
country where we do not have so much government intrusion.
    Senator Fischer. Well, thank you. I know all of us know 
people who have been helped by the ACA who now have insurance. 
The issue now is their deductibles that they have to meet, and 
I am starting to hear from those people who are not able to 
meet the deductibles even with the subsidy, and I can tell you, 
in Nebraska, I have heard from thousands and thousands of 
people who have been hurt by this because they have lost the 
insurance that they wanted. They have lost the doctor that they 
had gone to. And, in many cases, they have lost the hospital. 
And, those are cases that are so heart-wrenching, because they 
deal with children, they deal with cancer, and certain cancer 
hospitals now who will not be offering help to those children 
who so desperately need it.
    Thank you, sir. Thank you, Mr. Chairman.
    Chairman Vitter. Thank you, Senator Fischer.
    And, I think the Ranking Member and I each have a few 
closing questions. Senator Shaheen, why do you not go ahead.
    Senator Shaheen. Well, Mr. Chairman, I know that we are 
supposed to be back at the Senate chamber for Prime Minister 
Abe's address to Congress, so I am going to defer my questions. 
Thank you.
    Chairman Vitter. Okay. I have just a few closing questions.
    Mr. Cannon, I want to go back to our discussion about the 
parallel between this ObamaCare issue and the Congress 
ObamaCare issue, because I do agree with you that there are 
very clear parallels. Do you think there is any statutory basis 
in ObamaCare for giving subsidies for folks on Federal 
exchanges in States versus State exchanges?
    Mr. Cannon. No, there is not, and, in fact, if you read the 
statute, you will find that it is very carefully worded. It 
creates a very--a tightly worded, carefully crafted scheme that 
only offers tax credits, premium tax credits, in States that 
establish their own exchanges and does so to encourage States 
to take on that task that Congress wanted them to perform, 
because Congress cannot command States to enact Federal 
programs. Congress did this elsewhere in the ACA. It has told 
States, as it has told States for almost 50 years now, if you 
establish a compliant Medicaid program, you will get Federal 
grants to finance that program, and if you do not, you get 
nothing. You get no Medicaid grants.
    Congress offered to States establishment grants, to help 
them establish an exchange, and it conditioned the renewal of 
those grants on States taking adequate steps or sufficient 
steps toward establishing an exchange as well as implementing 
other parts of the statute.
    So, Congress does this sort of thing all the time. The 
statute is very clear. The tax credits are authorized only in 
States that establish their own exchanges, not through Federal 
exchanges.
    Chairman Vitter. So, you not only think that the language 
is clear, you also think that was not a mistake.
    Mr. Cannon. It was not a mistake, and there is----
    Chairman Vitter. And, then, to draw the parallel, do you 
think there is any statutory basis for members of Congress and 
their staff to get the subsidy that they are getting on the 
Small Business Exchange?
    Mr. Cannon. None whatsoever. The ACA itself is silent about 
whether the Federal Government can contribute to the health 
insurance premiums that members of Congress get through a 
health insurance plan created under the ACA, such as the D.C. 
Shop Exchange or an individual market exchange. But, the Office 
of Personnel Management needs some authorization from Congress 
somewhere in Federal law in order to make those contributions 
and there simply is not.
    Chairman Vitter. Now, there is authorization for that under 
the Federal Employees Health Benefits Plan.
    Mr. Cannon. That is correct.
    Chairman Vitter. But, that is--I assume what you are saying 
is that is different from and does not just magically transfer 
under ObamaCare to the Small Business Exchange.
    Mr. Cannon. Yes. So, those who did not want small Congress 
to reopen the ACA had a problem because the ACA does tell 
members of Congress you can no longer participate in the FEHBP. 
You cannot get your coverage there anymore. And, you can only 
get coverage under--you can only get coverage that was 
authorized by this Act, so, basically, coverage through an 
exchange.
    And, that meant that members of Congress could only get 
coverage, really, through an individual market exchange or 
through a shop exchange. If they got it through an individual 
market exchange, then Congress could, in neither case could the 
Office of Personnel Management continue to make contributions 
to members of Congress--premiums for members of Congress and 
their staff. That is explicitly prohibited in individual market 
exchanges. Employers are allowed to do so through the shop 
exchange, through an exchange such as the D.C. Shop Exchange, 
but the problem there is that those exchanges are only for 
small businesses----
    Chairman Vitter. Well, that was going to be my next 
question. In terms of statutory law, the ObamaCare law, is it 
not clear that that D.C. Small Business Exchange we are talking 
about is limited to small employers of 100 employees or less, 
and it has actually been limited by D.C. under the law to 50 
employees or less.
    Mr. Cannon. That is correct. And, so, what this committee 
tried to subpoena last week was the document that somebody 
filed on behalf of Congress with the D.C. Exchange attesting 
that Congress had, I think it was 45 employees, when, in fact, 
Congress has a thousand or more employees. So, someone 
falsified a Federal document in order to get members of 
Congress into the D.C. Shop Exchange and facilitate these 
premium contributions that the OPM is not authorized by Federal 
law to make.
    So, there are two problems there. There are these illegal 
subsidies that members of Congress are receiving and there is 
the problem that someone falsified the Federal document in 
order to facilitate those, and I think those are both examples 
of corruption that Congress needs to investigate.
    Chairman Vitter. And with regard to that fraudulent filing, 
presumably, that was done because the exchange under clear 
statutory law is limited to employers of 50 employees or less?
    Mr. Cannon. Presumably, yes.
    Chairman Vitter. Okay. Well, thank you all very, very much 
for your testimony, for your work, for your participation. The 
committee really appreciates it.
    And with that, we are adjourned.
    [Whereupon, at 10:40 a.m., the committee was adjourned.]

                  APPENDIX MATERIAL SUBMITTED