The most serious current legal challenge to the Affordable Care Act turns on the argument that the law did not actually make subsidies available to those obtaining coverage on the federal exchange. This argument is based on the language in the ACA that says subsidies go to those using the “exchange established by the state,” which, it is said, cannot apply to the exchange established by the federal government.

If this is somehow upheld by the Supreme Court, it could take subsidies from millions of people in three dozen states that have not created their own exchanges, doing severe damage to the law.

But documents from the Senate committees that worked on versions of the bill in 2009 — combined with a close look at the history of the phrase itself, and interviews with staffers directly involved in the drafting of the statutes — strongly undercut the argument that the law did not intend or provide subsidies to those on the federal exchange.

A reconstruction of the process by which that contested phrase got into the law demonstrates two key facts:

1) The first Senate version of the health law to be passed in 2009 — by the Health, Education, Labor and Pensions Committee — explicitly stated that subsides would go to people on the federally-established exchange. A committee memo describing the bill circulated at the time spelled this out with total clarity.

2) The disputed language about the exchanges being “established by the state” appears in the early version of the law that passed the Senate Finance Committee in the fall of 2009. But that version did not even contain a federally-operated exchange, and in fact required the creation of what the Finance Committee described as “state exchanges.” Therefore, there’s no clear logical way the Senate Finance bill could plausibly have been intended to deny subsidies to those on a federally-operated exchange, since no such federally-operated exchange was envisioned under that bill’s structure.

The disputed language ended up in the final bill because the two versions — both of which intended subsidies in all 50 states, albeit by varying structures — were merged. Here is a greatly simplified timeline that helps illustrate what happened:

1) Creation of HELP Committee bill in July of 2009. At the time, the Senate HELP Committee passed a version of health reform. A memo written by committee staff explained how the subsidies and exchanges would work, noting it would provide a “basic structure for a reformed market for health insurance in all 50 states”:

It is the sense of the Senate that Congress should establish a means for All Americans to have affordable choices in health benefit plans…Each state will have an Affordable Health Benefit Gateway, established either by the state or by the Secretary of Health and Human Services….To reduce the economic burden of health care on vulnerable Americans, low-income, and moderate-income Americans who enroll in plans through the Gateways will be eligible for premium credits.

The term “Gateway” referred to exchanges in all the states, whether or not they’d been established by the “Secretary,” i.e, the federal government. Americans who qualified for premium credits could get them through any Gateway. Now, to be fair, the memo notes that the HELP Committee bill’s structure did delay subsidies to those in states that hadn’t yet set up their exchanges. But the memo explicitly clarifies that residents of states that eventually have exchanges created by the federal government will “be eligible for premium credits.”

The language in the HELP Committee bill itself confirms this. In the section on “Federal Fallback,” the bill refers to states where “the Secretary shall establish and operate a Gateway” — i.e., where states have not established Gateways. It continues that “the residents of that state who are eligible individuals shall be eligible for credits,” as long as certain separate and unrelated conditions are met. This is absolutely clear: eligible individuals get subsidies through the federal and state exchanges.

2) Creation of Senate Finance Committee version of bill in the Fall of 2009. The version of the bill that passed out of Senate Finance in the fall of 2009 contains the disputed phrase. It says that subsidies are available to those enrolled “through an exchange established by the state.”

The rub is that the Finance bill also dictates that states “shall” set up exchanges. It’s true that the Senate Finance Bill also stipulates that states that refuse to set up exchanges will have an exchange set up by the Secretary, but only through a non-profit entity; there is no federally-run exchange in this bill. Finance Committee documents describe such exchanges set up by non-profits as “state exchanges.” And the bill itself says at another point that subsidies are available to all those on “an exchange,” full stop, leaving no doubt that despite the disputed language, people on every exchange, no matter how it was established, were meant to be eligible for subsidies.

* Merging of the two bills in late 2009: Throughout November of 2009 the two bills were merged by committee staffers, and the resulting Senate bill also contains repeated examples of the “exchange established by the state” language that is now threatening the law. But as noted above, both bills did provide subsidies in all states. How is this disconnect possible? Yvette Fontenot, a lead Finance staffer who was directly involved in the merger of the bills, tells me what happened:

“Both the Finance and HELP committee bills provided tax credits in all states. During the merger of the two bills, we layered the HELP Committee language that established a federal fallback on top of the Finance Committee language that included ‘exchange established by the state.’ The result was the tax credits were to apply to all exchanges, both state and federal.”

David Bowen, a HELP committee staffer who also was involved in merging the bills, adds:

“It was clear both in the legislative language in both committees and in the intent of the Senators supporting the bill that the credits would be available in all states, regardless of whether the state or the federal government operated the Gateway. That intent certainly didn’t change during the merger process.”

John McDonough, who wrote “Inside National Health Reform,” a history of the legislative debate, and was a HELP committee staffer in the room throughout the merger of the two bills, says:

“Nobody in the room had any interest in doing anything other than making subsidies available to those in all 50 states. Both versions that were merged had an assumption that the subsidies would be available in all 50 states regardless of what the exchanges looked like at the end of the day.”

* The bottom line:

Larry Levitt, a senior vice president at the Kaiser Family Foundation who closely followed the legislative debate, says the above interpretation is the most plausible explanation for what happened:

“When you look back at the legislative process that produced this law in the Senate, you can start to see how the disputed language emerged. The Senate HELP Committee explicitly envisioned state and federal exchanges, and clearly made subsidies available in both cases. The Senate Finance Committee bill was structured around the idea that only state exchanges existed, either run by a state or by a non-governmental entity. There was never any distinction in the Finance Committee plan between a state or federal exchange, or any indication that subsidies would flow only to people in some exchanges. The merger of these two approaches may have produced a sloppy end result in terms of legislative language, but the paper trail helps to show what was originally intended.”