United States: Judge Rules HHS Can't Pay Cost-Sharing Subsidies To QHPs, But Allows Funding To Continue

More than six years after the Affordable Care Act (ACA) was enacted, legal challenges continue to thread their way through the judicial system. In a May 12, 2016 decision, US District Court Judge Rosemary M. Collyer, an appointee of President George W. Bush, granted summary judgment to the US House of Representatives on the question of whether funds were appropriated to pay qualified health plans (QHPs) for reduced cost-sharing subsidies under Section 1402 of the ACA. Judge Collyer enjoined "any further reimbursements under Section 1402 until a valid appropriation is in place." However, the court stayed its injunction pending any appeal. The Obama Administration publicly stated its intent to appeal shortly after the verdict was issued.

The ACA provides two types of financial assistance to eligible individuals enrolled in public health insurance exchange (or marketplace) plans. Under Section 1401, advanced premium tax credits (APTCs) are available to taxpayers with income between 100 and 400 percent of the federal poverty level (FPL) to cover a portion of the cost of their health insurance premiums. Individuals with income between 100 and 250 percent of the FPL may qualify for additional subsidies under Section 1402 to cover cost-sharing obligations, such as deductibles, coinsurance and copayments. In order to participate in public exchanges/marketplaces, insurers are required to reduce consumers' cost-sharing obligations with the expectation that the US Department of Health and Human Services (HHS) will reimburse them for the costs they incur in doing so. 

The court ruled that payments to the insurers cannot be made because, although payments were authorized, no funds were appropriated. The court noted that subsequent to the passage of the ACA, the Obama Administration requested an appropriation to cover the subsidies in its FY 2014 budget request. After Congress declined to make an appropriation, HHS and the US Department of Treasury made payments relying on other provisions of the ACA, as well as other statutes. The court described the Secretaries' argument as "a most curious and convoluted argument whose mother was undoubtedly necessity." It concluded that "[p]aying out Section 1402 reimbursements without an appropriation thus violates the Constitution."

Immediate impact: Status quo maintained

Ultimately, if these cost-sharing reduction subsidies are lost, insurers will be forced to find alternative means of offsetting the loss of revenues, most likely by raising premiums. As APTC-eligible individuals pay a percentage of their income, rather than a percentage of the premium, they have some protection from premium increases, which will be shifted to taxpayers and unsubsidized health insurance exchange/marketplace enrollees. 

Although insurers have already submitted their premium requests for 2017, it would be prudent for them to develop "alternative scenario" premiums to show policymakers at the state and federal levels how premiums would change (i) if these subsidies are lost and (ii) in the unlikely event subsidies that have already been paid must be returned to the Treasury.

In the interim, nothing changes. Until the next round of appeal is exhausted, likely well into the future, QHPs will continue to receive federal reimbursement for the reduced cost-sharing subsidies they provide to consumers.

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