Politico just broke the news that the Trump administration will terminate the Affordable Care Act’s cost-sharing payments, further destabilizing the already-fragile exchanges on the eve of open enrollment. Although state regulators and insurers have taken steps to protect themselves (see this great explainer from David Anderson, Charles Gaba, Louise Norris, and Andrew Sprung), the abrupt end to the cost-sharing payments will have unpredictable and unhappy consequences.
For those who are coming late to the story, read my take on the long-simmering dispute over at Vox. This is the backdrop:
The Affordable Care Act provides two kinds of subsidies to help low- and middle-income people pay for insurance on the exchanges. Premium subsidies defray the cost of premiums for people making less than four times the poverty level. For those who make less than that, cost-sharing reductions help cover the costs of deductibles and other out-of-pocket spending.
Although they serve similar goals, the two subsidies function in different ways. The premium subsidies are refundable tax credits that go to individuals: They are administered through the tax code. For cost-sharing reductions, the ACA requires insurers to cut their lowest-income customers a break on their out-of-pocket spending. In turn, the statute says the federal government will, reimburse insurers for doing so.
Here’s the catch. The Constitution says that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Under the persnickety rules governing appropriations law, it’s not enough for a statute to order the government to make a payment. Congress must adopt a law that specifically appropriates the money to make that payment. And while the Affordable Care Act does link the premium subsidies to an existing appropriation, it’s silent about the cost-sharing reductions.
Some years back, the House of Representatives sued the Obama administration for continuing to make the cost-sharing payments in the absence of an appropriation. Although I still don’t think that the House had standing to sue, I thought its legal argument was sound: the money hadn’t been appropriated. The Trump administration apparently agrees, and is using that as its pretext to terminate the payments.
So what happens now? Lawsuits, lawsuits, and more lawsuits. Right out of the gate, I’d put dimes to dollars that that the 16 states that have intervened in the ongoing litigation will seek an immediate injunction from the D.C. Circuit to keep the cost-sharing payments flowing. The states may also file a separate lawsuit in district court seeking the same relief. I don’t know if either gambit will work, but the states will try.
If the Trump administration successfully brushes back those efforts, I explained what comes next in an article for the Penn Law Review:
Even without an appropriation, the ACA creates an entitlement to cost-sharing reductions. Health plans can vindicate that entitlement before the Court of Federal Claims. Payment would then come from the Judgment Fund—a permanently appropriated fund to pay court judgments where “payment is not otherwise provided for.” The question is thus not whether the government will pay, but when.”
This year, cost-sharing payments have amounted to about $7 billion. Unless Congress moves to repeal or amend the Affordable Care Act—good luck with that—obligations of similar size will accrue through 2018 and beyond.
In other words, we’re about to see witness of the largest lawsuits, dollar-wise, in United States history.
What’s more, I think the lawsuits are viable. We’ve already seen a couple of district courts grant multi-million dollar judgments in litigation over risk corridor payments. And the risk corridor cases raise some tricky questions about what sorts of promises the federal government has made to insurers. The cost-sharing cases won’t. On the law, they’re really straightforward.
Now, Congress could always appropriate the money. That would stanch the bleeding and restore some confidence to the rattled insurance markets. Or, alternatively, Congress could prohibit the Judgment Fund from paying out any judgment in cost-sharing litigation, although that would amount to a government default on its obligations. The damage to the government’s reputation would be severe, as Craig Garthwaite and I discussed in this New York Times op-ed.
If Congress doesn’t act, it’s really the worst of all worlds. To compensate for the loss of cost-sharing payments, insurers will have to raise their premiums for silver plans. Because premium subsidies are keyed to the price of silver plans, the size of the subsidies will increase along with the rise in premiums. And because many more people are eligible for premium subsidies than for cost-sharing reductions, total federal outlays will actually increase.
So taxpayers will have to pay increased premium subsidies at the front end. Then they’ll also pay the cost-sharing money through litigation at the back end. It’s a financial bath, and for no good reason other than sheer political cussedness.
What a stupid, profligate, and unnecessary mess.
