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May 18, 2016
May 2016 | Sara Rosenbaum | Online Exclusive
In addition to voting more than 60 times to repeal the Affordable Care Act (ACA), the US House of Representatives in 2014 turned directly to the courts to stop the law. On May 12—after determining in 2015 that its challenge was not merely a political fight but instead one that raised true legal issues and therefore could proceed in court—federal judge Rosemary Collyer handed the House of Representatives a victory in House of Representatives v Burwell. In her decision, Judge Collyer ruled that the Administration cannot make the cost-sharing payments it owes to marketplace health plans because Congress has never appropriated the funds necessary to make such payments on behalf of eligible policyholders.
The ACA has already faced 2 existential legal challenges, the first to its very constitutionality1 and the second over whether the law itself permits the IRS to pay premium tax subsidies to health plans enrolling eligible people in states that rely on the federal health insurance marketplace.2 Now a third case looms over the ACA landscape, this one also focused on the meaning of the law’s words. (A separate battle over whether health plans offered by religious nonprofit organizations should be exempt from the law’s contraceptive coverage guarantee just resulted in a legal punt by a seemingly deadlocked Court.) Just as the US Supreme Court has stepped in twice to resolve matters, it may once again become a player in these legal contretemps, even though a final showdown is a long way off. For now, Judge Collyer has stayed her order pending the government’s appeal to a federal appellate court.
To appreciate why Judge Collyer’s decision is so consequential, one needs to understand the operation of the ACA. A core element of the act is the establishment of a qualified health plan market consisting of insurance products that meet minimum coverage and actuarial value standards. A qualified health plan must cover certain “essential health benefits” and must demonstrate an “actuarial value” (ie, the percent of covered claims paid by the plan) ranging from 60% to 90%. Eligible people who buy qualified health plans through one of the health insurance marketplaces established under the law are entitled to both premium assistance (in the form of refundable tax credits paid to plans by the Treasury) and cost-sharing subsidies. Eligibility for premium credits ranges from 100% to 400% of the federal poverty level; eligibility for income-adjusted cost-sharing assistance is effectively capped at 250% of poverty. The lowest-income enrollees receive the most generous cost-sharing assistance, sufficient to raise the actuarial value of their plans to 94%.
The federal government pays both types of subsidies directly to plans; in turn, plans must pass these subsidies along to eligible members in the form of deeply discounted premiums and cost sharing. Companies that do not comply with this requirement are barred from marketplace participation.
The ACA’s cost-sharing assistance system is pegged to qualified plans with an actuarial value of 70%. Therefore, in the absence of assistance, deductibles and copayments would soar, as would the annual maximum limit on out-of-pocket cost sharing, from slightly more than $2,200 to over $6,800. For example, a study from the Kaiser Family Foundation shows that, in 2016, the average annual deductible for a silver plan sold in the marketplace would explode from about $220 for people receiving the highest level of cost-sharing assistance to over $3,000. Copayments similarly would rise exponentially. The majority of marketplace plan enrollees receive cost-sharing assistance. As legal scholar Timothy Jost has observed, as many as 2 million more people would be eligible for this financial assistance were they to enroll in marketplace plans.
In the case of premium assistance, the law is clear: Premium subsidies are paid from funds that are permanently appropriated as mandatory spending and thus require no annual appropriation. Because both premium tax credits and cost-sharing assistance are integrally related, the government argued that the ACA’s statutory text permits payment of both from the permanent premium fund since any other reading would produce absurd and deeply harmful results. But Judge Collyer rejected this interpretation, concluding that under the terms of the law, cost-sharing assistance remains subject to annual appropriations, and that Congress has chosen not to appropriate the necessary funds. In her view, the terms of the law provide ample evidence that lawmakers intended to treat cost-sharing funds separately from premium funding. Indeed, Judge Collyer noted, the Administration itself—apparently recognizing the need for a separate appropriation—specifically requested funds in its FY 2014 budget proposal to Congress, which rejected the request.
Because Judge Collyer stayed her ruling, there are no immediate consequences other than a high-stakes appeal. In the meantime, the Administration will continue to pay cost-sharing assistance from the premium fund while the question of whether Congress will address the issue—some $130 billion in funds will be required over the next 10 years—remains unanswered.
So many things could happen during the appeals process. A new Congress might reach a compromise with a new president, thereby ending the litigation. (As Jost notes, subjecting cost-sharing assistance to annual appropriations is simply impractical since insurers must set their rates before they know whether the appropriations will be forthcoming.) As legal scholar Nick Bagley previously has pointed out, insurers could sue the federal government to recover what they are owed. A new president and Congress could completely rewrite the ACA, thereby rendering the case moot. The appeals court—and perhaps, ultimately, the US Supreme Court—could decide that the case should never have proceeded to begin with because it is simply a political battle in which courts should not interfere. But because Congress’s constitutional appropriations power lies at the heart of the case, the courts might well determine that their involvement is appropriate; thus far, the House has successfully argued this point.
It’s worth reflecting on what, exactly, could transpire if this decision were to be upheld. One option might be to adjust premium subsidies to overcome the massive funding shortfall: The Administration could use its power to set premium subsidies to increase them sufficiently to compensate for the lost cost-sharing payments, thereby offsetting plan losses. But insurers could also be expected to dramatically increase the cost of their plans to help cut their losses, thereby making coverage impossibly expensive for middle-income people who are ineligible for premium assistance. Alternatively, of course, insurers could simply exit the marketplace altogether, concluding that, with the loss of reliable annual cost-sharing payments, their entire line of marketplace business is simply nonviable. At this point, the marketplace would collapse, leaving the vast majority of enrollees with no recourse, since more than 4 in 5 policyholders rely on subsidies to make their premiums affordable.
We’ve seen this picture before, and, sadly, it has not gotten prettier. Hopefully, one day the ability to buy a decent, affordable health plan in the absence of employer coverage or eligibility for public insurance simply will be part of the national DNA, just as universal health care is a basic part of social welfare in other wealthy democracies. As this case exemplifies, we clearly are not there yet.
Sara Rosenbaum is the Harold and Jane Hirsh Professor of Health Law and Policy and founding chair of the Department of Health Policy at the George Washington University School of Public Health and Health Services. She also holds professorships in the Schools of Law and Medicine and Health Sciences. A graduate of Wesleyan University and Boston University Law School, Rosenbaum has devoted her career to issues of health justice for populations who are medically underserved as a result of race, poverty, disability, or cultural exclusion. Between 1993 and 1994, Rosenbaum worked for President Clinton, where she directed the drafting of the Health Security Act and designed the Vaccines for Children program, which today provides near-universal immunization coverage to low-income and medically underserved children. Rosenbaum is the leading author of Law and the American Health Care System (Foundation Press, 2012) and has received many national awards for her work in public health policy. She is past chair of AcademyHealth and a member of the Institute of Medicine. Rosenbaum also has served on the CDC Director’s Advisory Committee and as a Commissioner on the Congressional Medicaid and CHIP Payment and Access Commission (MACPAC), which she chaired from January 2016 through the expiration of her term in April, 2017.
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