Federal Court Strikes Down ACA Cost Sharing Reduction Payments

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A federal district court ruled on May 12, 2016, that the US Congress did not appropriate funds for the Affordable Care Act’s cost-sharing reduction subsidies, and enjoined the government from making CSR payments to health insurance issuers. The court stayed the decision pending an anticipated appeal to the US Court of Appeals for the District of Columbia Circuit.

In Depth

A federal district court judge in Washington, DC ruled on May 12, 2016, that Congress did not appropriate funds for the Affordable Care Act’s (ACA) cost-sharing reduction (CSR) subsidies. See United States House of Representatives v. Burwell. The decision will have no immediate legal impact, since the court stayed the ruling while the case is appealed.

The case involves a different subsidy from the one the Supreme Court of the United States upheld in the recent King v. Burwell case. The King case challenged whether the ACA provides for tax credits to pay premiums for insurance purchased through the federal (rather than a state) exchange. House v. Burwell challenges whether Congress appropriated funds to pay for the ACA’s cost-sharing reductions.

Cost-sharing reductions under the ACA. The ACA provides that individuals who meet certain income thresholds are eligible to receive CSRs through enhanced health plans. Individuals eligible for CSRs do not receive any payments from the government. Rather, the individual pays the premium for a standard value health plan, but the health insurance company provides them a plan with an enhanced actuarial value (i.e., 73, 87 or 94 percent rather than 70 percent). The difference in plan costs between the standard and the higher value plan represents the total amount of CSRs. The statute provides that the government “shall make periodic and timely payments to the issuer equal to the value of the reductions.” Approximately 58 percent of individuals who purchase insurance through an exchange receive an enhanced plan.

The lawsuit. The US House of Representatives filed suit in 2015 asserting that it had not appropriated funds to make the CSR payments to health insurance issuers. The House argued that by making the payments, the Executive Branch violated the Constitution, which provides that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law . . . .”

The decision. The Obama administration initially challenged the House’s standing to bring the case. In October 2015, Judge Rosemary M. Collyer ruled for the House on that threshold question, concluding that the House’s allegations gave rise to a “concrete, particularized injury” as an institution, because the House was “deprived of its rightful and necessary place under our Constitution” as the exclusive authority to appropriate funds. The court also rejected the administration’s argument that the lawsuit raised a “political question” that implicated separation of powers concerns among the three branches of government. The administration asked Judge Collyer for leave to immediately appeal the standing decision to the US Court of Appeals for the DC Circuit, but Judge Collyer denied that request and ordered the parties to proceed to briefing the lawsuit’s merits.

The court’s May 12 decision ruled in the House’s favor on the merits. The court rejected the administration’s argument that the ACA’s permanent appropriation for the Advance Premium Tax Credits (APTC) also extended to CSRs, concluding that the law only appropriated funds for APTCs. Reviewing principles of appropriations law, the court held that although the statute permanently authorized CSRs as a benefit plan, it made payments “dependent on non-permanent appropriations,” which Congress had refused to provide. The court also rejected the administration’s argument that CSRs and APTCs are an integrated and unified system of subsidies, and that cutting off CSR payments would cause issuers to charge higher premiums for products on the exchanges, which in turn would result in increased government payments for APTCs. The court concluded that the ACA’s text permanently appropriated funds only for APTCs, and not for CSRs. Accordingly, Judge Collyer enjoined payment of CSR reimbursements “pending an appropriation for such payments.

Next steps. The decision will not result in an immediate suspension of CSR payments, because the court stayed the order pending a likely appeal. On appeal, the DC Circuit will address the threshold issues of whether the House has standing to bring the lawsuit and whether the case presents a political question that is not justiciable. If it decides for the House on these threshold issues, it would also decide the case on the merits.

Of course, the November elections will change the composition of the House of Representatives and usher in a new administration, which could change the dynamics of the case.