CMS adds language to give insurers an out if subsidies disappear

Whether the government should be allowed to widely subsidize insurance plans sold on the HealthCare.gov website is still being debated in the courts, but the CMS is preparing for an ultimate decision that could eliminate the subsidies.

New contracts between the CMS and insurers offering plans on HealthCare.gov now include language that would allow insurers to stop offering their plans should judges rule that the federal government should not be allowed to offer subsidies to people in states without their own exchanges.

The language says, “CMS acknowledges that [the insurer] has developed its products for the [federal exchange] based on the assumption that [Advance Payments of the Premium Tax Credit] and [Cost-sharing Reductions] will be available to qualifying Enrollees. In the event that this assumption ceases to be valid during the term of this Agreement, CMS acknowledges that Issuer could have cause to terminate this Agreement subject to applicable state and federal law.”

A number of cases regarding the legality of the subsidies are now working their way through the court system.

In July, in a split decision in Halbig v. Burwell, a three-judge panel from the U.S. Court of Appeals for the District of Columbia Circuit struck down the subsidies, saying residents shouldn't be eligible for them in states that haven't adopted their own exchanges. That decision, however, was invalidated when the full D.C. Circuit Court agreed to reconsider the case. Oral arguments are scheduled for Dec. 17.

That same day in July, a 4th U.S. Circuit Court of Appeals panel ruled unanimously in favor of the administration on the same issue in King v. Burwell. That case has been appealed to the Supreme Court, but the justices have not indicated whether they will hear it.

A federal judge in Oklahoma also ruled against the subsidies in September.

Michael Cannon, director of health policy studies for the Cato Institute, a libertarian think tank, said the new CMS contract language is significant in that it shows the seriousness of the legal challenges facing the subsidies.

“It's the first indication that we've gotten that the administration and its allies are nervous about these losses,” Cannon said. “They've tried to project this image of confidence, of the law is obviously on their side, these lawsuits are frivolous and of course they're confident they're going to prevail in court, but now they're facing two losses.”

Follow Lisa Schencker on Twitter: @lschencker