States' lawsuit to continue cost-sharing payments faces a challenging road
Attorneys general in 19 states face a tough battle to convince a federal judge that the Trump administration is legally obligated to fund cost-sharing subsidies to insurers.
Late last week, attorneys general from California, New York and 17 other states filed a lawsuit against President Donald Trump, arguing the administration violated federal law when it ordered the immediate end of the Obamacare subsidies. The suit, filed in U.S. District Court for Northern District of California, claims the ACA appropriated funding for the cost-sharing payments and Congress doesn't need to renew that appropriation periodically.
The attorneys general want the court to issue an injunction forcing the Trump administration to make the payments.
The lawsuit's core argument has been a question for years now: Do the cost-sharing subsidies require congressional appropriation? That question spurred the 2015 lawsuit House v. Burwell, where House Republicans argued that Congress must appropriate the funds. That case is still pending in the U.S. Court of Appeals for the District of Columbia Circuit, after the Obama administration appealed a District Court ruling that the payments were unconstitutional without congressional approval.
Nicholas Bagley, a law professor at the University of Michigan who has written extensively about the ACA, said in an email that the attorneys general face "an uphill battle," especially since a District Court has previously ruled the cost-sharing subsidies are unconstitutional because there was no appropriation from Congress. He added that he agreed with that ruling.
Josh Blackman, an associate professor of law at South Texas College of Law Houston, said he doesn't think the court will side with the attorneys general.
"This isn't even a close call," he said. "It is a very strange argument—the court would force payments that Congress never appropriated."
In order to win the case, the attorneys general will have to convince the court that without the cost-sharing subsidies the ACA insurance exchanges will collapse and cause harm to people. This could be a tough argument to make, since many insurers set rates in 2018 that anticipated the cost-sharing subsidies would be rescinded.
"It does not seem likely that whatever happens would lead to a complete breakdown of the exchange markets for the 2018 year," said Thomas Bulleit, a partner at Ropes & Gray, in an email.
Roughly half of states anticipated that Trump might nix the cost-sharing subsidies and asked insurers to set rates that factored that in. Cost-sharing subsidies are only available on silver plans, so the premium hikes were largely concentrated to those plans.
States that weren't prepared for the loss of cost-sharing subsidies will likely see big rate hikes. For example, Pennsylvania said rates will increase by an average of 30.6% on its exchanges rather than by 7.6%. Jessica Altman, acting insurance commissioner for the state, said the increase was a direct result of "deliberate disruption of the individual market by discontinuing cost-sharing reduction payments to insurers and Congress's inaction to appropriate these funds."
The removal of the subsidies also likely means big losses for insurers and more lawsuits to recoup them, Bagley said in a blog post.
Under the ACA, insurers have to provide plan holders with cost-sharing premium reductions even if the government doesn't provide them with the funds.
"What's more, I think the lawsuits are viable," Bagley said of insurers' lawsuits, because the government is legally obligated under the ACA to give insurers the CSR payments.
But those suits could take years to sort out, and insurers won't bank on them as a viable, immediate solution, according to Timothy Jost, a health reform expert and emeritus law professor from Washington & Lee University.
"I think insurers are just trying to get their rates sorted out, so they aren't left holding the bag," he said.
Insurers could lose up to $2 billion in revenue over three months if the federal government doesn't pay the CSRs. This year, cost-sharing subsidies have amounted to $7 billion.
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