(Updated at 5:37 p.m. ET)
A federal judge on Wednesday denied a request from state attorneys general to stop the Trump administration from scrapping the cost-sharing reduction subsidies that are paid to insurance companies to help lower costs for low-income Americans.
U.S. District Judge Vince Chhabria, an Obama administration appointee in the U.S. District Court for the Northern District of California, said the Trump administration had a stronger legal argument than the 19 state attorneys general regarding whether Congress appropriated federal funds for the CSRs, though "it's a close and complicated question." He also wrote reviving the payments would be "counterproductive" and denied their request for a preliminary injunction.
"State regulators have been working for months to prepare for the termination of these payments. And although you wouldn't know it from reading the states' papers in this lawsuit, the truth is that most state regulators have devised responses that give millions of lower-income people better health coverage options than they would otherwise have had," Chhabria wrote in his opinion released Wednesday.
The White House earlier this month announced its decision to end the federal CSR payments. The decision to end the payments grew out of a lawsuit filed by House Republicans in 2014 alleging the Obama administration was unconstitutionally making payments that were never appropriated by Congress.
The CSRs are paid to insurance companies, who are required by the ACA to lower the out-of-pocket costs, including copayments, coinsurance and deductibles, for people who make up to 250% of the federal poverty level.
President Donald Trump repeatedly threatened to end the payments, calling them insurer "bailouts," and finally made good on those warnings just two weeks before the ACA open enrollment was slated to begin Nov. 1. The move sent insurers scrambling to refile 2018 rates.
Scrapping the CSRs threatens to raise premiums for Obamacare enrollees, particularly those who earn too much income to qualify for tax credits, while also reducing marketplace sign-ups and causing major financial losses for health plans in 2017, industry experts have warned.
Soon after the White House's announcement, 19 state attorneys general, including those from California, Connecticut, Kentucky, New York and Massachusetts, sued the Trump administration to block the CSR funding cutoff, and asked the court to issue an injunction forcing the Trump administration to make the payments, while the case is pending.
The suit claimed the administration violated federal law when it ordered the end of the CSR payments. It argued the ACA appropriated funding for the subsidy payments and that Congress doesn't need to renew that appropriation periodically.
But the federal government argued that Congress never appropriated funds for the CSRs. If Congress doesn't appropriate money for a program, the Constitution prohibits the executive branch from spending money on it.
Judge Chhabria sided with the federal government, though he noted that both sides had "reasonable arguments." In the opinion, he wrote that the language in the ACA clearly appropriates money for the premium tax credits, another form of financial assistance offered to exchange enrollees. But the ACA made no such appropriation for the CSRs, and Congress hasn't been annually appropriating the money, he wrote.
"If there was no permanent appropriation in the (Affordable Care) Act, Congress is to blame for the failure, because it has not been making annual appropriations for CSR payments. The administration cannot fix Congress's error, because the Constitution prevents the administration from making payments on its own."
Chhabria acknowledged that the uncertainty caused by the absence of a permanent appropriation for the CSRs makes it hard for insurance companies to predict their costs and could make them less likely to offer coverage to consumers.
But, he noted that "the absence of money for CSR payments does not seem to be causing healthcare reform to come crumbling down."
Chhabria said that states saw "the writing on the wall" and began prepping for the likely end to the CSRs long before the White House announced its decision this month. Insurers are required to lower out-of-pocket costs for low-income exchange members even if the federal government stops providing the CSR payments. Without those payments, insurers were likely to either raise premiums or exit the marketplaces all together.
States took steps to mitigate any premium increases that would fall on consumers. For instance, they loaded the premium increases onto silver plans. Because premium tax credits are calculated based on the second-lowest cost silver plan, tax credits will rise as well. Premiums for other plans, such as gold and bronze plans, will go down for many consumers.
"Because of the measures taken by the states in anticipation of a decision by the administration to terminate CSR payments, the large majority of people who purchase insurance on exchanges throughout the country will either benefit or be unharmed," the judge said in his decision.
If the CSRs were restored, he wrote, millions of low-income people would actually be worse off with lower tax credits and higher-cost bronze and gold plans.
