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Providing an Explicit Appropriation for Cost-Sharing Reductions Wouldn’t Require a Budgetary Offset

April 19, 2017 at 10:15 AM

Recent statements by President Trump and an ongoing lawsuit have left health insurers uncertain whether they will continue to receive billions of dollars they’re owed in cost-sharing reduction payments. Congress could resolve this uncertainty by clarifying the law and providing an explicit appropriation for these payments. Such an appropriation would not require an offsetting tax increase or reduction in other spending to avoid adding to the deficit. That’s because the Affordable Care Act (ACA) has already paid for the cost-sharing reductions in full.

The ACA requires insurers to reduce cost-sharing requirements — such as deductibles, co-payments, and out-of-pocket limits — for certain people who buy health insurance through the marketplaces if their income is below 250 percent of the federal poverty level. The ACA also requires the federal government to reimburse insurers for the expense of providing these cost-sharing reductions.

The federal government’s cost-sharing reduction payments to insurers, however, are in legal limbo. The House of Representatives filed a lawsuit arguing that the government may not make the payments because the ACA did not provide an explicit appropriation for them. The Obama Administration argued that the permanent appropriation for the ACA’s premium tax credits also covers the cost-sharing reductions and that the House lacks legal standing to bring the suit. While a federal District Court upheld the House’s view, the court stayed its decision pending an appeal, and the government has continued to pay insurers. However, President Trump is considering halting the payments.

The uncertainty around the cost-sharing reduction payments is already destabilizing to the health insurance marketplaces, and failure to make the payments would completely destabilize the market. If the Administration ceased making payments, insurers would still be required to reduce cost sharing for low-income enrollees, but the federal government wouldn’t reimburse them. (Insurers would still be entitled to the payments and could sue the federal government for them.) Faced with losing the payments, insurers would either raise premiums substantially or refuse to offer marketplace coverage for 2018 at all — a decision that they must make soon.

Congress could easily clarify the situation and end the uncertainty by enacting an explicit permanent appropriation for the cost-sharing reductions. Doing so would be especially easy because no budgetary offset would be needed, nor would the appropriation count against the statutory caps on non-defense discretionary spending. That’s because the ACA provided insurers an entitlement to these payments, and it fully paid for those costs, along with its other coverage expansions.

The cost-sharing reductions are now built into the budget baseline, which, by law, includes the full amount of entitlement spending, whether or not appropriations are yet available to make the payments. For example, the baseline assumes full funding for veterans’ disability compensation even though the funding is provided in annual appropriations bills and does not yet exist for 2018, or even for the final months of 2017.

Therefore, enacting an explicit appropriation for cost-sharing reductions would not increase spending relative to the budget baseline in any year and so would not have to be paid for again through an offsetting increase in revenues or reduction in spending.