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House Lawsuit Vs. Health Reform’s Cost-Sharing Subsidies Not a Structural Threat to ACA

September 10, 2015 at 2:45 PM

A federal district court has decided that House Republicans can proceed with their lawsuit against the Administration’s payments of the Affordable Care Act’s (ACA) cost-sharing reductions.  But even if the case eventually reaches the Supreme Court, and in the unlikely event that the Court decides for the House, it will not affect marketplace enrollees’ continued access to cost-sharing subsidies or seriously threaten the marketplaces or health reform’s overall structure as the case of King v. Burwell could have done. 

Our analysis explains why:

First, the ACA makes clear that the cost-sharing reductions are an entitlement, meaning that eligible people enrolled though a marketplace have a legal right to them.  Irrespective of the outcome of the case, individuals eligible for cost-sharing reductions will continue to receive them

Second, the ACA also makes clear that insurers have the legal right to be reimbursed for providing these cost-sharing reductions.  The ACA states that the federal government “shall make periodic and timely payments” to the insurers equal to the value of the cost-sharing reductions they provide to eligible individuals.  The ACA does not make this requirement contingent on Congress appropriating funds (or sufficient funds) for that specific purpose. 

Third, the courts may accept the Administration’s argument that the ACA’s guaranteed funding stream to pay premium subsidies for marketplace coverage can also be used to pay the cost-sharing subsidies, as together they provide financial assistance to make marketplace coverage more affordable.  Even if the courts conclude that the funding stream for the premium subsidies cannot be used also to pay the cost-sharing subsidies, they may nonetheless reason that the ACA’s unequivocal mandate that the federal government pay cost-sharing subsidies constitutes an appropriation of funding by itself.  Neither the Constitution nor the courts require that appropriations acts be formally designated as such. 

Moreover, even if the courts decide that an appropriation to pay the cost-sharing subsidies does not exist within the ACA, the government would still have to make the cost-sharing subsidy payments to insurers.  As noted, eligible beneficiaries would retain the right to the cost-sharing subsidies, and marketplace insurers would retain the right to payments compensating them for providing the subsidies. 

And, in the event that the courts ruled that no ACA funding stream currently exists for these subsidies and Congress refused to appropriate funds to compensate insurers for providing the subsidies, insurers could seek relief in the United States Court of Federal Claims and would almost certainly prevail, given that the ACA clearly establishes an entitlement to cost-sharing subsidies.  Congress long ago enacted an open-ended, permanent appropriation of whatever amounts are needed to pay valid claims against the government, including judgments from the Court of Federal Claims.  The Court of Federal Claims could order that insurers be paid, and insurers would then receive their cost-sharing subsidy payments without any need for further congressional action. 

Click here for our full analysis.

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