As we head back to court, what does a challenge to the ACA mean for the country’s Health Insurance Marketplaces?
Over the past five years, the Affordable Care Act (ACA) has withstood challenges to the constitutionality of its insurance mandate, Medicaid expansion, birth control-related provisions, and questions about who can receive premium reducing tax credits. In 2016, the law will once again be put to the test as a federal District Court judge reviews a legal challenge related to yet another portion of its cost-related provisions.
What is this latest challenge? In the summer of 2014, the US House of Representatives voted along party lines to file a case against the Obama Administration, arguing that top staff in the President’s cabinet had acted illegally in implementing portions of the ACA. The original documents filed with the US District Court of the District of Columbia contend that the administration subverted Congressional authority and violated the Constitution’s separation of powers in two ways:
- the Administration illegally delayed the implementation of the law’s employer mandate, and
- the Administration illegally authorized $175 million dollars in payments to insurance companies as part of a cost-sharing program in the law.
In September 2015, Judge Rosemary M. Colleyer ruled that while the House did not have standing to bring a claim related to the employer mandate, the case could go forward on the issue of whether the President violated the Constitution by directing federal appropriations.
What is the cost-sharing program referred to in the lawsuit? There are two types of federal financial assistance provided through the ACA that reduce the cost of insurance for low-income people enrolled in qualified health plans (QHPs). The first, and more commonly known, is the Advanced Premium Tax Credit (APTC), which is a subsidy provided directly to insurers to lower an individual’s monthly premium. The second, at center of this case, is the Cost Sharing Reduction subsidy (CSR), which reduces out-of-pocket expenses for health care utilization for enrollees who are below 250 percent of the federal poverty level. CSRs are critical, as these subsidies allow the lowest-income QHP purchasers to not only maintain health insurance coverage but also to afford to use their insurance when they need it. Unlike APTCs, these subsidies do not have to be reconciled against an individual’s earnings at tax time. As of June 2015, over 5.5 million marketplace enrollees (more than half of all total enrollees at that time) were in plans that included cost-sharing subsidies.[i]
How do the CSRs work? Individuals qualify for a CSR when they have income between 100-250 percent of the federal poverty level and purchase a silver-tier plan on a state or federal marketplace. These subsidies reduce the portion of health care coverage paid for by the consumer by increasing the actuarial value of the silver plan selected by the consumer. Actuarial value, which is represented as a percentage, reflects how much of a plan’s covered benefits are being paid for by the insurance company. The higher the actuarial value, the more a company bears the responsibility for the enrollee’s covered health care costs and the less the enrollee pays out of pocket.
How were these CSRs funded through the ACA? Under the ACA, insurance companies are required to adjust the actuarial value of silver plans for all individuals with incomes between 100-250 percent of the federal poverty level. The government is then expected to provide periodic payments to make companies whole for any loss accrued from the increased actuarial value of their plans.
At issue in this case is whether in setting up a set of complementary subsidy programs to support low-income enrollees, the bill crafted by the House of Representatives creates a permanent appropriation for CSRs. The Plaintiffs argue that there is not an explicitly stated appropriation for CSRs that parallels language included in Section 1324 of the law for APTCs. A brief filed by Democratic leadership states that in fact it was always intended for the APTC and CSR funding to come from the same permanent funding source contained in 1324, and in support cites analyses developed by the non-partisan Congressional Budget Office which assumed that that this was the case.
It should be noted that Congress retains the discretion to resolve any uncertainties in this case by adding a line item for CSRs in upcoming budgets. Given the current tensions over the law, it is unlikely that this will happen before a decision is issued in this case.
What is the likely outcome in this case? It is unclear. A court review of a legislative challenge to an executive branch decision is unprecedented, particularly given the authority of the executive branch to administer laws and interpret them as needed. In the past, the Supreme Court has held that Congress does not have the ability to bring suit to force an administration to execute laws consistent with Congressional interpretation of the law’s meaning. Given the new territory this case is covering, it is difficult to predict what the outcome may be. Any appeal of this case may result in a higher court deciding that the District Court had no authority to review this case in the first place. The resolution of this dispute, and the understanding of the precedent it sets, could take years to unravel.
Would the loss of the CSRs mark the end of the ACA’s Marketplaces? The answer is probably not. The most likely scenario is a significant increase in premiums for the silver-tier plans offered through the marketplaces and a dip in enrollment. As described above, plans being sold on a federal or state marketplace must provide increased actuarial value plans to very low-income enrollees even without an appropriation. Without being made whole through government subsidies, the plans will in all likelihood significantly increase their premiums to make up the difference. Alternatively, insurance companies could decide to remove themselves from the marketplaces altogether. A recent report published by the Urban Institute estimates that silver plan premiums could increase an average of $1,040 per person and overall enrollment could drop by 400,000 if a court decision eliminates the CSR payments to insurance companies.[ii]
The significant increase in silver plan premiums would also result in substantial increases to the amount of money expended by the federal government on the APTC subsidies, as the amount of these subsidies are directly tied to the premium costs of silver plans. In the same report mentioned above, the Urban Institute estimated that the increased APTC subsidy to offset the loss of CSR would cost the federal government an additional $47 billion over the next 10 years.
What should states be on the look out for? A decision in this case is expected from DC’s District Court by spring of 2016. This decision will almost certainly be appealed by the losing side, and will move to the District’s federal Appellate Circuit, and then possibly the Supreme Court. Most observers doubt that decision by the District Court will change the CSR program while an appeal is pending. This means it would be at least another year before the program is truly in jeopardy – however, with over half of marketplace enrollees in limbo and another potential blow to the predictability of the insurance marketplace, this is definitely a dispute to watch.