Excerpt from Professor Jost's post on Health Affairs Blog:

Legal Background

This lawsuit originated in an attempt by the House of Representatives to hold President Obama responsible for what it has viewed as abuses of presidential power. Since 2010, the House of Representatives has been held by a substantial Republican majority. The House has been continually at loggerheads with the President on health care reform. The House has voted over 60 times to repeal the President’s signature policy initiative.

On July 30, 2014, the House voted along party lines to file a lawsuit challenging the President’s implementation of the law. The complaint, filed on November 21, 2014, focused on two issues: the decision by the administration in 2013 to delay the implementation of the employer mandate for a year, and the funding by the administration of the Affordable Care Act’s (ACA) cost-sharing reduction (CSR) payments, arguably without an explicit appropriation.

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The Role Of Cost-Sharing Reduction Payments In The ACA Legislative Scheme

The CSRs are an essential element of the ACA’s program for making affordable health insurance and health care available to low and moderate-income Americans. The ACA offers these individuals premium tax credits (APTC) to help make insurance affordable; these are offered through the tax system and are funded through a permanent appropriation for tax refunds. But the silver (70 percent actuarial value) plans whose premiums set the benchmark for premium tax credits are high cost-sharing plans. The average deductible for an individual in 2016 is over $3,000. For many low-income Americans, the deductibles and coinsurance imposed by these plans would leave health care unaffordable without additional assistance.

To make health care affordable, the ACA requires insurers to reduce cost sharing for individuals and families with incomes below 250 percent of poverty. CSRs work in two ways. First, they reduce the out-of-pocket maximum, the most that an individual or family has to pay for in-network services before the insurer takes over all costs. For 2016, the maximum out of pocket for an individual is $6,850, but for an individual with an income up to 200 percent of poverty it is reduced to $2,250. (For families, out-of-pocket maximums are twice these amounts.)

Second, the CSRs increase the actuarial value of silver plans, from 70 percent to 73 percent for enrollees with incomes between 200 and 250 percent of poverty, 87 percent for enrollees with incomes between 150 and 200 percent of poverty, and 94 percent for individuals with incomes between 100 and 150 percent of poverty. (The actuarial value of an insurance plan refers to the percentage of medical costs of a standard population that is covered by the insurer through payments to providers rather than by enrollees through deductibles or other forms of cost sharing.)

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The Stakes

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This is not a trivial matter. If the CSR payments to insurers stopped, the insurers would still be legally required to reduce cost sharing—at a cost of $7 billion this year and $130 billion over the next ten years—without reimbursement. Burdened with this cost without reimbursement, many insurers might cease to offer marketplace coverage. Those that remained would have to raise rates dramatically to cover the costs of reducing cost sharing while ensuring solvency.
Most of this increase would be covered by increased APTCs. Indeed, the increased rates might make some individuals eligible for APTC who might not have been eligible otherwise, resulting in the paradoxical situation in which eliminating appropriations for cost-sharing reduction would increase federal spending, by an estimated $47 billion over ten years.

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Looking Forward

Judge Collyer enjoins further CSR payments until Congress appropriates funding. But she stays the effect of her decision pending certain appeal, which the administration has 60 days to file. The D.C. Circuit, which soon goes into its summer recess, will likely not hear the case until the fall and may not decide it until next year. Whatever a panel of the D.C. Circuit decides, both sides are likely to request en banc review by the full circuit or Supreme Court review. Only then will we know what, if any, final consequences the decision may have.

Excerpt is reprinted with permission and is subject to the Health Affairs Blog terms of use. 

Prof. Timothy Jost, Judge Rules Against Administration In Cost-Sharing Reduction Payment Case, Health Affairs Blog, May 12, 2016, http://healthaffairs.org/blog/2016/05/12/judge-blocks-reimbursement-of-insurers-for-aca-cost-sharing.... Copyright ©2015 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.