Eighteen states and the local government in Washington, D.C., asked a federal trial judge on Friday to order the Trump Administration to continue paying billions of dollars in subsidies to health insurance companies to offset some of their costs of providing coverage for lower-income people under the Affordable Care Act.
The plea was filed in a San Francisco court within hours after the Administration ordered an immediate halt to the so-called “cost-saving reduction subsidies.” The next payment was scheduled for next Wednesday, but government officials said that would not go forward. If the judge in California decides to act swiftly, there could be at least a preliminary ruling next week.
The key argument in the new lawsuit is that, in passing the Affordable Care Act in 2010 and creating health-insurance marketplaces (“exchanges”) in all states, Congress ordered the government to provide the subsidies to the insurance firms that offer policies in those marketplaces. Thus, the primary claim is that, in deciding to stop those payments, President Trump violated the Constitution by failing to carry out the law “faithfully.”
Trump Administration officials based their decision to stop those subsidies on a different legal argument: that Congress never specifically approved the use of federal funds to cover those payments, so that use of federal funds is flatly forbidden by the Constitution.
Perhaps adding a complication to this new legal confrontation over the ACA’s future is that a federal appeals court in Washington, D.C., said last summer that it is “a debated legal question” whether a federal agency can act “unilaterally” to stop or suspend the subsidies to insurers.
The U.S. Court of Appeals for the District of Columbia Circuit made that comment in August when it appeared that the government was planning to end the payments and back out of a case that raises the specific issue of whether spending for the subsidies to the companies was approved by Congress. The appeals court allowed a group of states to enter the case to continue the defense of those subsidies – a defense that had begun with the Obama Administration.
The D.C. Circuit has yet to issue any definite ruling on that dispute, because the case before it has been on hold while the Trump Administration decided what its position would be. On Friday morning, Administration lawyers notified the appeals court of their decision to stop the payments, and said they would hold discussions with lawyers on the other side about how to proceed with that case.
The fact that a basic question at issue in the new states’ lawsuit in San Francisco is also under review in the D.C. Circuit would not prevent the judge in California from deciding issues bearing upon the legality of the cutoff of the payments. The judge is not likely to take any action until the Administration has replied to the states’ lawsuit.
When the ACA created the exchanges, one of the aims was to provide a place where lower-income people could buy health insurance at affordable rates. The ACA created two kinds of subsidies to promote that goal. Only one of those is in dispute in the fight over payments to insurers.
When offering policies at affordable rates on the exchanges, insurance companies must cover at least some of the costs that people pay out of pocket for their care: such costs as co-pays or deductibles that must be satisfied before costs will be covered. The federal government then reimburses the insurers for doing that, through the mechanism of the “cost-saving reduction” payments.
The second kind of subsidy available to lower-income people getting insurance on an exchange is their eligibility for tax credits, to offset their insurance policy premiums. There is no dispute that Congress explicitly approved federal funds to cover those tax credits.
The legality of the payments to insurers was tested in federal court by the Republican leadership of the House of Representatives, and they persuaded a federal trial judge in Washington, D.C., that Congress never funded those payments. That decision has been on hold to allow the Obama Administration to appeal to the D.C. Circuit. The fate of the legal defense of those payments thus became an issue for the Trump Administration when it took office last January.
It is widely believed, by experts on health insurance, that ending the subsidies for the insurance companies will cause many of them to abandon the exchanges, or at least will lead them to charge significantly higher premiums for providing insurance through the exchanges. A major exodus of companies from those markets could collapse them, experts have predicted. And those experts have said that much higher premiums will put insurance beyond the reach of millions of people who have obtained coverage through the exchanges.
In the states’ new lawsuit, they contended that their governments will be forced to take on the costs of providing care for individuals who are priced out of the exchanges, or who are unable to get or maintain insurance because exchanges fold as a result of the exodus of insurers. The legal complaint also asserted that the Trump Administration had taken a series of steps, including the cutoff of the payments, in an effort to “sabotage” the law. Although the Administration has wanted Congress to “repeal and replace” the ACA, Congress has yet to do so.
Besides arguing that the cutoff of the insurance companies’ subsidies would be unconstitutional, the states’ lawsuit contended that the cutoff itself is not allowed under the ACA and the decision to end the payments violates federal law that controls the actions of federal agencies.
In deciding the scuttle the payments, the Trump Administration criticized them as a “bailout of insurance companies” and condemned them as “yet another example” of how the Obama Administration “skirted the law to prop up a broken system.”
