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Decision might have detrimental effect on health care exchange
A district court has found federal reimbursements to insurers that offered cost-sharing reductions to low-income enrollees in the health care exchange to be unconstitutional. The decision could persuade insurers to stop offering qualified health plans on the exchange
In United States House of Representatives v. Burwell, No. 14-1967 (D. D.C. May 12), the court noted that Section 1401 of the Affordable Care Act provides tax credits to make insurance premiums more affordable, while Section 1402 reduces deductibles, co-payments and other means of cost-sharing by insurers. Congress added Section 1401 to a pre-existing list of permanently appropriated tax credits and refunds. Section 1402 was not added to that list. “The question is whether Section 1402 can nonetheless be funded through the same, permanent appropriation,” the court stated. “It cannot.” An appropriation must be expressly stated; it cannot be inferred, the court explained.
Reimbursements for Reduced Cost-Sharing
Under the Affordable Care Act (ACA), “those individuals who have household income between 100 percent and 400 percent the federal poverty level may qualify for reduced cost-sharing—deductibles, co-payments and co-insurance—from the insurers who provide qualified health plans through the exchange,” said Nicole Bogard, an attorney with Seyfarth Shaw in Atlanta. She said that the Department of Health and Human Services (HHS) will notify the insurer of those individuals who qualified for reduced cost-sharing.
For example, if a health insurance policy had a $2,000 deductible, the individual normally would pay the first $2,000 in health care expenses to the doctor or hospital. For those who qualify for the reduced cost-sharing, the insurer would pay $1,000 of the $2,000 deductible. The insurer would notify the HHS that it paid the $1,000 for the person and the HHS would direct the U.S. Treasury to reimburse the insurance company for that $1,000, Bogard noted.
However, Congress did not permanently appropriate the billions of dollars that the HHS has spent since January 2014 on Section 1402 reimbursements, the court concluded, noting that the department unsuccessfully sought annual appropriations before this time. There is a permanent appropriation for the premium tax credit, but not the cost-sharing portions of the act, the court concluded.
The HHS’s argument, “taken to its logical conclusion, is that every permanent authorization must also constitute a permanent appropriation or else an ‘absurd result’ would obtain,” the court said. “That is assuredly not the law.”
The court found the HHS’s use of unappropriated federal funds for cost-sharing reductions to be unconstitutional under the Appropriations Clause of the Constitution. “The fact that the statute requires health insurers to reduce cost-sharing for certain lower-income individuals, and provides that the insurers will be reimbursed for doing so, does not amount to a formal appropriation,” noted Garrett Fenton, an attorney with Miller & Chevalier in Washington, D.C. “In addition, although the premium tax credits under Section 1401 and the cost-sharing reductions under Section 1402 are related—insofar as a person who is ineligible for tax credits will necessarily be ineligible for cost-sharing reductions—the court did not find the two regimes to be so intertwined as to allow the appropriation for tax credits to apply for cost-sharing reductions as well.”
Fenton added, “The cost-sharing reductions program is a very important piece of the overall ACA framework, and the decision seemingly could have a major impact on the health insurance market as a whole.”
Raised Premiums Possible
The decision has been stayed pending appeal. If upheld, insurers’ financial projections for the cost of marketplace coverage will be altered. That “in turn may require them to raise their insurance premiums and/or third-party administration fees on the commercial side of the business—the business in which they service group health plans,” said Amy Gordon, an attorney with McDermott Will & Emery in Chicago. “This could drive up the cost of insurance and/or third-party administration fees for companies that provide health coverage to their employees and their dependents.”
Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.
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