Court Invalidates Government Spending on ACA Cost-Sharing Subsidies

Yesterday, the federal district court in Washington, D.C. ruled that the federal government has been improperly reimbursing insurance companies offering health coverage through the Exchanges for the cost-sharing subsidies required under the Affordable Care Act (“ACA”).  Significantly, the court’s ruling will not have an immediate impact on the Exchanges or the ACA because the court’s ruling has been put on hold while the parties appeal the decision.

Background. The ACA requires insurance companies to provide cost-sharing subsidies (for example, lower deductibles and coinsurance) to certain low- and moderate-income individuals who purchase health coverage on an Exchange.  The insurance companies are supposed to be reimbursed by the federal government for the cost-sharing subsidies, and the government has been making these reimbursements since January 2014.

This Case.  The U.S. House of Representatives sued the Department of Health and Human Services and the Department of the Treasury (the “Departments”) claiming that even though Congress authorized the Departments to provide cost-sharing subsidies, it never provided funding for the subsidies.  As a result, the claim alleges that the Departments have been illegally reimbursing the insurance companies for the cost-sharing subsidies.

The Court’s Decision.  The court ruled that Congress has not authorized funding for the cost-sharing subsidies, and that the Departments cannot reimburse the insurance companies for the subsidies until Congress authorizes funding.  In its opinion, the court distinguished between the ACA’s premium tax credits for which Congress has permanently provided funding and the cost-sharing subsidies for which Congress has not provided funding.

Potential Impact.  The ultimate impact of this ruling remains to be seen since it will not take effect while appeals are pending.  However, if upheld on appeal, the decision could significantly undermine the Exchanges and the ACA because insurance companies will still be required to provide cost-sharing subsidies but will be unable to obtain reimbursement from the federal government.  This could cause the insurance companies to raise premiums significantly or leave the Exchanges altogether.

It is important to note that even if the decision is upheld on appeal, employers will still need to comply with the employer mandate.  In addition, with appeals likely to continue beyond November, the presidential election could impact the ultimate outcome.  We will provide additional updates as future developments occur.

Contact Information.  For more information from Mazursky Constantine, please contact Don Mazursky (404.888.8840), Kelly Meyers (404.888.8838), Angela Roberts (404.888.8822), or Alex Smith (404.888.8839).  For information from VCG Consultants, please contact Leslie Schneider (770.863.3617).

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