On May 12, 2016, the United States District Court for the District of Columbia issued a decision in United States House of Representatives v. Burwell that will likely have significant consequences on the health insurance marketplace. The court held that Congress has not appropriated funds for the cost-sharing reduction subsidies described in Section 1402 of the Patient Protection and Affordable Care Act (PPACA). The court concluded that while insurers still have a statutory obligation to provide cost-sharing reductions to individuals and families below certain income thresholds, Health and Human Services (HHS) and Treasury reimbursement payments to insurers are unconstitutional, unless Congress takes further action to appropriate funds.

In its analysis, the court explained that Section 1402 of PPACA authorized the subsidy program but did not provide an appropriation. The court summarily rejected HHS’s textual argument that funds for subsidy payments under Section 1402 were included in the appropriation for PPACA’s premium tax credit program under Section 1401. Regarding this textual argument, the court stated that “[i]t is a most curious and convoluted argument whose mother was undoubtedly necessity.”

The court also rejected HHS’s argument that Congress’s appropriation of funds for subsidy payments may be inferred from PPACA’s overall structure. The court acknowledged insurers would likely raise premiums if they do not receive reimbursements under Section 1402, likely leading to reduced enrollment in health exchange plans and additional government spending under the premium tax credit provisions of Section 1401. Ultimately, however, the court concluded that it would not have been “absurd” for Congress to use the current appropriations method to fund Section 1402 subsidy payments. Therefore, the court refused to infer a permanent appropriation from the structure of PPACA that would allow HHS and the Treasury to continue making payments under Section 1402 without additional legislation.

The big question is what this decision means for insurers offering plans on a health care exchange and the overall U.S. health care market. The court has stayed its injunction against future payments under Section 1402 pending an appeal by HHS and the Treasury, and there is every reason to believe that this case will be appealed and potentially reach the Supreme Court. Should this ruling withstand appeal, it represents a significant new cost for insurers, as the court stated that Section 1402 does not “condition the insurers’ obligations to reduce cost sharing on the receipt of offsetting payments.” Consequently, uncertainty will continue within the insurance industry until this matter is fully resolved, whether through a final appeal or additional legislation.