Late in the evening of October 12, 2017, word leaked that the Trump Administration planned to finally carry out its threat to stop the Cost-Sharing Reduction Payments (“CSRs”) under the Affordable Care Act (“ACA”). The Administration confirmed the decision to cease the CSRs and published a memorandum from the Office of the Attorney General to the Secretaries of Treasury and Health and Human Services setting out the legal and policy underpinnings of that decision.
The ACA establishes two mechanisms to help defray the costs of health insurance premiums in the Healthcare Marketplace (“Marketplace”) for lower income individuals: (1) refundable tax credits, and (2) Cost Sharing Reduction payments (“CSRs”). Section 1401 of the ACA amended certain provisions of the Internal Revenue Code (“Tax Code”) to reduce the Marketplace premiums of qualified individuals by providing these tax credits and making them a permanent part of the appropriation provisions of the Tax Code. On the other hand, Section 1402 of the ACA requires insurance companies offering health insurance plans in the Marketplace to reduce co-payments and other out-of-pocket costs to qualified policyholders and directs the federal government to make payments directly to insurance companies to offset the impact of these reduced co-payments and costs. These Section 1402 CSRs are not linked directly to the existing Tax Code appropriations, but the Obama Administration continued to make the payments out of the federal budget, arguing that Section 1402 is inextricably linked to Section 1401 and operate in tandem to help defray the costs of obtaining health insurance in the Marketplace.
In 2014, the U.S. House of Representatives filed suit against the Obama Administration challenging, among other things, these CSRs. United States House of Representatives v. Burwell, 185 F. Supp. 3d 165 (D.D.C. 2016) No. 14-cv-01967-RMC). The parties focused initially on whether the House of Representatives had standing to sue and the Federal District Court ultimately decided that in favor of Congress, granting standing and enjoining the Obama Administration from issuing the CSRs but staying that injunction pending appeal to the U.S. Court of Appeals. The Obama Administration appealed, but given the transition to a new Administration, the Court of Appeals granted the House request to hold the briefing schedule in abeyance while the parties decided whether to enter into settlement negotiations or to dismiss the appeal. The Trump Administration, facing a deadline to inform the Court as to how it planned to proceed, filed Notice with the Court stating that the Department of Health and Human Services (“HHS”) has directed that cost-sharing reduction payments be stopped because…such payments are not funded by the permanent appropriation…The upcoming October 18 payment will not occur.
Potential Impacts of Ceasing CSRs
Because of the uncertainty created by the House v. Burwell lawsuit abeyance and several comments and tweets by President Trump threatening to end the CSRs, many insurance companies offering health insurance plans in the Marketplace, factored in premium increases for their respective 2018 Plans. However, approximately 14 states gambled that the CSRs would continue and did not factor such additional costs into their respective Marketplace Plans. The insurance companies in these states will be unable to offset the costs of the ceased CSRs and face the choice of incurring substantial losses or withdrawing immediately from the Marketplace.
To understand the disruptive impact of ceasing the CSRs, recall that during the Congressional debate over repealing the ACA, the Congressional Budget Office released a report in August 2017 analyzing the potential impacts of such an action. In what appears now to be prescient, the CBO noted that [U]nder the policy analyzed, because of the timing (August 2017), insurers would know about the termination of the CSR payments before having to finalize premiums for next year. But if the timing was different, if CSR payments were stopped after premiums were finalized or were already being charged, CBO and JCT expect that additional insurers would exit the marketplaces in 2018 to reduce their financial losses.
The insurance companies in those states that gambled on continued CSRs face some difficult choices in the ensuing days and individuals depending upon health insurance in the Marketplace throughout the U.S. face significant uncertainty with the open enrollment period for 2018 beginning on November 1st, less than 20 days away. At the time of this writing, there appears to be some interest among some members of Congress in both parties to enact a temporary fix to avoid the disruption and attendant costs of ceasing the CSRs.