On May 12, 2016, Judge Rosemary Collyer of the federal district court for the District of Columbia decided that the Obama administration cannot constitutionally reimburse insurers for the costs they incur in fulfilling their obligation under the ACA to reduce cost sharing for marketplace enrollees with incomes below 250 percent of the poverty level. Judge Collyer found that Congress has not specifically appropriated money for this purpose.
The judge stayed her order enjoining the administration from reimbursing insurers absent a specific appropriation pending appeal. The case will certainly be appealed and it will be a long time before we know how the matter ends up. But the May 12 decision was a clear victory for the House.
This lawsuit originated in an attempt by the House of Representatives to hold President Obama responsible for what it has viewed as abuses of presidential power. Since 2010, the House of Representatives has been held by a substantial Republican majority. The House has been continually at loggerheads with the President on health care reform. The House has voted over 60 times to repeal the President’s signature policy initiative.
On July 30, 2014, the House voted along party lines to file a lawsuit challenging the President’s implementation of the law. The complaint, filed on November 21, 2014, focused on two issues: the decision by the administration in 2013 to delay the implementation of the employer mandate for a year, and the funding by the administration of the Affordable Care Act’s (ACA) cost-sharing reduction (CSR) payments, arguably without an explicit appropriation.
The administration moved to dismiss the House’s complaint, relying on well-established precedent in contending that the federal courts have no jurisdiction to hear complaints by members of Congress challenging the actions of the executive. In an order entered on September 9, 2015, Judge Collyer agreed to dismiss the House’s complaint regarding the employer mandate delay issue, which she regarded as a routine dispute over interpretation of the law. It is clear from previous cases that members of Congress cannot sue the President just because they disagree with an interpretation of the law.
Judge Collyer refused, however, to dismiss the House’s claim that the funding of the CSRs without an explicit annual appropriation infringed on the constitutional authority of Congress to appropriate funds. In October Judge Collyer denied the government’s request for an expedited appeal from her decision and set the case for briefing on the merits.
The role of cost-sharing reduction payments in the ACA legislative scheme
The CSRs are an essential element of the ACA’s program for making affordable health insurance and health care available to low and moderate-income Americans. The ACA offers these individuals premium tax credits (APTC) to help make insurance affordable; these are offered through the tax system and are funded through a permanent appropriation for tax refunds. But the silver (70 percent actuarial value) plans whose premiums set the benchmark for premium tax credits are high cost-sharing plans. The average deductible for an individual in 2016 is over $3,000. For many low-income Americans, the deductibles and coinsurance imposed by these plans would leave health care unaffordable without additional assistance.
To make health care affordable, the ACA requires insurers to reduce cost sharing for individuals and families with incomes below 250 percent of poverty. CSRs work in two ways. First, they reduce the out-of-pocket maximum, the most that an individual or family has to pay for in-network services before the insurer takes over all costs. For 2016, the maximum out of pocket for an individual is $6,850, but for an individual with an income up to 200 percent of poverty it is reduced to $2,250. (For families, out-of-pocket maximums are twice these amounts.)
Second, the CSRs increase the actuarial value of silver plans, from 70 percent to 73 percent for enrollees with incomes between 200 and 250 percent of poverty, 87 percent for enrollees with incomes between 150 and 200 percent of poverty, and 94 percent for individuals with incomes between 100 and 150 percent of poverty. (The actuarial value of an insurance plan refers to the percentage of medical costs of a standard population that is covered by the insurer through payments to providers rather than by enrollees through deductibles or other forms of cost sharing.)
According to a Kaiser Family Foundation paper, the average annual deductible for standard silver plans in 2016 was $3,064, but was $2,491 for CSR73 plans, $709 for CSR87 plans, and $221 for CSR94 plans. A Commonwealth Fund study reports similar results, although it notes that the way in which cost sharing is structured varies from plan to plan.
As of the end of 2015, 5 million Americans, or 56 percent of all marketplace enrollees were receiving CSRs. It is believed that as many as 2 million more marketplace enrollees could be eligible for CSRs if they enrolled in silver plans.
The CSRs are obviously not free. The ACA requires the Treasury to reimburse insurers that reduce cost sharing for eligible individuals and families as they are required to do. This reimbursement is made on a monthly basis. The Constitution provides in article 1, section 9, clause 7: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law . . . .” The House claims that since no money has been appropriated for the CSR payments, they are unconstitutional.
This is not a trivial matter. If the CSR payments to insurers stopped, the insurers would still be legally required to reduce cost sharing—at a cost $7 billion this year and $130 billion over the next ten years—without reimbursement. Burdened with this cost without reimbursement, many insurers might cease to offer marketplace coverage. Those that remained would have to raise rates dramatically to cover the costs of reducing cost sharing while ensuring solvency.
Most of this increase would be covered by increased APTCs. Indeed, the increased rates might make some individuals eligible for APTC who might not have been eligible otherwise, resulting in the paradoxical situation in which eliminating appropriations for cost-sharing reduction would increase federal spending, by an estimated $47 billion over ten years.
Higher-income enrollees, on the other hand, would face unsustainable premium increases in the marketplace and would leave the marketplace to find coverage elsewhere. Because individuals would be drawn to the higher APTC now available through the marketplaces, however, a decision for the House could reduce the number of the uninsured, if the insurers participating in the marketplaces could survive the chaotic transition to higher premiums and tax credits.
Alternatively, insurers would turn to Congress, and possibly to the courts. They could sue in the Court of Claims to be reimbursed by the government for money that they had been promised, but they might also sue claiming that the government could not constitutionally require them to reduce cost sharing without reimbursement. Of course, Congress could simply appropriate funding for the CSRs on an annual basis. But insurers must usually set their premiums for the next year well before Congress appropriates funding. It would be impossible for insurers to set their rates for the coming year not knowing whether there would be an appropriation for the CSRs or not.
Judge Collyer’s Decision
Judge Collyer acknowledges in her decision what is at stake in the case, but concludes that the practical implications of her decision are irrelevant. She views the case as a simply a matter of appropriations law. Although Collyer’s decision is long and highly technical, she sees the matter as ultimately straight-forward: the Constitution prohibits expenditures without an appropriation; there is no appropriation for the cost-sharing reduction payments; thus the CSRs are illegal and must stop.
The judge’s opinion begins with a recitation of the constitutional appropriations clause. She proceeds to cite authority for the proposition that “an appropriation must be expressly stated; it cannot be inferred or implied.” Judge Collyer finds an explicit permanent or continuing appropriation for APTCs under section 1401 of the ACA, which added section 36B to the Internal Revenue Code. In adopting the ACA, Congress also amended the long-standing permanent appropriation for tax refunds, section 1324 of the Internal Revenue Code, to cover the funds the IRS would have to pay out for APTC. Congress did not, however, Judge Collyer concludes, provide a similar permanent appropriation for CSRs under 1402. Indeed, it did not, and has not since, appropriated money to fund the CSR program.
The Department of Health and Human Services (HHS) argued that 1401 and 1402 are “economically and programmatically integrated” in the ACA, so that the refund appropriation covering the premium tax credits under 1401 also covers the CSRs under 1402. One amicus brief (to which I signed on) pointed out that the ACA links APTCs and CSRs together in the same phrase in 44 provisions. Nevertheless, Judge Collyer characterizes the administration’s ACA textual argument as “a most curious and convoluted argument whose mother was undoubtedly necessity.” She holds that, while section 1324, the refund statute, was expressly amended to cover the APTC, it was not extended to the CSRs, which she held are in any event payments to insurers, not tax refunds. Although she acknowledges that the ACA does link premium tax credit and CSR eligibility, she insists that the provisions are separate, and any linkage does not bring the CSRs within the APTC appropriation.
Judge Collyer also dismisses the administration’s argument that the fact that the ACA requires the Treasury to pay insurers for both APTC and CSRs in advance combines the two programs. Indeed, she finds that the advance payment provision explicitly separates the APTC and CSR programs.
She next rejects the administration’s argument that the fact that the ACA explicitly applied the Hyde Amendment, which bars federal funding for abortions except in limited circumstances, to the CSRs demonstrates that annual appropriations were not expected, since the Hyde Amendment is applied every year to annual appropriations. She writes that the Hyde Amendment application provision may be redundant, but not contradictory, and thus of no consequence.
The appropriation process is often a two-step process, where Congress first authorizes and later appropriates funding. The administration pointed out that the ACA contains many provisions authorizing funding for programs where Congress expected a later appropriation, but did not include an authorization for the CSRs. Judge Collyer holds the absence of authorization language to be irrelevant to the question of whether Congress appropriated money, which, again, she opines it has not.
Judge Collyer also rejects the administration’s contextual arguments. The administration argued, as it had successfully in King v. Burwell, that the ACA’s “three legged stool” of guaranteed issue and community rating, the individual mandate, and APTC supported the argument that Congress had appropriated funding for the CSRs as a necessary adjunct to the APTCs. The Judge notes, however, that in King v. Burwell the Supreme Court was trying to understand a poorly drafted provision, whereas here the issue was not a drafting problem, but the fact that Congress had not appropriated funding. Context was thus irrelevant.
Judge Collyer also denies that the consequences (described above) for insurance markets, for future Court of Claims litigation, or for the federal budget have any relevance.
For purposes of interpreting the ACA, the relevant question is not whether Congress intended premiums to skyrocket, deficits to explode, or enrollment to plummet — those are not consequences of the statute that Congress wrote in 2010. The relevant question is far narrower: Would it have been ‘nonsensical’ or ‘absurd’ for Congress to authorize a program permanently in 2010 but not appropriate for it permanently at the same time?
The answer, she concludes, is no, and thus the threatened consequences are of no legal importance. (The judge explicitly refuses in a footnote to address the possible success of litigation in the Court of Claims.) She also rejects legislative history arguments based on the Congressional Budget Office’s (CBO) treatment of the CSRs and statements of individual legislators during the enactment process as unpersuasive.
Judge Collyer views the arguments from the House based on post-enactment developments as persuasive and the administration’s post-enactment arguments to be unpersuasive. Congress in the 2013 Continuing Appropriations Act required HHS to certify eligibility for the CSR, but Collyer writes that this is not incompatible with the need for a subsequent appropriation. On the other hand, the judge finds highly persuasive the fact that the administration requested an appropriation for CSRs for fiscal year 2014; she finds irrelevant the fact that Congress never acted on this appropriation request. She also gives no deference to HHS’ interpretation of the law, in part because the case is one of those “extraordinary cases” in which courts need not defer to agency’s interpretation of the law under King v. Burwell, and also the law is clear in any event.
Finally, Judge Collyer rejects again the administration’s argument that the House has no standing to bring the action. She repeats her opinion from October, contested again by the administration, that the case is not about an interpretation of the law, but rather about the constitutional appropriations authority of Congress; thus, Congress has standing to litigate the case. As arguments about an administration’s actions implementing a law can often be characterized as involving appropriations, however, Judge Collyer’s decision, if upheld, could have profound implications for the respective roles of the legislative, executive, and judicial branches of our government.
Although Judge Collyer’s evaluation of the appropriations issue is technical and comprehensive, the result she reaches is not necessarily correct. The Constitution prohibits expenditure of federal government funds without a congressional appropriation, but it does not specify what form an appropriation must take. The ACA directs the Treasury to reimburse insurers for cost sharing reductions. The D.C. Circuit or Supreme Court could on appeal conclude that that Congress intended the direction to pay itself to constitute an appropriation, particularly given the extensive linkage in the ACA between APTCs and CSRs.
Judge Collyer enjoins further CSR payments until Congress appropriates funding. But she stays the effect of her decision pending certain appeal, which the administration has 60 days to file. The D.C. Circuit, which soon goes into its summer recess, will likely not hear the case until the fall and may not decide it until next year. Whatever a panel of the D.C. Circuit decides, both sides are likely to request en banc review by the full circuit or Supreme Court review. Only then will we know what, if any, final consequences the decision may have.