Court Strikes Down Obamacare Payments

• Last week’s court ruling in support of the House’s lawsuit against Obamacare’s insurance subsidy program is the latest sign the law is collapsing.

• The Obama administration has illegally given $7 billion to insurance companies.

• The ruling is being appealed, but if it stands, it is another illegal action by the Obama administration to prop up a failed law.

In 2014, the House of Representatives brought a lawsuit against the Obama administration challenging Obamacare’s subsidies to insurance companies. The House argued the administration violated the Constitution by using funds that had never been appropriated, and the administration knew it. Last week, a federal court ruled in favor of the House, striking down Obamacare payments to insurance companies.

BACKGROUND

Obamacare contains two subsidy programs designed to reduce the cost of insurance.

• Section 1401. Premium tax credit available to people with income between 100 percent and 400 percent of the federal poverty level. The credit is used to offset the cost of insurance through Obamacare.
• Section 1402. Cost-sharing reduction is a subsidy for people with income below 250 percent of the FPL. These subsidies are paid directly to insurers to reduce deductibles and co-pays. 

The law created a permanent appropriation for the tax credits under Section 1401. It is codified in the Internal Revenue Code. Section 1402, on the other hand, is codified with the public health laws, and the health care law is silent as to its appropriation. Prior to January 2014, both Congress and the administration understood this to mean that the section 1402 subsidies required an annual appropriation. The administration even requested an annual appropriation for section 1402 in its fiscal year 2014 budget.

“Paying out Section 1402 reimbursements without an appropriation thus violates the Constitution. Congress authorized reduced cost sharing but did not appropriate monies for it, in the FY 2014 budget or since. Congress is the only source for such an appropriation, and no public money can be spent without one.” – Judge Rosemary Collyer, 05-12-2016

When Congress declined to appropriate money for the section 1402 payments, the administration changed its interpretation of the law. In an attempt to save Obamacare, Treasury began paying the cost-sharing reductions of section 1402 to insurers out of the permanent appropriation for Section 1401. In 2014, these payments were $2.8 billion; and in 2015, they will be around $4.2 billion. That means the administration illegally sent approximately $7 billion to insurers.

THE CASE

The House of Representatives filed suit in November 2014 to challenge the authority of the administration to make Section 1402 payments with Section 1401 funds. The House argued that while Congress both authorized and appropriated funding for payments to people under Section 1401, it did not appropriate funding for payments to insurance companies under Section 1402.

Initially, the administration tried to block the case by arguing that a chamber of Congress did not have standing to sue. In September 2015, U.S. District Court for the District of Columbia Judge Rosemary Collyer decided to allow the subsidy claim to move forward and said the House had standing.

The administration defended its misuse of funds, arguing that payments are authorized by the statutory text and implied by the economic and programmatic integration of the two sections.

On May 12, 2016, the district court ruled in favor of the House. It held that the administration was paying out section 1402 cost-sharing reductions in violation of the Appropriations Clause of the Constitution. The court rejected the administration’s programmatic argument, saying, “Such an appropriation cannot be inferred, no matter how programmatically aligned the Secretaries may view Sections 1401 and 1402.”

GOING FORWARD

The Obama administration will appeal the decision, and the court has stayed its decision pending appeal. This means the cost-sharing payments to insurers will continue. However, if upheld on appeal, the decision could result in lawsuits by insurers to recoup funds, further premium increases to cover costs, or insurers exiting the exchanges.