Health insurers may have experienced uncertainty in 2017 when they were setting 2018 rates for individual plans sold on federal and state exchanges pursuant to the Affordable Care Act (ACA). One reason may have been the status of Cost-Sharing Reduction (CSR) payments to health insurers. CSR payments are intended to compensate health insurers for offering plans to lower-income individuals who require reduced “cost-sharing” payments in the form of copayments, deductibles and coinsurance. The federal government estimates in advance the amount of the subsidy to which each individual is entitled, and makes a CSR payment for that amount to the individual’s insurance company.1 People whose income is between 100% and 250% of the federal poverty level can buy plans with reduced cost-sharing.
The ACA requires insurers to offer plans with CSR payments. Significant legal controversy has arisen, however, over whether the ACA actually appropriated money for CSR payments. If it did not, then the payments cannot be made unless Congress authorizes them on an annual basis—something that has not yet occurred, and that is unlikely to happen while Republicans control both houses of Congress.
The legal question around CSRs has been addressed by judges from two different federal district courts in two different circuits. The most recent decision—which is the focus of this article—was issued by Judge Vince Chhabria of the U.S. District Court, Northern District of California (the court), in State of California v. Trump, Case No. 17-cv-05895-VC.
The court found that while both sides have reasonable arguments, at the present stage it appears the Trump administration has the stronger legal position—that the ACA did not appropriate funds for CSR payments, and that as a result, it would be unconstitutional for the administration to make those payments absent further action from Congress. The court also found that due to many states’ actions in anticipation of the end of CSR payments, most lower-income individuals will not see their effective premiums increase in the absence of those payments, at least in the short term. The court denied the motion for preliminary injunction, and expects to reach a final decision in the case by early 2018.
Brief History of Litigation Over CSR Payments
As the court notes in its opinion, in 2013, the Obama administration concluded that the ACA could be interpreted as making a permanent appropriation for CSR payments. Therefore, beginning in 2014, the administration began drawing money from the U.S. Treasury to make CSR payments on a monthly basis. The House of Representatives disagreed with the administration’s interpretation of the ACA, and filed a federal lawsuit against the administration in Washington, D.C.
In May 2016, U.S. District Judge Rosemary Collyer ruled in favor of the House of Representatives, concluding that the ACA did not include a permanent appropriation for the federal government to make CSR payments. As a result, the administration could not continue making CSR payments absent annual appropriations from Congress or an amendment to the ACA providing for a permanent appropriation. See U.S. House of Representatives v. Burwell, 185 F. Supp. 3d 165, 168 (D.D.C. 2016). Judge Collyer stayed her ruling while the Obama administration pursued an appeal in the D.C. Circuit. Shortly after President Trump was elected, however, the House of Representatives moved to stay the appeal, explaining that it believed the incoming Trump administration might reconsider the executive branch’s legal position. The D.C. Circuit granted the motion in December 2016 and stayed the case. See Order Granting Motion to Hold in Abeyance, U.S. House of Representatives v. Burwell, No. 16-5202 (D.C. Cir. Dec. 5, 2016). In the spring of 2017, the states intervened in the D.C. Circuit appeal, but the stay remained in place.
On October 11 and 12, 2017, the Trump administration, including the U.S. Attorney General, expressed its view that the ACA had not made a permanent appropriation for CSR payments, and informed the D.C. Circuit of its decision. On October 13, the state of California, along with 17 other states (many of which had intervened in the D.C. Circuit appeal) and the District of Columbia, brought a separate suit against the Trump administration in the U.S. District Court, Northern District of California. The case was assigned to Judge Chhabria. The plaintiffs sought a temporary restraining order that would force the administration to make CSR payments while the case was pending, which was then converted into a motion for preliminary injunction.
The Court Denies Plaintiffs’ Motion for a Preliminary Injunction
In its October 25, 2017, order, the court first addressed whether it was proper for the plaintiffs to sue in the Northern District of California, while a separate appeal was pending before the D.C. Circuit. The court held that it was proper, for several reasons. The court cited the emergency nature of the states’ requested relief—resulting from the administrative costs caused by the disruption to state exchanges once the federal government stopped making CSR payments—and noted it was unclear how quickly the plaintiffs’ request for relief would be heard in the D.C. Circuit since the appeal had been stayed. The court also questioned whether the House of Representatives had standing to bring suit, and consequently whether the D.C. Circuit had jurisdiction over the appeal.
The States’ Likelihood of Success on the Merits
The court then turned to the first element of the preliminary injunction analysis, which considered whether the plaintiffs are likely to succeed on the merits. While the court found that both sides had reasonable arguments, it held that it initially appeared the Trump administration “has the stronger legal position.” (State of Cal. v. Trump, No. 17-cv-05895-VC (N.D. Cal. Oct. 25, 2017), at p. 11.)
In analyzing whether Congress appropriated funds for CSR payments, the court compared the ACA’s provisions on CSR payments to its provisions on a related subsidy for low-income individuals—the premium tax credit. Premium tax credits help offset the cost of monthly insurance premiums. As with CSR payments, premium tax credits are estimated and paid in advance to insurance companies so they can reduce individuals’ premiums by a corresponding amount.2
The court found that the ACA contains clear language making a permanent appropriation for the premium tax credits. Section 1401 of the ACA, which authorizes the credits, is codified in the Internal Revenue Code at 26 U.S.C. § 36B. It provides that lower-income people buying insurance on the exchange “shall” receive the credit. The appropriation for the credits (which is distinct from the authorization) is located in a different statutory provision, 31 U.S.C. § 1324, titled “refund of internal revenue collections.” Subsection 1324(a) makes a permanent appropriation for tax refunds, stating that “[n]ecessary amounts are appropriated to the Secretary of the Treasury for refunding internal revenue collections as provided by law.” Then, subsection 1324(b) provides that appropriations may be made under the section for certain refunds, one of which is “refunds due from” Section 36B of the Internal Revenue Code. “Therefore,” as the court explained, “section 1324 clearly contains a permanent appropriation for the premium tax credit codified at 26 U.S.C. § 36B.” (Id. at p. 12.)
The court noted that “[t]his clarity is in contrast to the language in the Act involving cost-sharing reductions.” (Id.) Section 1402 of the ACA creates the CSR program. But unlike the premium tax credits, the CSR program is not codified in Section 36B of the Internal Revenue Code. Instead, it’s codified in the Public Health and Welfare Code, at 42 U.S.C. § 18071. While that section authorizes CSR payments by stating that the federal government “shall” make them, the court explained that there is no explicit language appropriating funds for the payments. Moreover, the Act did not add Section 18071 to the permanent appropriations statute (31 U.S.C. § 1324), as it did with Section 36B. “Nor does the Act appear to have included any other explicit language making a permanent appropriation for the CSR payments to insurers. This may suggest that Congress needed to make annual appropriations before the executive branch could make the CSR payments ….” (Id.)
One of the plaintiffs’ primary arguments was that 31 U.S.C. § 1324 impliedly includes a permanent appropriation for the CSR payments in 42 U.S.C. § 18071. The argument entailed four steps: “(i) 31 U.S.C. § 1324 appropriates money for ‘refunds due from’ 26 U.S.C. § 36B; (ii) the cost-sharing reductions from 42 U.S.C. § 18071 are closely coordinated with the premium tax credits throughout the statute; (iii) a person cannot receive the cost-sharing reductions unless he or she also gets the tax credits,” as provided by the ACA, “and therefore (iv) the cost-sharing reductions from 42 U.S.C. § 18071 should be considered ‘refunds due from’ section 36B within the meaning of section 1324.” (Id. at p. 13.)
In response, the court acknowledged that “the absence of a permanent appropriation for these [CSR] payments may be in significant tension with congressional purpose.” (Id. at p. 14.) Among other things, the premium tax credits and the CSR payments work together in forming a central pillar of the ACA. The tax credits allow lower-income people to buy health coverage, and the CSR payments allow people to actually use this coverage. Given this, it is not clear why Congress would have intended more certainty for one type of expenditure than the other.
The court found, however, that the plaintiffs’ “implied appropriation” argument effectively seeks to resolve an ambiguity in the ACA’s language where none appears to exist. As the Supreme Court held in King v. Burwell, 135 S. Ct. 2480 (2015), language that is unambiguous in isolation can become ambiguous upon reading other parts of a statute. (Id. at 2492.) But that is not true of these provisions of the ACA. The ACA treats provisions related to premium tax credits and CSR payments distinctly, often reciting not just the program names but also their respective statutory provisions, “suggest[ing] that Congress was cognizant of the different way in which each reform fit into the statutory scheme.” (Id. at p. 16.) As a result, the Act is not ambiguous even when read in context. The court concluded: “On the merits, it’s a close and complicated question, even if the Administration may seem to have the better argument at this stage.” (Id. at 19.)
The Remaining Three Elements Necessary for a Preliminary Injunction
The court then analyzed the remaining three elements necessary for a preliminary injunction together—irreparable harm to the plaintiffs, the balance of hardships and the public interest. (See id. at p. 19.) The court focused on how people would be affected for “a few months” in 2017 and early 2018, when the court anticipates reaching a final decision in the case. Somewhat counterintuitively, the court found that because of measures taken by many states in anticipation of the Trump administration’s decision to terminate CSR payments, “the large majority of people who purchase insurance on exchanges throughout the country will either benefit or be unharmed.” (Id. at p. 20.)
Those states’ approaches are tied to two aspects of the ACA’s structure, both of which relate to one of the four basic levels of health plans available on the exchanges: silver (the others being platinum, gold and bronze). First, the amount of the premium tax credit is calculated based on the cost of the second-cheapest silver plan available on the exchange in a particular geographic area and then is adjusted based on an individual’s income. Therefore, if premiums for the second-cheapest silver plan in an area increase, the amount of the tax credit for individuals in that area will increase by a corresponding amount. Second, the ACA only requires insurers to offer CSRs for silver plans.
Based on those two factors, many states’ solutions have been to allow insurers to make up for the loss of CSR payments through premium increases for silver plans only. In other words, the states have allowed a relatively large premium increase for silver plans, but no increase for platinum, gold or bronze plans. Therefore, the available premium tax credits in those states rise substantially for qualifying individuals. Because the amounts of the credits for all plans are tied to the second-cheapest silver plan, the available credits rise for all plans, not just silver ones. As a result, the court calculated that for lower-income people, the elimination of CSR payments will not increase premiums for the silver plans, once the available premium credits are factored into the equation.
Moreover, eliminating CSR payments will actually cause effective premiums to decrease in non-silver plans. Additionally, individuals who do not qualify for subsidies and who purchase platinum, gold or bronze plans should not see their premiums affected. Finally, some states have developed comparable off-exchange plans, where monthly premiums for off-exchange silver plans would not increase. As a result of the states’ changes, the three remaining elements in the court’s analysis did not weigh in favor of a preliminary injunction.
Because the court found that the elements necessary for a preliminary injunction were not met, it denied the plaintiffs’ motion. As noted above, the court anticipates reaching a final decision in the case by early 2018 and has scheduled a case management conference for November 21, 2017. Currently, it appears the plaintiffs will need to craft a more compelling argument in order to prevail.
1. If, after the year is over, the individual used less money from the subsidy than the federal government gave to the insurer, the insurer must return the excess amount to the federal government.
2. Any discrepancies at the end of the year are reconciled through the individuals’ tax returns.