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Can Trump Simply Stop Paying Subsidies to Insurance Companies?

By Elisabeth J. Ryan

In recent days, President Donald Trump announced, via Twitter, that "If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!"  He was presumably referring first to cost-sharing reduction subsidy payments to insurance companies required by the Affordable Care Act and, second, to the fact that members of Congress and their staff are required to buy health insurance on the ACA market instead of being allowed on the federal employee health plan.  However, unlike most people who purchase insurance via the marketplace, Congressional staffers still receive an employer subsidy.  Ending subsidy payments to insurance companies could be catastrophic to the market - so can Trump simply stop paying them?

Section 1402 of the Affordable Care Act mandates that insurers reduce the amount of cost-sharing that individuals are responsible for; in turn, the government pays the insurer subsidies in order to make up for the discounts passed onto consumers.  However, the House of Representatives sued the then-Obama administration in 2014, claiming that such subsidy payments were illegal and unconstitutional because Congress never made specific appropriations for them.  In May 2016, the federal district court decided in favor of the House , finding that the executive branch (the Department of Health and Human Services in this case) making payments to insurers in the absence of a specific Congressional appropriation to do so is illegal and must cease.  The judge stayed her order, however, pending appeal (or, as the Republicans hoped, a change in the law entirely).  This has left the payments in a sort of limbo - the Obama administration continued to pay the subsidies and, thus far, so has the Trump administration.  But he has been hinting for months that wants to stop that practice; in response, numerous state Attorneys General filed a motion to intervene in the case, fearing that Trump would drop the appeal and allow the order of non-payment to stand.  On August 1, the court granted the motion, ensuring that the appeal will at least continue.  A crucial legal questions remains: even if the district court's order is overturned, would that simply allow the administration to continue making payments or is there some mechanism to compel the payments?

The House has relied on the fact that a specific appropriation exists for section 1401 of the ACA, which grants tax credits to some individuals to offset their insurance purchase costs.  And because section 1402 (the insurance subsidies) is not specified in that or any other appropriation, the court agreed that no such appropriation exists.  However, as the Obama administration and now the state AGs argue, the 1401 appropriation also covers 1402; that is, indeed, the fund used currently to pay the subsidies. 

If the government stops paying the subsidies, there is little question that the insurance market will destabilize quickly and critically.  While the details may vary based on state law, insurers could drop participation in the marketplace for the rest of 2017, could choose not to be part of the marketplace in 2018 at all, and would certainly raise premium costs for consumers, perhaps as much as 20%.

If Trump does announce that he will cut off payment of the subsidies to the insurance companies – the next payment is due on August 21 – states, insurance companies, and perhaps even consumers would likely sue immediately.  Indeed, some states may be preparing to file an action before he even announces a decision.  As California Attorney General Xavier Becerra has said, “We’re not going to wait to find out what Donald Trump wants to do.  My team is ready to defend these subsidies in court.”  AG Becerra has characterized the President’s threats to end the subsidies as “extortionist tactics.”  

Of course, Congress could remove the uncertainty (at least temporarily) about whether the subsidy payments will continue by passing a specific appropriation and may be attempting a bipartisan solution to do so.  But unless and until that happens, the insurance marketplace - and the healthcare plans of millions of consumers - remains in a precarious position.