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A Stop to Unconstitutional Subsidy Payments

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A Stop to Unconstitutional Subsidy Payments

October 13, 2017

The Trump administration announced on October 12 that “cost-sharing reductions payments will be discontinued immediately.” The cost-sharing reduction (CSR) payments provide additional subsidies for low-income individuals to defray co-payments and deductibles. CSR subsidies are worth about $7 billion this year, and projected to be worth $16 billion in 2026.

Despite the way they are often described, these CSR payments are not subsidies paid directly to the exchange beneficiaries. Instead, the insurers give these cost savings to the eligible enrollees, and are later reimbursed by the federal government. Even if the federal government stops the flow of payments, the Affordable Care Act still requires insurers keep covering these cost-savings for eligible enrollees, although insurers can take steps to try to absorb those costs, such as increasing premiums or withdrawing from certain markets.

The Affordable Care Act appropriated funding to subsidize premiums for ACA exchange enrollees, but did not appropriate funds for CSR subsidies. The Obama administration requested “funding for a new appropriation for reduced cost-sharing.”  After congressional Republicans refused to appropriate the funds, the Obama administration went forward with making the payments without explicit appropriation.

The decision to continue with CSR payments in this fashion is similar to the many instances where the previous administration selectively delayed, enforced, or implemented provisions of the law depending on how it would affect market stabilization and enrollment.

In response, House Republicans sued to block the payments. In her decision, U.S. District Court Judge Rosemary Collyer wrote that making the CSR payments “without an appropriation violates the Constitution. Congress is the only source for such an appropriation, and no public money can be spent without one.”

Judge Collyer stayed her order pending an appeal from the parties involved, and the Obama administration did indeed file an appeal. Up to this point, the Trump administration had signaled that it was considering ending the CSR payments, but had been making them on month-to-month basis.

In the short-term, insurers have already submitted premiums for 2018. In many cases their decisions about premium prices and choice of markets already factored in this possibility, so the effect of the blocked payments could be minimal. In their contracts to participate on the exchange, insurers do have the option to withdraw from the exchanges should the CSR payments be terminated.  However, they still have to follow state laws on market withdrawal, and the process could also affect the extent to which insurers pursue that option.

As Charles Blahous wrote previously in E21, ending the payments has some surprising effects. According to a report from the Congressional Budget Office, on balance low-income enrollees would not be harmed, and older Americans with incomes below 400 percent of the poverty line could benefit, because the resulting higher premiums for silver plans would lead to a net increase in tax credits for some of them.

At the same time, ending the CSR payments would substantially increase the cost to taxpayers over the ten-year window of projection, potentially adding $194 billion, although the timing of the cutoff would slightly alter that projection.

In this scenario, CBO projects that the exchanges would “continue to be stable in most parts of the country,” and that the total number of uninsured people would be “slightly lower in 2020” after an initial increase.

Ending these subsidies would have an effect on premiums and enrollment, but the decision is not occurring in a vacuum. In most places, premiums have increased significantly each year since the exchanges came into existence. Choice has also evaporated for many would-be enrollees, as about half of U.S. counties are expected to have just one exchange insurer. These problems were already in place long before this decision to end the flow of federal CSR payments.

The Trump administration’s decision to cease CSR payments also does not mean that they will not be reinstated or continued in the future. It is possible that appropriations for CSR payments could be included in a bipartisan health bill, which would likely also give states more flexibility in other areas.

The decision to stop the unconstitutional CSR payments is positive from the standpoint of the delineated powers of the branches of government, as the power to appropriate funds resides in Congress alone. The problems facing the Affordable Care Act require legislative solutions, and short-term decisions about making payments or delaying implementation of different aspects of the law are no substitute.

Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes

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