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Challenge to Obamacare Threatens Cost Sharing Subsidies

June 7, 2016
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For five years now, Republicans have endeavored to reverse Obamacare through a Challenge to Obamacare Threatens Cost Sharing Subsidiesvariety of methods. A recent lawsuit filed against the administration challenging certain cost sharing subsidies recently found partial success in federal court when the judge ruled that Congress had not explicitly funded the subsidies. If this ruling is upheld, it could disrupt the individual insurance market and lead to significantly higher costs for consumers.

House v. Burwell

Former Speaker of the House John Boehner filed the lawsuit, U.S. House of Representatives v. Burwell, two years ago as a check on executive overreach. In part, the suit challenged certain federal subsidies paid to insurers. The disputed cost sharing subsidies work to lower the co-payments, deductibles, and other out-of-pocket costs for families who purchase silver plans and have incomes that are less than 250 percent of the poverty line. At the end of 2015, approximately 57 percent of participants in the federal exchange received cost sharing reductions.

The House argued that reimbursements for the cost sharing reductions required additional money and that Congress never explicitly allocated funds for this purpose. The administration claimed that the subsidies were not subject to annual appropriations by Congress and that the language of the Affordable Care Act (ACA) demonstrates that the subsidy program was intended to be permanently funded. District Court Judge Rosemary Collyer sided with the House.

What to Expect

This Republican victory is a tentative one: Judge Collyer has stayed her ruling to allow the administration to appeal, meaning that financing of the subsidies may continue for now. The appeal will go to the D.C. Circuit Court of Appeals, which is composed of a Democratic majority and will potentially be more favorable to the administration’s arguments.

If the House’s argument is upheld, it is still possible that the cost sharing subsidies will continue. One option is that the federal government would have to find alternative sources for funding, but this is unlikely with Republicans in control of Congress. Another option is that insurers will fund the subsidies by raising premiums for all of their plans. This will increase costs for individuals who received minimal or no subsidies, which will most likely lead to a drop in participation in the healthcare exchange. The Urban Institute estimates that a House win would also cost taxpayers $47 billion over ten years based on the tax credits that would be given to consumers as a result of the increased premiums.

Alternatively, insurers could drop the cost sharing subsidies entirely and challenge their requirement to pay them given the lack of reimbursement. This would likely lead to a notable decline in exchange participation among those who benefited from the subsidies.

Conclusion

This case has numerous implications for consumers, insurers, and hospitals. It’s uncertain whether the House’s victory will survive an appeal. Regardless of the final outcome, it is clear that the lawsuit itself has served to introduce further uncertainty into an insurance market that is already in flux from numerous changes in recent years. This uncertainty may lead to increased costs that could eventually fall on the shoulders of consumers and taxpayers.

What questions do you have about cost sharing subsidies and the impact of this court ruling?  Leave a question or comment below.

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