Legal experts thought that one of President Trump’s cruder attacks on the Affordable Care Act would come back to bite him once the courts took a crack at it.
Court rulings have flooded in over the last few weeks, and the experts are right. The cost to the government could be $12 billion a year, payable to health insurers who were cheated by Trump’s action. That’s not chump change. As Nicholas Bagley of the University of Michigan wrote this week, “Insurers could buy us a damn border wall every year with that money.”
The most recent beneficiary of a court judgment is the Los Angeles insurer L.A.Care Health Plan, which was awarded nearly $6 million on Feb. 14 by Judge Thomas C. Wheeler of the Court of Federal Claims. Observing that the money was promised by the ACA and that Trump had no right to stiff the insurers, Wheeler wrote that “L.A. Care should not be left ‘holding the bag’ for taking our Government at its word.”
The money is the so-called cost-sharing reduction written into the ACA. It was designed to cover a subsidy made available to buyers of ACA exchange plans with household income below 250% of the federal poverty limit, or $63,125 this year for a family of four. Those buyers receive not only a subsidy to reduce their insurance premiums, but also an additional subsidy to reduce their deductibles and co-pays.
There are a couple of differences. One is that the premium subsidies are paid to the customer, but the CSR is paid to the insurer, which is required by law to give its enrollees the cost-sharing reduction regardless of whether it’s repaid by the government.
Another is that although Congress specifically appropriated funds for the premium subsidies in the ACA, it didn’t do so for the cost-sharing break. Conservatives in Congress argued that this meant the insurers were out of luck if the government decided to stiff them. And that’s exactly what Trump did when he canceled the CSR in 2017.
Many experts predicted that this wouldn’t work, since creditors armed with a government promise to pay could go to the Court of Federal Claims, which has the power to order the government to pay up even when Congress hasn’t appropriated the necessary funds. (The payments come from a separate Judgment Fund, a permanent, uncapped fund established for claims such as these.)
So far, more than 90 insurers, including scores brought into court as part of a class-action lawsuit, have won their cases before the Court of Claims. The rulings are coming from Wheeler and his bench colleagues Margaret M. Sweeney, who decided the class-action case on Feb. 15, and Elaine D. Kaplan, who ruled in a Montana case in September. As Bagley observed, “None of these judges bought the Justice Department’s rationale for refusing to pay. And good reason: it’s garbage.”
What’s most interesting about these rulings, the experts say, is that they apply to expenses that the insurers essentially worked their way around in 2018, through a maneuver known as “silver loading.”
Essentially, the insurers calculated their potential losses from the CSR suspension, then raised their premiums for benchmark silver ACA plans to cover the losses. This was done with the agreement of state regulators, including Covered California, which oversees ACA plans in that state.
Because the benchmark plan also sets the level of premium subsidies for all ACA plans, this turned out to be a boon to millions of ACA buyers — the subsidies increased to the point that they made higher-benefit gold and platinum plans cheaper and, in many cases, made lower-benefit bronze plans free for buyers. The U.S. Treasury ended up eating the higher cost.
Indeed, as David Anderson of Duke University points out, Trump’s attempt to damage the ACA “strengthened the market instead as subsidized buyers earning between 200-400 percent of the Federal Poverty Level are seeing tremendous discounts, the best discounts.”
It was as if a slingshot ball Trump aimed at Obamacare ricocheted back and hit him between the eyes.
Silver loading made Trump’s suspension of the CSR a non-issue for ACA insurers in 2018 and later, since the cost of the subsidy was henceforth covered by the higher premiums.
But that brings us to another wrinkle in the latest court rulings. For the most part, the judges say that it doesn’t matter that the insurers worked around the lost cost-sharing reimbursements — the federal government owes them that money anyway, year after year. That’s the source of the $12-billion annual estimate.
“Nowhere in the legislative history, statutory text or implementing regulations,” Wheeler wrote in the L.A. Care case, “are CSR payments subject to alteration based on the availability of offsetting funds derived from premium increases permitted by state regulators.”
Sweeney evidently agreed, for in the class-action case she ruled that the plaintiffs could recover their CSR payments for 2018 even though the government pleaded that allowing the insurers to recover costs that they had mitigated through higher premiums would give them “an unwarranted windfall.” Sweeney says she was “not convinced” by the argument.
As it happens, it may not be the insurers that reap the benefit, but their customers. That’s because the ACA sets limits of up to 20% on the gross profits that insurers can earn from the ACA plans and requires them to rebate the excess to the customers. As ACA expert Charles Gaba observed, this rule has been “extremely successful” — by 2016 it had resulted in nearly $4 billion in rebates, and could result in $10 billion to $12 billion in annual CSR payments flowing directly to the consumers.
That may be too much to hope for. The government is likely to appeal the Court of Claims rulings, and the idea that the insurers should keep getting paid even though they’ve stopped incurring CSR costs is likely to be a main point of attack.