The Trump administration has declared open war on the Affordable Care Act. With its abrupt decision to terminate critical subsidies, it has thrown the exchanges into chaos on the eve of open enrollment; it has imperiled the full faith and credit of the United States; and it will cause a massive increase in federal spending.
This is no way to run a healthcare system, and no way to run a government.
The subsidies in question — known as cost-sharing payments — have been mired in controversy for years. The ACA requires insurers in the individual market to limit what they can ask their poorer enrollees to pay out of pocket for medical care. Otherwise, deductibles and co-pays would be unmanageable for the low-income population.
In exchange, the ACA says that the federal government "shall" reimburse insurers for the money they lose from cutting their low-income customers a break.
But there's a glitch. The Constitution says that money can't be drawn from the Treasury unless Congress has appropriated the money. And by law, an appropriation law has to "specifically state that an appropriation has been made." A promise to pay, by itself, doesn't cut it.
Therein lies the problem. The ACA doesn't appropriate the money to make the cost-sharing payments. It's silent on the matter.
Back in 2013, the Obama administration asked Congress to appropriate the money for the cost-sharing payments. The Republican-controlled Congress refused. Concerned for the fate of its healthcare bill, the Obama administration then adopted a dubious legal theory that allowed it to make the payments even in the absence of a clear appropriation from Congress.
Incensed, the House of Representatives sued the administration. A federal court ruled in the House's favor but put its opinion on hold to allow the Obama administration to appeal.
That's where matters stood when President Trump took office. At that point, he decided that the threat of withholding the payments would give him leverage in negotiations over repealing and replacing Obamacare. "You've got a lot of nice people with insurance there, Democrats," he might as well have said. "It'd be a shame if something happened to them."
Ten months later, Trump has followed through on his threat, claiming to finally appreciate that the payments cannot lawfully be made. But the constitutional rhetoric is pure pretext. Ending the cost-sharing payments is only the most visible manifestation of a systematic campaign to sabotage the ACA.
The Trump administration has slashed funding for groups that have helped millions of people navigate the challenges of enrolling in health insurance plans. It has gutted the advertising budget for HealthCare.gov. And it has signaled that it won't vigorously enforce the individual mandate requiring Americans to purchase health insurance.
More alarming, Trump on Thursday ordered agency officials to create loopholes for insurers to evade the ACA's regulations. The president, for example, wants to allow insurers to sell more short-term plans that offer cheap but threadbare coverage. That move would siphon healthy people from the exchanges, driving up premiums for those who are left behind.
Ending the cost-sharing payments will exacerbate the problem. Insurers across the country, moreover, may decide they've had enough and that it's not worth doing business with a feckless federal partner. As insurers withdraw, competitive pressures will ease and prices will rise. In some areas, it's possible that no insurers at all will remain in the market.
If you think the federal government will at least save some money — well, it won't.
To compensate for the loss of cost-sharing payments, insurers that continue to sell on the exchanges will have to increase premiums for their mid-tier "silver" plans. Because Obamacare subsidies that help customers afford their premiums — which are not part of the appropriations battle — are tied to the price of silver plans, their size will increase in lockstep with the rise in premiums.
The end result will be a big uptick in federal spending. In fact, the Kaiser Family Foundation estimates that cutting the cost-sharing payments will lead federal outlays to increase by $2.3 billion in 2018.
At the same time, insurers will sue the federal government to recover the cost-sharing payments that they're owed. Those lawsuits are almost certainly viable — and they'll be huge. This year, cost-sharing will amount to about $7 billion; obligations of similar size will accrue through 2018 and beyond. The question isn't whether the insurers will be paid. It's when.
If Congress wanted to, it could immediately appropriate the money for the cost-sharing payments. That would stanch the bleeding and restore some confidence to skittish insurance markets. Trump, however, has undermined congressional negotiations by signaling that he wants to extract concessions from Democrats on health reform or maybe on the border wall.
And so the likeliest result is that the United States will default on its financial obligations, harming taxpayers and consumers alike. What a stupid, profligate, and unnecessary mess.
Nicholas Bagley is a professor of law at the University of Michigan.