ACA plans scored a major victory last week when a federal court held that health plans participating on the ACA exchanges are entitled to unpaid cost sharing reduction (CSR) payments from the federal government. The case – Montana Health CO-OP v. United States –  is the first decision opining on the federal government’s obligation to make CSR payments.[1]  However, this is but one of several significant legal rulings handed down this year in the perpetual battle between CO-OP plans and the federal government over the latter’s administration of the ACA.  For example, federal courts in Massachusetts and New Mexico ruled on the legality of government’s method  for calculating risk adjustment payments in January and February, and in June, a federal appellate court ruled on the government’s obligation to make payments under the ACA’s risk corridor program.   While these decisions address different ACA programs and have unique facts, each case essentially boils down to a question over the government’s obligation to administer the ACA as it was statutorily conceived.

The CSR Litigation

The ACA implemented two reforms to ensure the affordability of plans offered on the exchanges: advanced premium tax credits and CSR payments. While the premium tax credits subsidized the insurance premiums for exchange enrollees with household incomes between 100% and 400% of the federal poverty line, CSR payments reduced the copayment, coinsurance, and deductible obligations of individuals between 100% and 250% of the poverty line. Plans are required to reduce the cost-sharing obligations for qualified enrollees and notify HHS of the reductions.  In turn, the statute requires HHS to make periodic payments to such plans “equal to the value of the reductions.”

The Appropriations Clause requires a “valid appropriation” to have both a directive to pay and a source of funds.  While the statutory language authorizing the CSR payments directed HHS to make CSR payments to plans, it lacked the designated source of funds from which the CSR payments can be made.  In an attempt to avoid an Appropriation’s Clause violation, the Obama Administration included language in its 2014 budget authorizing HHS to use funds from the permanent appropriation for premium tax credits, reasoning (and later arguing in court) that the statutory language authorizing the premium tax credits was broad enough to allow payments from that fund to finance the CSR payments as well.  In 2015, the House of Representatives successfully brought suit arguing that the use of premium tax credit funds to carry out the CSR payments violated the Appropriations Clause.[2] The court’s injunction against the payment of CSRs was stayed while the case was on appeal,[3] and in October 2017, the Trump Administration announced plans to stop CSR payments.[4] Shortly thereafter, Montana Health and several other ACA plans filed lawsuits in the Court of Federal Claims arguing that the government was obligated to continue making CSR payments.

If this whole sequence of events seems familiar, it is because the same issue was the catalyst for the risk corridor litigation. In both cases, the lack of a funding source was probably the unintentional result of the ACA’s chaotic drafting process. The death of Senator Ted Kennedy and the unexpected election of Republican Senator Scott Brown resulted in the Democrats losing their so called supermajority in the Senate. At the time, the Senate had already passed its version of the ACA, and to avoid having to make the Senate vote on the bill again, the House of Representatives had to adopt the Senate’s draft of the bill without any changes. As such, minor technical errors in the bill, such as the lack of a source of funds, were included in the enacted legislation, and the general partisanship and gridlock in Congress made it impossible for lawmakers to subsequently correct these errors in a technical corrections bill.

Montana Health CO-OP v. United States

 In Montana Health, the Plaintiffs argued that Section 1402 of the ACA clearly mandated that the federal government make CSR payments, notwithstanding the fact that Congress never appropriated money specifically for the payments.  Because of the Obama Administration’s decision to use the premium tax credit fund to finance the CSR payments, Congress never actually appropriated any money for the CSR payments directly.  The government countered that Congress never intended to impose such an obligation because the ACA never included a permanent appropriation for the CSRs. If Congress had intended the CSRs to be an obligation, the government argued, then the ACA would have included a statutorily created permanent funding source similar to the one used for the premium tax credits.

The court’s ruling in favor of the Plaintiff CO-OP relied heavily on the recent appellate ruling in the risk corridor case, Moda Health Plan, Inc. v. United States, reasoning that there was no authority for the government’s contention that a statutory obligation cannot exist absent budget authority. As such, the court reasoned, the lack of appropriated funds was irrelevant to whether such an obligation could be enforced by the court. The court in Moda also had to review whether subsequent appropriation riders evidenced Congress’s intent to impose a new payment methodology for the risk corridor program. In this case, however, there were no such subsequent Congressional actions at issue. In Montana Health, the court also rejected ancillary arguments made by the government, such as the fact that plans could mitigate the damage of the lack of CSR payments by increasing their premiums.

The Montana Health decision is significant because many plans—including Montana Health—had already set their premium rates when the CSR payments were suspended last fall. Therefore, the ruling is an important step towards properly compensating plans for the shortfall in CSR payments that they were unable to mitigate by increasing premiums for the current plan year. The battle over the CSR payments is far from over, however. The government is expected to appeal the decision, and there are several other pending lawsuits involving the CSR payments that are working their way through the court system.

[1] Montana Health CO-OP v. Unites States, No. 18-143C (Fed. Cl. Sept. 4, 2018).

[2] U.S. House of Representatives v. Burwell, 130 F. Supp. 3d 53, 57 (D.D.C. 2015) (Buwell I).

[3] U.S. House of Representatives v. Burwell, 676 F. App’x 1 (Mem.) (D.C. Cir. 2016) (Burwell III)

[4] Letter from Att’y Gen. Sessions to Sec’y Mnuchin & Acting Sec’y Wright (Oct. 11, 2017).