The Affordable Care Act (“ACA”) created both tax credits to make health insurance premiums more affordable and cost-sharing reductions intended to reduce deductibles, coinsurance, and co-pays. According to the ACA, insurers are required to reduce the cost-sharing of eligible individuals enrolled in their plans; and the insurers are supposed to get their money back from the federal government. As of June 2015, about 5.6 million people received cost-sharing reductions.(https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-09-08.html)

However, while Congress clearly appropriated funds in the ACA to pay for the premium tax credits, in a recent lawsuit, the U.S. House of Representatives (“House”) argued that the billions of dollars spent since January 2014 on cost-sharing reductions were not appropriated by Congress and therefore violate the Constitution.

On May 12, 2016, the United States District Court for the District of Columbia (“Court”) agreed with the House. The Court determined that money has not been appropriated for the cost-sharing reductions and upheld the established rule that expenditure of public funds is proper only when authorized and appropriated by Congress. As a result, the Court enjoined the Health & Human Services and the Treasury departments (“departments”) from any further reimbursements until a valid appropriation is in place. 

The Court analyzed the constitutional, statutory and other relevant background and addressed the Secretaries’ arguments in detail, including their prediction that a “cascading series of nonsensical and undesirable results” would occur if payment of the cost-sharing subsidies were enjoined.

Article I, Section 9 of the Constitution states, “no money shall be drawn from the treasury, but in consequence of appropriations made by law.” The Court explained that there is a difference between authorizing and appropriating the expenditure of public funds. The Court noted that Congress may “adopt laws that authorize the expenditure of public monies and laws that appropriate those monies. Authorization and appropriation are nonnegotiable prerequisites to government spending.” United States House of Representatives v. Burwell, 2016 U.S. Dist. LEXIS 62646 (D.D.C. May 12, 2016).

However, the Court stated that it is possible (and not “nonsensical”) for a statute to authorize a program, mandate that payments be made and yet fail to appropriate the necessary funds. Also, the making of an appropriation must be expressly stated – it cannot be inferred. According to the Court, the plain language of the ACA is clear – Congress authorized, but did not appropriate, funds for the cost-sharing reductions.

As mentioned, the Court enjoined the departments from any further reimbursements, until a valid appropriation is in place; however, the injunction is stayed pending appeals by the parties. The case could (and will likely) go to the Court and perhaps the Supreme Court of the United States, which could take a couple of years. Even if the case is ultimately upheld, insurers are still required by law to offer cost-sharing reductions, they just would not be reimbursed by the government – which would likely mean higher insurance premiums. Alternatively, Congress could decide to appropriate money. Either way, the ACA has suffered another blow and the fate of yet another ACA provision is in the hands of the courts.

We will continue to monitor this case and provide updates as they are available. If you have questions about the ACA, please call Attorney Jillian Jagling at 401-824-5100 or email [email protected]. We welcome your comments, questions and suggestions.