Cost-sharing reduction payments are not dead

In the days since President Donald J. Trump announced he would stop making cost-sharing reduction (CSR) payments to health insurers, attention shifted first to Congress as it worked to craft a bipartisan deal to save the payments and then back to the White House to see if the president would support the plan.

The president has described the CSR payments as a “bailout of insurance companies.” This debate has largely missed a more fundamental point: canceling the payments will not save the taxpayers money, and in fact, it isn’t possible to cancel the payments at all.

{mosads}To understand why, we have to understand what CSR payments are and what the Affordable Care Act requires. Section 1402 of the ACA requires insurance companies to reduce the amount that eligible, low-income policyholders have to pay out-of-pocket for health-care expenses such as co-payments and deductibles. By law, the insurer has no choice but to make these price cuts: the statute says they “shall” reduce those costs.  

In turn, ACA also requires the federal government to reimburse the insurers for these reductions that they were legally required to make: “An issuer of a qualified health plan making reductions under this subsection shall notify the Secretary [of HHS] of such reductions and the Secretary shall make periodic and timely payments to the issuer equal to the value of the reductions.”

There is no question of the federal government’s obligation to make the payments. The insurers are required to provide a discount to certain customers identified by law, and the federal government is committed to reimbursing the insurer for these discounts. It is no more a “bailout” of insurers than it is a bailout of credit card companies when you pay your monthly bill to reimburse the bank for money it has paid on your behalf.

Rather, the dispute over the CSR payments is limited to whether or not there is currently an appropriation available to pay them. The House of Representatives has argued in court that a particular permanent appropriation is not available to make CSR payments. The House won in the district court and the case is now on appeal.

Ultimately, the outcome of that case may not matter. Trump’s attempt to cancel the CSR payments may not matter because as legal experts have pointed out, there is already an appropriation of money set aside to pay the federal government’s obligations: the Judgment Fund.

The Judgment Fund is a permanent, indefinite appropriation available to pay final money judgments and awards against the United States provided for by law. No one has sued the government over the CSR payments yet, but if the insurers chose to do so, they would win. The Affordable Care Act requires them to make premium reductions and obligates the government to reimburse them, and if the president refuses to do so, they would simply recover from the Judgment Fund.

As a result, the only impact on the insurers of the Trump administration not making the CSR payments is the headache and additional cost to the federal government of litigation. In fact, some have suggested that states that want to stabilize their individual health insurance exchanges could make the CSR payments to the insurers themselves, and then sue to recover from the federal government on a subrogation theory, cutting the insurers out of the problem and eliminating any uncertainty for them.

Taking this a step further, even if Congress and the White House tried to change the terms of the Judgment Fund to exclude this kind of payment, they would run into Constitutional barriers. The insurers already have relied to their detriment on the government’s commitment to reimburse them for legally-mandated cost reductions, and so the insurers have an ultimate backstop in the Constitution’s Takings Clause, which provides that private property will not “be taken for public use, without just compensation.”

The president and House Speaker have now both come out against the proposed bipartisan deal reached by Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.) to fund the CSR payments, but ultimately it may not matter. It’s not a question of if the government will make the payments; it’s a question of when and how much it will cost.

John E. Bies is chief counsel at American Oversight, a non-partisan ethics watchdog group. Bies served for eight years in the Obama administration at the Department of Justice, first as Counselor to Attorney General Eric Holder and then spending seven years as a Deputy Assistant Attorney General in the Office of Legal Counsel where he advised White House and executive branch officials on FOIA, congressional oversight, executive privilege, ethics, separation of powers, and other constitutional, statutory, and administrative law issues.