Court Rules That Federal Government Must Make Cost Sharing Reduction Payments To Insurers

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...