In a suit brought by the U.S. House of Representatives challenging the administration’s implementation of the Affordable Care Act (ACA), a federal district court for the District of Columbia ruled in a major decision that the administration exceeded its authority, and in doing so violated the Constitution, by funding ACA’s cost-sharing reductions program with funds that had not been specifically appropriated for that purpose by Congress.  The ACA cost-sharing reduction program reduces co-pays, co-insurance and deductibles for individuals with incomes up to 250% of the federal poverty line (FPL), who enroll in “Silver” plans through the healthcare exchanges.

The judge, Rosemary M. Collyer, enjoined the administration from making any further reimbursements under the cost-sharing reduction provisions of the ACA.  The decision is not expected to have an immediate impact as the judge stayed the injunction pending appeal, and the administration has announced that it will appeal.  Further, the court did not suggest that the injunction would be applied retroactively, so those health insurance issuers that have participated on the exchanges to date will not be required to repay amounts previously received under Section 1402.

That appeal will be to the United States Court of Appeals for the DC Circuit.  If the case tracks other ACA challenges, based on the composition of the DC Circuit, there is a significant possibility that Judge Collyer’s decision will be overturned.  The next level of appeal is to the U.S. Supreme Court, where once again, a major case involving a challenge to the ACA could be heard.  When and whether the Supreme Court would hear the case is uncertain.  When and by whom the current vacancy on the Supreme Court is filled, could impact the disposition of the case.

We will continue to follow developments in this important case, so check our blog for updates.

A more detailed summary of Judge Collyer’s analysis is below:

Background

U.S. House of Representatives v. Burwell was filed by the House of Representatives (House) in late 2014, alleging that the administration usurped the House’s legislative authority and caused the House to suffer institutional harm.  The House asked the court to bar the federal government from issuing cost-sharing subsidies unless and until Congress appropriates the funds.  As it relates to the cost sharing subsidies, the court addressed two legal issues in separate decisions.

Initially, the administration asked the court to dismiss the case for lack of standing.  It termed the dispute a political fight that should not be resolved by the judiciary.  The court, after noting that the case was unprecedented, ruled in favor of the House, holding that it had standing to pursue its constitutional claims.  The court then denied the administration’s request to seek an immediate appeal on the standing issue.  The case proceeded with consideration of the parties’ motions for summary judgment.

The District Court Decision

Judge Collyer’s analysis begins with the observation that Congress has sole authority to authorize the appropriation and expenditure of public monies, thus tying the Executive Branch to the Legislative Branch via purse strings.

     a.  The ACA Subsidies

Section 1401 of the ACA added a new section to the Tax Code providing tax credits and refunds for individuals and families with household incomes between 100% and 400% of FPL to help defray the cost of their insurance premiums.

Section 1402 of the ACA establishes the cost sharing reduction program and requires health plan issuers to reduce cost sharing (co-insurance and deductibles) for individuals and families with incomes between 100% and 250% of FPL who purchase the “Silver” level plans offered on the exchanges.  Issuers are to be reimbursed by the government for the reductions provided through the Section 1402 subsidies.

While Congress passed a permanent appropriation of the funds needed for the premium tax credits under Section 1401, it has not specifically appropriated funds to pay for the cost sharing reductions program under Section 1402.

The administration argued that Sections 1401 and 1402 must work together.  But the relevant appropriation statute, 31 U.S.C. § 1324, only appropriates monies for Section 1401 and not for Section 1402.  The court was not swayed by the administration’s statutory construction arguments looking at the fabric of the ACA as a whole, relying instead on the plain language in the law’s text.

In support of its contextual reading, the administration cited the Supreme Court’s decision in King v. Burwell, upholding the premium tax credit subsidies on the federal exchanges.  In that case, the Court described the ACA as a “closely intertwined” system of subsidies.  The administration argued that language that appears unambiguous out of context may have a different meaning when considering the statute as a whole.  The court distinguished King v. Burwell because in that case the ACA could not function if the phrase was interpreted literally so it “had to saved from itself.”  The court determined that a plain text reading of the statute in the case brought by the House would not impede operation of the ACA.

     b.  Unintended consequences

The administration additionally argued that a “cascading series of nonsensical and undesirable results” would occur if the House’s argument prevailed.  For example, insurers would still be required to reduce cost-sharing to qualifying customers and if they were not reimbursed, the result would be higher premiums for all.  The court responded that higher premiums would be mitigated by increased tax credit subsidies, although the increase in tax credits would end up costing the government more than the cost-sharing subsidies.

The only question according to the court was whether it would be “nonsensical” or “absurd” for Congress to authorize a program permanently in 2010 but not appropriate for it permanently at the same time.  Referring to the ACA Risk Corridors program as an example, the court said that Congress “can authorize a program, mandate that payments be made, and yet fail to appropriate the necessary funds.”  While negative consequences could result, it was Congress’s prerogative to structure the law and the court could not override Congress by rewriting the provision.

     c.  ACA’s Legislative History

The administration also pointed out that since the cost-sharing provision was scored by the Congressional Budget Office (CBO) as “direct spending,” the funds must be considered appropriated.  Individual Representatives and Senators also presumed the provision would be funded.  The court was not persuaded, noting that the CBO is required to assume programs will be funded and Congress’ expectations regarding how funds will be spent is dependent on actual appropriations.  The court found persuasive that HHS requested an appropriation for the cost-sharing program in its 2014 budget request.  Not persuasive were statements by Members of Congress considered anecdotal and not evidentiary.  The court also refused to give deference to the administration’s own interpretation of the law as, in its view, the statute is clear.

     d.  Still Standing

Finally, court refused the administration’s request that it reconsider its prior decision that the House has standing to bring its suit.

 

 

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Photo of David Kaufman David Kaufman

David Kaufman is a Partner at Freeborn & Peters LLP, and he serves as a key member of the Firm’s Healthcare Practice Group.

David has practiced health law for more than 25 years, representing a range of entities responsible for ensuring cost effective and equitable access to healthcare, including health insurers, physicians groups, and regulators.

David has significant experience in federal and state-level regulatory and administrative law gained through private practice as well as in the public sector, serving as General Counsel to the New Mexico State Corporation Commission, Counsel to the New Mexico Superintendent of Insurance, and an Assistant Attorney General for the State of New Mexico.

Admitted to the state bars of New Mexico, New York, California, and Illinois, David’s prior experience in private practice includes work with national law firms in Chicago and Los Angeles, working on transactional healthcare matters and labor and employment issues, as well as Medicare and Medicaid reimbursement.

Before joining Freeborn, David served most recently as General Counsel for Blue Cross and Blue Shield of Illinois, where he was responsible for advising the company on regulatory and business issues in general and on the implementation of the Affordable Care Act.

Photo of Deborah Dorman-Rodriguez Deborah Dorman-Rodriguez

Deborah Dorman-Rodriguez is a Partner at Freeborn & Peters LLP, and is the leader of the Healthcare Practice Group.

Deborah has diverse experience as a healthcare attorney representing insurers, providers, and other healthcare entities. Most recently she served as the Senior Vice President, Chief Legal Officer, and Corporate Secretary at Chicago-based Health Care Service Corporation (HCSC), which operates BlueCross and BlueShield plans in Illinois, Montana, New Mexico, Oklahoma and Texas.

At HCSC Deborah was responsible for providing legal advice and consultation on such issues as federal and state regulatory implementations, litigation, mergers and acquisitions, corporate governance and compliance.  She oversaw HCSC’s legal strategy during a period of unprecedented turbulence in the healthcare industry and helped the company navigate the regulatory and business upheaval associated with the passage of the Affordable Care Act (ACA).

With her experience in serving as CLO of a large organization and in representing healthcare clients over the past 20 years, Deborah understands that no legal decision exists in a vacuum, and that it is vitally important to offer legal advice that is business focused, efficient, practical, and solution-oriented.

Before serving as HCSC’s Chief Legal Officer, Deborah was Vice President and General Counsel of Blue Cross and Blue Shield of New Mexico, an attorney with the law firm of Simons, Cuddy & Friedman in  Santa Fe, New Mexico, where she represented health insurers, physician groups, and other healthcare organizations, Special Counsel to the New Mexico Superintendent of Insurance, and a former New Mexico Assistant Attorney General specializing in health insurance and telecommunications regulatory issues.