Another Obamacare subsidy is in the crosshairs after a judge allowed a major lawsuit to move forward.
But unlike the last Obamacare legal challenge, insurers rather than enrollees would be hit hard if the lawsuit succeeds.
House Speaker John Boehner, R-Ohio, sued President Obama last year, charging that the funds for cost-sharing reductions weren’t appropriated through Congress and that Obama overstepped his bounds by delaying implementation of the law’s employer mandate.
Federal Judge Francis Collyer ruled Wednesday that Boehner could sue Obama over the funding of cost-sharing reductions but not the mandate delay.
The subsidies for cost-sharing reductions are different than the tax credits given to Obamacare enrollees to help pay for the cost of health insurance, with the cost-sharing reduction funding going directly to the insurer.
A few months ago, the tax credits were also in danger as the Supreme Court heard a case on whether the administration had the authority to dole out the credits to enrollees in the 34 states that didn’t set up their own healthcare exchanges. The justices voted 6-3 in June for the government.
The law mandates that insurers must reduce the out-of-pocket healthcare costs for residents 250 percent below the poverty line. In exchange, the administration pays the insurers back. That money is what is at stake.
Boehner argues the money was never fully appropriated by Congress and therefore sidestepped the legislative branch of government.
If the cost-sharing reductions go away there will be an impact, since the statute requires lower co-pays for low-income individuals, said Ron Pollack, executive director of the advocacy group Families USA.
If an insurer doesn’t get paid back for covering those co-pays, they could raise premiums, he said.
The government is expected to pay $5 billion in cost-sharing subsidies to insurers this year and $13 billion in 2020, according to estimates from the nonpartisan Congressional Budget Office.
“Burdened with this cost without reimbursement through the … payments, many insurers would cease to offer marketplace coverage,” wrote Timothy Jost, a legal professor at Washington & Lee University and Obamacare proponent, in a blog post for Health Affairs. “Those that remained would have to raise rates dramatically to ensure solvency.”
While any increases in rates could be covered by tax credits for low-income individuals, it could mean higher rates for high-income enrollees, he added. That could put the marketplaces in a death spiral because marketplaces would become unsustainable as enrollees drop out due to high rates.
A death spiral describes when an insurance market is no longer sustainable. Commonly it is when rates get too high because of too many sick people in an insurance pool.
In this case, the rates would rise to overcompensate for the cost-sharing reductions for low-income enrollees.
To be sure, if Boehner’s lawsuit were successful, it would only require Congress to fund the cost-sharing reductions. But that could be difficult, as Republican opposition to the healthcare law remains high.
Insurers who don’t get repaid for the subsidies could take their case to the Court of Claims, which hears money claims against the federal government, such as those involving government contracts and injury claims.
But if the lawsuit succeeds, it won’t fully dismantle the healthcare law like other legal challenges would have.
“This litigation is not an existential threat to the [Affordable Care Act],” Pollack said.
Another advocacy group wasn’t too worried about the impact of the lawsuit.
“Opponents have repeatedly tried to derail the law over the last few years, but — as the Supreme Court has now affirmed twice — it’s still the law of the land,” said spokesman Justin Nisly for Enroll America. The group spearheads efforts to get people to sign up for Obamacare.
