A federal judge won’t force the Trump administration to continue paying Obamacare insurers after he was skeptical about whether customers would be harmed by the abrupt cancellation.
The decision by a California federal court Wednesday means the payments will not be resumed while a lawsuit from 18 Democratic-led states is argued before the federal courts. The lawsuit from the attorneys general asked for an immediate injunction to keep the payments flowing. President Trump cut them off starting Oct. 18.
Federal Judge Vince Chhabria said in the order that the emergency relief the states want could be counterproductive.
“State regulators have been working for months to prepare for the termination of these payments,” he wrote. “And although you wouldn’t know it from reading the states’ papers in this lawsuit, the truth is that most state regulators have devised responses that give millions of lower-income people better health coverage options than they would otherwise have had. This is true in almost all the states joining this lawsuit.”
The cost-sharing reduction payments reimburse insurers for reducing out-of-pocket costs for low-income Obamacare enrollees. Insurers are required to lower co-pays and deductibles for those customers, so without the payments they likely will raise premiums to recoup the costs.
Without those payments, insurers could raise Obamacare premiums nearly 20 percent, according to some estimates.
The payments were the subject of a legal fight between the Republican-controlled House and the Obama administration. The House sued in 2014, saying the payments were illegal since Congress had not appropriated them.
The payments have been made under a mandatory appropriation without the need for congressional approval, similar to Obamacare’s income-based tax credits to lower insurance costs.
A federal judge ruled last year that the cost-sharing payments did need a congressional appropriation, partly because of the shoddy drafting of the law.
That ruling was on hold while the Obama administration appealed and then continued to be on hold when the White House changed hands in January. Trump decided on Oct. 12 to end the payments, which he calls “bailouts” of insurers, and the Justice Department dropped the appeal.
The18 states filed a lawsuit in a San Francisco federal court to pursue the injunction to continue the payments while the case moves through the courts.
Chhabria did not seem to buy the states’ argument that there was an imminent danger if the payments ended.
Chhabria said during a hearing Monday that there must be an immediate harm to consumers for an injunction to be issued. He noted that many states, such as California, already adopted measures to address the lack of CSRs next year.
He referred to the mechanism of “silver loading,” in which a state tells an insurer to dump the costs of the CSRs into silver plans and increase the cost of those plans. Silver plans are the middle-tier plans offered on Obamacare’s exchanges on the individual market. The amount of income-based tax credits that a person gets is based on the second-cheapest silver plan. Therefore, higher premiums for silver plans means higher tax credits, Chhabria said.
He added that the premiums for the other metal tiers — bronze, gold, and platinum — have not changed. That means that someone who receives a tax credit can use that larger tax credit to buy a bronze, gold or platinum plan for less or the same price.
He also pointed to California’s decision to let customers buy a silver plan without the CSR premium increase, off the Obamacare exchange.
The individual market, used by people who don’t have a plan through a job or the government, lets someone buy a plan on Obamacare’s exchange or off it. California decided not to raise premiums for a comparable silver plan off the exchange, giving customers an option for silver plans.
Gregory Brown, attorney for California, said not all states have adopted that approach or the “silver loading” method.
“I believe that around 40 states in the nation anticipated this problem in advance and responded to it in the way we are talking about here,” Chhabria responded. “The states that respond in a different way are responsible for depriving citizens to getting higher tax credits to buy insurance on the exchanges.”
Chhabria also said that so far no insurer has announced that it is leaving the market since Trump’s decision. Brown had said Trump’s decision created chaos and uncertainty in the market.
Brown added that some insurers could be waiting to see what happens.
But Chhabria responded that to reverse course now so close to open enrollment, which starts Nov. 1, “looks like it would cause further instability for the exchanges for the next three months.”
The order also offers a preview of the legal fight to come.
Chhabria wrote in his Wednesday order that the administration appears to have the legal upper hand in the lawsuit. While Obamacare has “clear language” that the tax credits are to be permanently appropriated, that isn’t so clear for the cost-sharing payment section, he wrote.
The states turned to the Supreme Court case King v. Burwell to make their own case. The 2015 case focused on the eligibility of the law’s tax credits due to sloppy drafting in the law, specifically that the tax credits couldn’t go to customers on the federal exchange that is used by 39 states and the District of Columbia.
In the end, the court voted 6-3 that it didn’t make much sense to have the tax credits at all if they couldn’t go to people on the federally run exchanges and only on the state-run exchanges, of which there are 12.
States argued that the overall point of Obamacare says that the CSRs should have a permanent appropriation since the tax credits also have that.
On this point, states got some help from the insurance industry.
Insurers need to know that the CSRs will be there to set their rates. The main industry group America’s Health Insurance Plans argued in a related brief that if the CSRs were subject to an annual congressional appropriation that can occur late in the year then insurers can’t “reasonably predict how much it will cost to provide insurance on the exchanges,” the order said.