How Trump Could Gut Obamacare Without Congress

Administration could drop Obama appeal of ruling that declared cost-sharing subsidy illegal

by Brendan Kirby | Updated 03 Apr 2017 at 7:08 AM

Although President Donald Trump failed to persuade Congress to repeal Obamacare, his administration has a tool ready-made next month to gut the law — and it would not even require a vote by lawmakers.

A status conference is set for May 22 on a lawsuit pending before the D.C. Court of Appeals on a challenge to a subsidy that insurance companies receive to reduce out-of-pocket costs of some 6.4 million lower-income customers who purchased mid-level “silver” plans on the online exchanges set up by the Affordable Care Act.

“If the end result of this is that those cost-sharing subsidies go away, this starts to effectively unwind the ACA marketplaces.”

U.S. District Judge Rosemary Collyer last May declared those subsidies illegal because Congress never appropriated money for them. She put her decision on hold to give former President Barack Obama’s administration a chance to appeal, which it did. But now it is the Trump administration that must decide the next move. It could simply drop the appeal, which would mean Collyer’s decision would take effect.

“If the end result of this is that those cost-sharing subsidies go away, this starts to effectively unwind the ACA marketplaces,” said Craig Garthwaite, co-director of the Health Enterprise Management Program at Northwestern University’s Kellogg School of Management. “It takes a fragile marketplace and throws it on the ground.”

The Affordable Care Act offers two main subsidies. The first, unaffected by the litigation, offers help paying monthly premiums for individuals making up to $47,520, or $97,200 for a family of four— 400 percent of the federal poverty line. The second, known as “cost-sharing reductions,” help people making less than 250 percent of the poverty line with co-pays, deductibles and other out-of-pocket expenses not covered by insurance.

‘Cost-Sharing Subsidies’ at Stake
Average deductibles of "silver" plan* by income level
IncomeDeductible
250%-400% of poverty$3609
200%-250% of poverty$2904
150%-200% of poverty$809
Less than 150% of poverty$255
Average costs of various expenses
Cost Above 250% Under 150%
Deductible$2400$0
Out of pocket$7150$1250
Doctor visit$20$0
Specialist$55$10
ER visit$400$150
Inpatient30%10%
* Medical & prescription drug
Source: Kaiser Family Foundation

According to the Kaiser Family Foundation, an individual silver-plan holder with medical and prescription drug coverage earning less than $17,820, or a family of four making less than $36,450 — 150 percent of the poverty line — would pay an average deductible of $255, a $3,354 savings from the normal cost of $3,609.

With payments projected to total $9 billion this year, a cutoff would wreak havoc in insurance markets, according to experts. Seth Chandler, a University of Houston Law Center professor and a visiting scholar at George Mason University’s libertarian Mercatus Center, noted that insurers are obligated to make the payments for low-income customers whether they receive the subsidies or not.

“It creates a lot of chaos if these payments stop,” he said. “If the law were otherwise functioning well, I think it could withstand the loss of $9 billion. But in at least some states, I think this would be the straw that broke the camel’s back.”

Trump Administration Mum on Plans
It is anyone’s guess what the Trump administration might do. For now, it has continued making the payments, as the Obama administration did. A spokeswoman for the Justice Department, which is handling the appeal, declined to comment.

Some conservatives are urging the Trump administration to pull the plug on the cost-sharing subsidies.

“One might think this is an opportunity for the Trump administration to put some pressure on Congress to move forward,” former Virginia Attorney General Ken Cuccinelli said in response to a question from LifeZette during a conference call with reporters last week.

“One might think this is an opportunity for the Trump administration to put some pressure on Congress to move forward.”

That strategy is not without political risk, however.

“They’re in a tough position,” Chandler said. “If they stop the payments, Democrats are going to accuse them of sabotaging Obamacare.”

Another option is for the Trump administration to keep up the appeal, said Northwestern University’s Garthwaite, who called it an “interesting gamesmanship issue.” He said a ruling in favor of the House of Representatives — which brought the challenge — would force the payments to end without an affirmative decision by the Trump administration to do so.

“It’s more dots for the average American to connect to see this is why the subsidies are going away,” he said.

Maintaining the appeal would have a tinge of irony since Health and Human Services Secretary Tom Price — who is listed as the defendant in the case now that he has replaced Sylvia Burwell — was a representative in Congress when the House sued.

“It’s a very tough choice,” said South Texas School of Law Houston professor Josh Blackman, who wrote a book about the unravelling of Obamacare. “The safest bet is to continue making the payments and continue appealing the case. Then you’d have the very odd situation where [House Speaker] Paul Ryan would be suing Tom Price.”

Insurance Companies Likely Would Sue
Even if the Trump administration decides to drop the appeal, Chandler said, that likely would not be the end of litigation. He said insurance companies almost certainly would sue to protect their subsidies.

But Chandler said insurance companies might face an uphill battle.

"The problem is there would have been a decision on the books that the payments are illegal," he said.

There is no guarantee, of course, that the House would prevail if Trump continues the appeal. Blackman said the D.C. Court of Appeals in recent years has not been kind to conservatives. Two of the three judges assigned to the case are appointees of Democratic presidents.

Blackman said the Obama administration's position, that the government had the power to make the payments from the "permanent appropriations" that do not require specific authorization, is "an awful argument." And Chandler said he does not believe it is "a particularly difficult issue."

But Chandler said the appellate court could sidestep the merits and decide that the House of Representatives should not have been allowed to sue in the first place because it could not demonstrate a specific harm that it suffered. Legal experts said it is rare for judges to conclude that a single house of Congress has "standing" to file lawsuits over disputes with the executive branch.

Another possible resolution would be for Congress to simply appropriate the money for the payments. Rep. Greg Walden (R-Ore.), chairman of the House Energy and Commerce Committee, and Rep. Tom Cole (R-Okla.), chairman of the House Appropriations health subcommittee, both told The Hill newspaper last week that they favored that course of action.

Any move by Republicans to bail out Obamacare, though, would be sure to draw the ire of conservatives.

  1. Affordable Care Act
  2. Donald Trump
  3. health care
  4. Ken Cuccinelli
  5. Obamacare
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