Tag Archive: ACA Section 1402

Exchange plan subsidies face second major legal threat

Subsidies for qualified health plans (QHPs) sold on state health benefit exchanges are facing another significant legal threat, less than one year after the U.S. Supreme Court ruled in King v. Burwell that advance tax credit premium subsidies are available for all state health benefit exchanges, including those states that opted to allow the federal government to operate the exchange. The plaintiffs in that case unsuccessfully argued the language of Section 1311(d)(1) of the Affordable Care Act narrowly defined an exchange as a governmental agency or nonprofit entity that is “established by a State.” In King, the Obama administration argued and the high court agreed that read in the broader context of the law, the tax credit subsidies are intended to apply in all exchanges.

Citing King, the administration similarly contends in United States House of Representatives v. Burwell that context is key relative to Section 1402 of the Affordable Care Act. That section provides for supplemental subsidies in addition to advance premium tax credits for households earning between 100 and 250 percent of federal poverty levels. The additional subsidies limit out of pocket costs for households at that income level enrolling in a silver level QHPs — the most commonly selected metallic plan design. In House of Representatives, plaintiffs argue their funding is not a continuing appropriation and thus requires an annual appropriation as part of the federal budget.

The administration claims taken in the larger context of the Affordable Care Act, Section 1402 is ambiguous and must be read in context with Section 1401 that funds the advance tax credit premium subsidies via Section 36B of the Internal Revenue Code. The two funding mechanisms are intended to work tandem to make individual coverage more affordable to low income households, the administration posits. Disallowing funding for the supplemental cost sharing subsidies as the House seeks while leaving it intact for premium tax credits would produce an absurd outcome, it maintains.

In a ruling issued May 12, U.S. District Court judge Rosemary M. Collyer agreed with the House, finding the supplemental cost sharing subsidies must be annually appropriated. “Far from absurd, that is a perfectly valid means of appropriation” Collyer wrote, finding paying them for qualified silver QHP enrollees violates the Constitution’s allocation of spending power to Congress without a proper appropriation approved by Congress and the president.

The administration is expected to appeal Collyer’s ruling to the First U.S. District Court of Appeal. Because the unusual case involves a dispute between the legislative and executive branches over the power of Congress to appropriate funding under the Constitution, it’s possible it could go directly to the Supreme Court. In any case, Collyer’s ruling won’t likely have an impact on QHPs offered on the exchanges in 2017 given Collyer stayed the House’s requested injunction against further administration spending for the cost sharing subsidies pending appeals. The change in administrations in 2017 will also blunt the impact of the ruling given the next administration and Congress could opt amend or repeal the Affordable Care Act such as to moot the case.

According to this Urban Institute analysis, if Collyer’s ruling ultimately becomes the law of the land and the Affordable Care Act remains intact, it would force health plans to substantially increase premiums for silver plans in order to recover the lost federal funding for cost sharing subsidies since they would remain under the ACA’s requirement to offer silver QHPs with reduced cost sharing to eligible households. That premium increase would in turn boost advance premium tax credit subsidies that are pegged to the premium rate for the second lowest cost silver QHP offered on exchanges, according to the analysis.

States could also reassess their options under the ACA if the cost sharing subsidies remain unfunded given that a significant percentage of exchange enrollees rely upon them. They could opt to cover most of this population under “basic health plans” per ACA Section 1331 for low income households earning up to 200 percent of federal poverty and not eligible for Medicaid. They also have the option to waive the cost sharing subsidies under Section 1332 of the law affording states wide latitude to fashion their own state health plans provided they meet certain conditions of coverage and don’t entail additional federal funding.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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