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Breaking News: Court Rules that Government Agencies Violated the Constitution When Providing Subsidies on Obamacare Exchanges

By Dr. David C. Pate, News and Community
May 13, 2016

The United States District Court for the District of Columbia ruled on May 12 that the secretaries of Health and Human Services and Treasury violated the Constitution when they spent public money on cost-sharing subsidies for people who signed up for health insurance on the exchanges.

In a suit brought by the U.S. House of Representatives, plaintiffs alleged that the government agencies improperly paid cost-sharing subsidies available to people signing up for health insurance through the exchanges if they meet certain additional criteria, such as having income at or below 250 percent of the federal poverty level, because Congress never passed an appropriation bill authorizing the disbursement of the funds.

Cost-sharing subsidies have been available for low-income individuals signing up for health insurance. The subsidies are applied to deductibles, co-payments and co-insurance to reduce out-of-pocket expenses.

More than half of all those signed up for health insurance under the public exchanges have benefited from these subsidies, which indicates that the insurance otherwise would be unaffordable for many.

The court enjoined further payments of the subsidies unless and until Congress authorizes them, but the decision does not go immediately into effect. The court is providing the government time to appeal the decision, and it most assuredly will.

What is the bottom line?

If this decision stands on appeal, it will be the greatest single threat to the functioning of the already threatened Obamacare exchanges. Premiums have been increasing on the exchanges, and many fear that some of the biggest increases in premiums will be announced this fall for the 2017 rates.

There are many reasons for the premium increases, and I expect to write more about those factors in this space, but there is also concern that as premiums rise, healthier people in the insurance pool will drop out and choose to pay the penalty instead, since the penalty is far less than the monthly premiums.

If the subsidies stop, the fear is that as many as half of those currently insured through the public exchanges might drop out. The result would be a much smaller insurance pool, with much sicker individuals, a consequence that would likely lead to further increases in insurance premiums and a “death spiral” in which more and more people drop out of the insurance pools, causing additional premium increases, and on and on.

At this point, we need to see what happens on appeal and what happens in the upcoming elections. A new Democratic Congress might simply pass the needed legislation.

However, if there is no appropriating legislation and if the decision stands, insurance companies will no doubt file lawsuits to try to enforce payments. It is questionable whether such suits would be successful.

In the meantime, it is likely there will be significant upheaval in the functioning of the exchanges. After numerous lawsuits attacking Obamacare, lawsuits that have made chinks in the armor, this may be the one that brings the Health Insurance Portability and Accountability Act to its knees.

About The Author

David C. Pate, M.D., J.D., previously served as president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009 and retired in 2020. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.