GOP may need CPR after DOJ is TKO'd by JMS over CSRs.

(sigh) OK, gather 'round children, and let me tell you the story of how Cost Sharing Reductions went from being a thorn in the side of the Obama Administration to becoming a massive tree branch jammed into the kidney of Congressional Republicans. The following is an updated version of a lengthy post of mine from about six months ago.

The Cost Sharing Reduction (CSR) payment controversy has only really been sucking up a huge amount of political and policy oxygen for the past year and a half, since Donald Trump took office, but actually started long before then. Why? Because the whole reason the CSR payments were discontinued in the first place is a federal lawsuit filed by John Boehner on behalf of the House Republican Caucus back in 2014.

The ACA provides two types of financial aid to eligible individual market enrollees: Advance Premium Tax Credits (APTC) to cut down on premiums and Cost Sharing Reductions (CSR) to cut down on deductibles and co-pays. Under the ACA, if someone earning 100 - 250% of the Federal Poverty Line (around $12,000 - $30,000 for a single adult) enrolls in a "Silver" policy on the ACA exchange, they're entitled to both APTC and CSR. CSR assistance varies depending on the enrollee and the policy, but averages somewhere around $1,000/year, and several million people currently qualify, so we're talking about a good $7 billion or more per year (the exact amount has risen or fallen since 2014, but that's not the point).

The way CSR funds work is different from APTC subsidies. With APTC, the amount of the credit is known at the start of the year, and while it might be adjusted up or down by the enrollee as they report income changes, most of the corrections are taken care of the following spring when they file their tax returns.

With CSR, neither the carrier nor the enrollee have any idea how much CSR funding will actually be needed in any given month. Let's say you have a $6,000 deductible and the CSR formula knocks that down to $1,000. That doesn't mean that the government cuts a check to your insurance company for $5,000; deductibles and co-pays only apply if you actually receive medical treatment during the year. If you use up less than $1,000 in deductibles/co-pays by the end of the year, it's irrelevant. The actual amount of CSR assistance will vary widely month to month for each enrollee.

Therefore, here's how it works: Each month, the insurance carrier pays out whatever the appropriate amount is to your doctors/hospitals/etc. for whatever CSR help they're committed to providing. Then, they submit a bill to the federal government to reimburse them for however much they had to shell out of their own pockets. It might be $0 one month, $500 the next (of course they submit a single collective bill for all of their CSR enrollees, which could be several million dollars per month per carrier).

Now, the ACA explicitly states that insurance companies which participate in the exchanges are legally bound to provide CSR assistance, and are further legally entitled to be reimbursed for their CSR expenses the following month.

The problem that John Boehner stumbled across is this: While the carriers are legally entitled to be paid back for their expenses...the ACA itself never included language explicitly authorizing the HHS Dept. to make those reimbursement payments.

That's the root of what all of this nonsense is about.

The case slowly ground its way through the judicial process mostly under the radar for a couple of years. Law experts like Nicholas Bagley of the University of Michigan took the view that the case actually had some merit to it on the surface, but should still be shot down due to a lack of standing:

If any case meets the §1292(b) standard, it’s this one. Accepting Judge Collyer’s order would mark an unprecedented expansion of judicial authority into interbranch food fights. The judge herself acknowledged that "no case has decided whether this institutional plaintiff has standing on facts such as these." And getting the standing question squared away could lead to the immediate termination of this misbegotten lawsuit.

...and yet, it came to pass in May of 2016 that, to the surprise of everyone including the House Republicans who had filed the suit mostly as yet another way of sticking their finger in President Obama's eye, federal judge Rosemary Colyer ruled in their favor on the merits of the case:

...saying that the cost-sharing program under the Affordable Care Act, as implemented since January 2014, has been spending money that Congress did not approve. Such spending was unconstitutional because no money can be taken out of the federal treasury if it has not been specifically provided by act of Congress.

...She did, however, conclude that Congress had in fact authorized that program to be created. The judge also found that Congress had provided authority to cover the spending for the tax credits to consumers who use them to help afford health coverage.

The Obama Administration, of course, appealed the ruling, and Judge Collyer put a stay on her injunction pending appeal:

Judge Collyer enjoined reimbursements under the ACA until a valid appropriation was in place, but stayed the injunction. Accordingly, the subsidies are allowed to continue, pending appeal, which was filed on July 16, 2016.

In other words, Judge Colyer ruled that while the ACA does legally require the insurance carriers to cover deductible/co-pay costs for eligible enrollees, and while the ACA does legally require CSR payments to be made to the insurance carriers to reimburse them for those expenses...technically speaking, no, a formal appropriation of CSR funding had not actually been made to make the reimbursement payments themselves. She then basically notes that this is something that Congress could fix in, like, five minutes by passing a simple, one paragraph bill. You know, something like the following:


There is appropriated to the Secretary of Health and Human Services, out of any money in the Treasury not otherwise appropriated, such sums as may be necessary for payments for cost-sharing reductions authorized by the Patient Protection and Affordable Care Act (including adjustments to any prior obligations for such payments) for the period beginning on the date of enactment of this Act. Payments and other actions for adjustments to any obligations incurred for plan years 2018 and later will be made.

Boom. Done. 87 words and this whole CSR stupidity goes away: The HHS Dept. has the legal authority to repay the insurance carriers; Trump is no longer in a position to cut the payments off; the carriers drop their rate increases by a good 15-20% or so; the individual market returns to some semblence of stability; low-income enrollees continue to receive financial assistance and all is (relatively) well.

Unfortunately...that's not what happened.

The House GOP was, of course, thrilled with this unexpected victory throughout most of the summer and fall of 2016, mainly because they (like everyone else) assumed that Hillary Clinton would succeed President Obama, and that the CSR mess would therefore be dumped in her lap. She would be stuck taking the heat if & when the case was finally ruled on by the U.S. Supreme Court (and even if they ruled against the GOP, at the very least they would've made sure to waste everyone's time, energy and money the way they did with the similarly-themed King v. Burwell case a couple of years ago).

The only problem with their plan, ironically, is that Hillary Clinton did not become the next President. Donald Trump did. Furthermore, they retained control of both the House and Senate, which means that everything which happened to the Affordable Care Act after January 20, 2017 would suddenly become their problem and their responsibility.

And so they kind of freaked out: Their "victory" in House v. Burwell (which would later become House v. Price, and eventually House v. Azar) had suddenly turned into an anchor around their necks.

At first they simply kicked the can down the road by three months, assuming that hey, the moment they took power they'd be repealing the ACA "root and branch" on Day One anyway, so it'd become a moot point:

On December 5, 2016, the United States Court of Appeals for the District of Columbia Circuit stayed further proceedings in the case at the request of the House of Representatives. Motions to govern further proceedings in the case were due February 21, 2017.

Repeal didn't happen on Day One, which meant they were really stuck with the consequences of their actions, so they delayed it another three months...

Feb. 21, 2017: House Republicans and the Trump administration on Tuesday filed a joint motion seeking to delay lawsuit proceedings that threaten to undo President Barack Obama's health care law, the Affordable Care Act.

By May, they were really stuck with the consequences of their actions, so they begged the judge to delay proceedings again...

Update (5/22/2017, 4:30pm): The Trump administration today asked the U.S. Court of Appeals in DC for a 90-day hold before the administration announces whether it will continue a cost-sharing program that pays for out-of-pocket expenses for millions of families. This delay comes at the worst possible time as insurers file for 2018 marketplace rates, and continues to create uncertainty regarding the future of the Affordable Care Act (ACA). Insurers continue to warn that this uncertainty will force them to drastically raise premiums or leave the markets altogether.​ Read our statement on this development.

...and they probably would have done so a fourth time on August 21st (remember, this is the House GOP begging a Republican-appointed federal judge from pulling the trigger on a ruling in their favor), except...well, I think what happened instead was this:

On August 1, 2017, the United States Court of Appeals for the District of Columbia granted the motion of the attorneys general of 17 states and the District of Columbia to intervene in House v. Price. House v. Price is before the D.C. Circuit on appeal from the ruling of a district court judge in favor of the House of Representatives in its lawsuit claiming that the reimbursement of insurers for reducing cost sharing for low-income qualified health plan enrollees is illegal because Congress had not appropriated funding for the payments. The judge enjoined the payments but stayed her order pending an appeal and the Obama administration in fact appealed. The states had moved to intervene, claiming that they had an interest in the action and that the Trump administration was not adequately defending their interest.

...oh, and while she was at it:

...The court further ordered that the case would continue to be held in abeyance, with status reports at 90-day intervals and the next one due on October 30, 2017. With their status as parties to the case, however, the states may well next seek to get the case moving again.

In other words, the Congressional Republicans managed to deliberately delay a ruling in their favor by a Republican-appointed federal judge not once, not twice, not three times but four times, stretching the ruling out by nearly a full year...because they were terrified of the consequences of their own actions (or in the case of their failure to formally appropriate CSR payments, their lack of action).

Adding to the irony, of course, is the fact that the GOP added language to do just that, both the House and Senate versions of the very ACA repeal bills which failed earlier this year. Both versions included explicit CSR appropriation language at the very end...but cut it off after two years as part of terminating the program altogether.

Since then, of course, there were bipartisan efforts by the Alexander-Murray committee to put together an ACA stabilization bill which included at its heart...funding CSR payments for the next two years.

Meanwhile, some carriers pulled an Eric Cartman and bailed altogether, while the rest jacked up their 2018 rates to cover their asses on the reasonable assumption that CSR payments would indeed be cut off at some point. exactly what happened exactly one week after I originally posted the above backstory. On October 12, 2017, Donald Trump, after threatening to do so for months, did indeed order the Department of Justice to drop their appeal of Judge Collyer's ruling...which in turn dissolved her abeyance...which in turn led to her original ruling being implemented, which in turn meant that CSR reimbursement payments were indeed cut off effective at the end of last September.

Most of the insurance carriers had seen this as the likely outcome months ahead of time and had priced their 2018 premiums accordingly, loading the millions of dollars they expected to lose in 2018 into higher rates. The ones who hadn't quickly scrambled to do so at the last minute.

David Anderson of Balloon Juice and I, among others, spent much of last fall pointing out that there's a potential way to turn the CSR lemons into lemonade, via "Silver Loading" and especially the "Silver Switcharoo" gambit. The very simplified version is this: Due to the unusual way that the formula for ACA premium tax credits are calculated and the way that loading the cost of missing CSR reimbursements tie into that, in many states, subsidized exchange enrollees would actually see a significant increase in their premium tax credits while CSR enrollees would continue to receive their financial assistance as well!

In other words, instead of screwing over ~16 million people on the individual market, Trump and the GOP's CSR sabotage gambit could potentially end up helping about half of those folks and not hurting most of the rest. On paper, this sounds like a brilliant workaround to the problem, and in practice it ended up mostly working out: Around 9.8 million subsidized enrollees saw their net premiums either drop substantially or, at worst, remain around the same, while around 6.5 million unsubsidized enrollees saw their premiums spike significantly, with about half of that spike being caused specifically by CSR losses being loaded into the full-priced premiums one way or another.

However, there's another angle to this story, and that's the whole reason I've posted this updated history of the CSR saga: The insurance carriers are still owed the reimbursement money they were never paid for the last 3 months of 2017. Remember, we're talking about a good $2 billion or so.

And so...they sued the federal government to get that money back, just as Nicholas Bagley had predicted:

Even without an appropriation, the ACA creates an entitlement to cost-sharing reductions. Health plans can vindicate that entitlement before the Court of Federal Claims. Payment would then come from the Judgment Fund—a permanently appropriated fund to pay court judgments where “payment is not otherwise provided for.” The question is thus not whether the government will pay, but when.”

This year, cost-sharing payments have amounted to about $7 billion. Unless Congress moves to repeal or amend the Affordable Care Act—good luck with that—obligations of similar size will accrue through 2018 and beyond.

In other words, we’re about to see witness of the largest lawsuits, dollar-wise, in United States history.

What’s more, I think the lawsuits are viable. We’ve already seen a couple of district courts grant multi-million dollar judgments in litigation over risk corridor payments. And the risk corridor cases raise some tricky questions about what sorts of promises the federal government has made to insurers. The cost-sharing cases won’t. On the law, they’re really straightforward.

Now, Congress could always appropriate the money. That would stanch the bleeding and restore some confidence to the rattled insurance markets. Or, alternatively, Congress could prohibit the Judgment Fund from paying out any judgment in cost-sharing litigation, although that would amount to a government default on its obligations. The damage to the government’s reputation would be severe, as Craig Garthwaite and I discussed in this New York Times op-ed.

...all of which brings us to today:

You know the multiple-billion-dollar lawsuit by insurers to recover the cost-sharing money that they're owed? The Court of Federal Claims has certified a class action, which is a Big Frickin' Deal.

In holding that the plaintiffs have a common set of legal claims, the court tentatively rejected the argument that plaintiffs' damages would vary depending on whether they've mitigated those damages through silver-loading.

That seems like a technical point. It's not. It means the government will have to pay back the cost-sharing money into 2018 and beyond, whether or not insurers have mitigated their losses.

That, in turn, will put pressure on Congress to come up with some kind of legislative fix. Otherwise, it'll bleed money every single day, racking up tens of billions of dollars in damages to insurers.

The class-certification decision will surely be appealed, and the court's tentative conclusion about mitigation will be revisited. So it's not the end of the road.

But it's safe to say that insurers had a very good day in court.

Over at Inside Health Policy, Amy Lotven provides further details:

Federal Court of Claims Judge Margaret Sweeney on Tuesday (April 17) rejected the Justice Department's bid to block class action status in a lawsuit over the administration's decision to cut off cost-sharing reduction payments to insurers, instead certifying Common Ground Health Cooperative's case and requiring the government provide the plaintiff's a list of potential class members by May 18. The government said the case should not be deemed a class action suit since insurers' silver-loading to make up for the loss of CSR complicates the damage calculations, but the court disagreed.

Essentially, the court found that because there is no statutory requirement the government use advance premium tax credits to make up for CSR losses, the calculations will be straightforward: Issuers will send data on cost-sharing reductions they provided to consumers and the government will reimburse insurers.

In short, the judge is saying, for the moment at least, that the federal government still has to pay the carriers what they're contractually owed EVEN THOUGH the carriers jacked up their rates to cover the losses.

If this holds, aside from the ~$2 billion which they are definitely owed, it could potentially result in insurance carriers effectively double-dipping, theoretically raking in a good $7 - $10 billion on top of the $7 - $10 billion that they're actually owed for 2018.

Talk about the law of unintended consequences.