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Court Says Marketplace Insurers Are Entitled to Payments for Reducing Cost-Sharing, but Must Offset Premium Tax Credit Increases

court decision on marketplace insurers

On August 14, the Federal Circuit Court of Appeals released two decisions in cases brought by insurers claiming damages because the Trump administration stopped making so-called cost-sharing reduction (CSR) payments in the fall of 2017. These payments were created by the Affordable Care Act (ACA) to compensate insurers for reducing cost-sharing for low-income individuals in silver-level marketplace plans. In one case, the court decided that the insurers were entitled to reimbursement for the payments and should receive them for 2017. But, because after 2017 states allowed insurers to increase premiums to compensate for the loss of CSR payments, the court held in the other case that for 2018 and later, the court of claims must decide whether the additional premium tax credits (PTC) insurers gained from these increases offset the missing CSR payments.

History of the Dispute

The ACA provides for two kinds of payments to insurers that participate in the marketplaces. First, premium tax credits are available to help pay premiums for people with incomes between 100 percent and 400 percent of the federal poverty level (i.e., between $12,760 and $51,040 for an individual). Second, the ACA requires insurers to reduce cost-sharing (e.g., deductibles, copayments, coinsurance, maximum out-of-pocket limits) for those with incomes below 250 percent of poverty ($31,900 for an individual) who are also receiving PTCs. The law then requires the government to reimburse the insurers for these reductions. However, it explicitly appropriated money to pay for the premium tax credits but not the cost-sharing reduction payments.

The Obama administration reimbursed insurers for the CSRs, arguing that the PTC appropriation also covered the CSR payments. The Republican-led House of Representatives sued in 2014, claiming that the administration had no authority to make these payments. A federal district court judge decided in House v. Burwell that the CSR payments were illegal because funds had not been appropriated, but allowed the payments to continue while the government appealed. While the appeal was pending, President Trump took office. In October 2017, the Trump administration agreed with the court that the payments were illegal and abruptly stopped them.

In response to the payment termination, most states allowed insurers to increase their premiums on 2018 silver plans to compensate. This approach is called “silver loading.” Because premium tax credits can be used for marketplace plans with higher or lower cost-sharing than silver plans, and because the amount of the credit is determined by the cost of the second-lowest-cost silver plan, silver loading also allows eligible consumers to get higher cost-sharing plans for free and lower cost-sharing plans at a reduced price. Silver loading has increased premiums for some higher-income consumers who are not eligible for premium tax credits. The Trump administration has considered eliminating silver loading, but recent legislation protects it through 2021.

Lawsuits and Decisions

More than 20 cases have been filed by insurers against the federal government (including a class action brought by about 100 insurers) claiming they were owed the CSR payments under the ACA. The Supreme Court’s recent decision on risk-corridor payments greatly strengthened their case. That decision turned on language in the ACA that said the government “shall pay” these payments. The Federal Circuit decided in one of its two decisions that because the CSR statute also says the government “shall pay” CSR payments, the insurers are entitled to reimbursement for the last months of 2017 before silver loading began. In its other decision, however, the court concluded that for 2018 and beyond, any losses insurers suffered from the lack of CSR payments must be offset by gains made from increased PTCs that resulted from silver loading. The court sent the cases back down to the court of claims to determine damages. The insurers will bear the burden of establishing their losses.

Unresolved Questions

The decisions raise as many questions as they resolve. They do not require the government to resume CSR payments unless Congress appropriates the money but do allow for insurers to recover their losses if the government does not make the payments. Presumably, states will continue to allow silver loading. It is not clear whether insurers will in fact suffer losses if they continue to receive increased premium tax credits because of silver loading. The situation will likely differ from year to year, state to state, and insurer to insurer. Only significant losses will likely justify litigation for future years.

Vice President Biden has promised major changes in premium tax credits and cost-sharing if he is elected, which could make the issue moot. It seems unlikely that the decisions will affect 2020 or 2021 insurance premiums, which are already largely set. It does seem likely, however, that these decisions are the final and definitive judicial resolution of the underlying CSR entitlement, as the Supreme Court is unlikely to review the decisions. It will be up to the court of claims to determine how much is owed each insurer, which will be a complex process.

Publication Details

Publication Date: August 18, 2020
Citation:

Timothy S. Jost, "Court Says Marketplace Insurers Are Entitled to Payments for Reducing Cost-Sharing, but Must Offset Premium Tax Credit Increases," To the Point (blog), Commonwealth Fund, Aug. 18, 2020. https://doi.org/10.26099/nnj1-fm29

Experts

Emeritus Professor, Washington and Lee University School of Law