The Domino Effect of House v. Burwell

Last week, U.S. District Court of Appeals Judge Rosemary Collyer issued a ruling in House v. Burwell that could cripple the law. In her opinion, the President overstepped his Constitutional authority in granting cost sharing subsidies for those lacking insurance coverage since budgetary approval is required from Congress.

The specific constitutional question is this: Did the administration or specifically the Secretaries of Health and Human Services and Treasury violate Article I, §9, cl 7 of the U.S. Constitution when they “spent public monies that were not appropriated by the Congress.” (United States House of Representatives v. Burwell, 130 F. Supp. 3d 53, 81 D.D.C. 2015). The constitution is explicit:

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time. (U.S. Const. art. I, § 9, cl. 7.) The courts will have to decide if the portion of the cost sharing subsidies (ACA Sections 1401, 1402) disbursed by the federal government without Congressional authorization violates the law.

In the aftermath of the Collyer ruling, the Justice Department served notice it will appeal. Nonetheless, this decision and its pending judicial challenges is likely to have a domino effect regardless of its ultimate outcome in the courts.

Background: Along with Medicaid expansion, cost sharing subsidies are foundational to the ACA’s incentives to increase access to affordable health insurance and reduce the ranks of the uninsured. The premise is this: the majority of individuals who lack coverage simply can’t afford the premiums. So the law allows for these subsidies to be paid directly to private insurers on behalf of eligible marketplace enrollees whose incomes fall between 100% and 400% of the federal poverty level. In the first year of the marketplaces, 5.6 million enrollees had 77% of their premium, or an average of $290, paid to their plan of choice via the cost sharing element of the ACA.

Will Judge Collyer’s ruling be upheld by an Appeals court or find its way to the Supreme Court? No one knows for sure. It could take up to two years if House v. Burwell ends up being decided by SCOTUS. If it does, it’s significance in setting the future of the Affordable Care Act will rival NFIB v. Sebelius which affirmed the constitutionality of the law and King v. Burwell that upheld the availability of cost sharing subsidies for enrollees thru Healthcare.gov rather than state exchanges. And uncertainty about House v. Burwell will have immediate and significant impact regardless of the judicial process. It creates a domino effect that industry stakeholders will feel immediately:

1-Health insurers will raise premiums or exit the marketplaces altogether. The individual insurance market for insurers is risky compared to their employer, Medicaid and Medicare Advantage lines of business. The individual market via the marketplaces is even riskier: enrollees are older, sicker and needier than ACA proponents calculated, and stringent requirements for the plans they offer make marketplace participation a tough call for insurers.  Private insurers counted on the availability of the cost sharing subsidies along with the risk-sharing pool to mitigate their financial risks. In the end, participation in the marketplace became a game-day call: for larger investor-owned and Blue Cross plans, it’s a financial call thus the recent announcements by United, Humana and others they’ll cutback their marketplace participation. For CO-OPs and plans sponsored by provider organizations, it’s more complicated. The them, the marketplaces were vehicles for expanding access to vulnerable or un-served populations. It’s safe to say that all insurers have been disappointed in the marketplaces and forced to make adjustments. Uncertainty about the fate of House v. Burwell will prompt insurers to raise premiums in their marketplace offerings while waiting on the appellate process to play out.

2-Bad debt for hospitals will increase. In the negotiations leading to its passage in 2010, federal funding for hospitals was cut $155 Billion (2010-2019) by lawmakers on the assumption that 25 million previously uninsured would be covered through the marketplaces including 34% projected to be young and healthy. And the big stick in the equation was the individual mandate requiring everyone to buy insurance or pay a penalty (in 2016, it’s the higher of 2.5% of adjusted gross income or $695 per person). None of this has panned out. The Supreme Court ruled (June 2012) that states could not be required to expand their Medicaid programs. And glitches in the Healthcare.gov rollout in the fall of 2013, higher than expected premiums for the silver plans (to which cost sharing subsidies are applied) and confusion about the exchanges depressed enrollment. The uncertainty about House v Burwell and volatility of insurer participation and premiums will negatively impact hospitals: the ranks of the uninsured will likely swell and hospital bad debt with follow suit. Unlike insurers, hospitals can’t elect not to participate: they’re required to treat patients without considering their ability to pay their bills. And it’s unlikely Congress will rebate cuts to hospitals based on the faulty math in their coverage assumptions.

3-The politics of the ACA, and Supreme Court appointments of the next President, will become big topics in Campaign 2016. The next President will likely name one or two justices to the Supreme Court where big decisions impacting the future of the ACA will be settled. The enforcement of contraception coverage, ongoing challenges by states about the scope of the federal oversight, potentially House v. Burwell and others are foundational to the law’s implementation and compliance by all parties. To date, debate about the ACA in Campaign 2016 has been long on bravado and short on specifics: the GOP mantra has been Repeal and Replace, while the Dem retort has been Repair and Expand. An appeals court decision is unlikely before November which keeps House v. Burwell alive as a campaign issue, and Supreme Court appointments by the 45th U.S. President a major focus for both campaigns.

That’s the domino effect of House v. Burwell. As its judicial journey begins, it’s important to monitor the outcome of its deliberation, its impact across the industry and the anxiety among those most directly impacted—individuals who count on their subsidies for coverage.

Paul