On May 12, 2016, a Federal Court ruled that the Affordable Care Act (also referred to as the “ACA” or “Obamacare”) has a fundamental flaw in its funding structure. (U.S. House of Representatives v. Burwell, Civil Action No. 14-1967 [D.C. Dist. Ct., 5/12/16].) Under the ACA, the federal government makes payments to insurance companies (under the law’s “cost-sharing” provisions) to offset their costs for offering reduced deductibles, co-pays, etc. on the ACA Health Exchanges. However, the court noted that the ACA does not include a provision which makes a permanent appropriation for these cost-sharing payments. In other words, the federal government has been making what the Court views as ongoing, unconstitutional payments to insurance companies since Fiscal Year 2014 under the ACA.
Specifically, the decision notes that:
“Such [a permanent] appropriation cannot be inferred. None of Secretaries’ [of HHS] extra-textual arguments—whether based on economics, “unintended” results, or legislative history—is persuasive. The Court will enter judgment in favor of the House of Representatives and enjoin the use of unappropriated monies to fund reimbursements due to insurers under [the ACA]. The Court will stay its injunction, however, pending appeal by either or both parties.”
As noted, the injunction will be stayed pending appeal (which will undoubtedly occur). This means that the federal government will be able to continue making the cost-sharing payments to insurance companies until the lawsuit is finally resolved by the Circuit Court of Appeals, or perhaps, the U.S. Supreme Court. Likewise, employers will need to continue to comply with all other requirements of the ACA during this process.
However, if this decision were to survive the appeal process, the future of the ACA (as it currently operates) would be in jeopardy. Even if Congress could work out how to recoup the billions of dollars already spent for these cost-sharing payments since 2014, going forward, the payments would have to be funded by an act of Congress on an annual basis. Given the current state of affairs in Congress, such annual appropriations would be nearly impossible to obtain. Moreover, it is fairly clear that if insurance companies do not receive these off-setting, cost-sharing payments, individual Americans’ insurance premiums will likely skyrocket. It is hard to imagine how the ACA will be able to function in its current form under those circumstances.