On December 5, 2016, the U.S. Court of Appeals for the D.C. Circuit issued an order to stay  the administration’s appeal of the district court decision in U.S. House of Representatives v. Burwell, a case challenging Cost-Sharing Reduction (“CSR”) payments to health insurance issuers under the Affordable Care Act (“ACA”) Section 1402. The district court decision found that the House of Representatives had standing to sue the executive branch, that reimbursements to health insurance issuers for CSR requires an appropriation by Congress, and that the Obama Administration’s reimbursements to issuers of CSR without an annual appropriation was illegal. The D.C. Circuit’s stay order directed the parties to “file motions to govern further proceedings by February 21, 2017”—one month after President-elect Donald Trump’s inauguration.

Impact of the Stay Order

In effect, the D.C. Circuit’s order provides additional time for the president-elect to consider whether to withdraw the administration’s appeal and what will happen if it does so. If the Trump Administration withdraws the appeal, the district court’s holding will stand, cutting off CSR payments to health insurance issuers absent an appropriation by Congress. The stay order also provides time for the new administration and Congress to enact policy changes that would moot the case, either by repealing the applicable provisions or by appropriating funds for CSR payments.

It is not yet clear whether the Trump Administration will drop the appeal. On its face, the House Republicans’ challenge to CSR payments was an attack against the ACA. It eliminates certain payments to issuers of health insurance plans on ACA Exchanges unless Congress specifically appropriates funds for those payments (which it has not), making it impracticable to offer such plans and thereby hindering the viability of the exchanges. President-elect Trump has promised to repeal the ACA, which suggests that the district court’s decision prohibiting CSR payment absent an appropriation is consistent with his overall policy objectives. But, the decision found that a chamber of Congress has standing to raise a legal challenge in federal court against the exercise of executive power—a potentially unwelcome precedent for the Trump administration to leave unchallenged.

If the Trump administration does not withdraw the appeal, it may nevertheless become moot as the result of legislative changes. Specifically, Congress could appropriate amounts for CSR payments to maintain the status quo until the ACA is repealed or Congress could repeal those provisions of the ACA authorizing payment of CSRs. The absence of CSR payments would likely force issuers to leave exchange markets, causing losses of coverage and fewer options for individuals. Despite promises to immediately repeal the ACA, the political consequences of many individuals’ losses of coverage before replacement is enacted may be untenable.

The district court stayed its decision pending appeal, and issuers have continued to receive CSR payments to compensate for the reduction or elimination of enrollee cost-sharing amounts as required by the ACA. For the immediate future, the stay of the district court’s opinion permits continued reimbursements to issuers for CSR. The Trump Administration, however, could opt to discontinue making those payments even while the stay is in place by declining to make payments in the absence of an appropriation. If the administration drops the appeal without repealing ACA Section 1402, issuers would remain obligated to provide CSRs to enrollees, but they would not be reimbursed for the costs of those CSRs as required by the statute.

Options for Issuers

In the event that the Trump administration drops the appeal or otherwise leaves issuers with an uncompensated-for obligation to continue CSRs for enrollees, issuers may have several options.

First, issuers may file suit in the Court of Federal Claims under the Tucker Act to be made whole for any CSR payments to enrollees for which the government failed to make timely payment. The CSR statute obligates the federal government to make payments to issuers, and the absence of an appropriation to make such payments does not preclude a claim for payment under the Tucker Act. The Obama Administration acknowledged as much in its briefing before the district court.

Second, issuers may seek to terminate their qualified health plan (QHP) issuer agreements. To offer QHPs on federally facilitated and federal-state partnership exchange, issuers signed QHP issuer agreements that contain a provision allowing the issuer “to terminate this Agreement subject to applicable state and federal law.” Note, however, that termination of the issuer agreement would not affect state law obligations, such as requirements to continue coverage for enrollees for a full policy period. Even if the QHP issuer agreement is terminated, careful analysis would be necessary to determine whether and how a plan may be terminated or discontinued.

Finally, issuers may seek legislative or regulatory relief from the CSR provisions. The president-elect has repeatedly promised to repeal the ACA, but it is possible that an intermediate solution may be reached that achieves the dismantling of the Act without leaving health insurance issuers that participated in Exchanges with significant financial obligations for which they cannot be reimbursed.

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Photo of Christopher Flynn Christopher Flynn

Chris Flynn is a partner in Crowell & Moring’s Washington, D.C. office and is co-chair of the firm’s Health Care Group. Chris focuses his practice on complex commercial litigation before federal and state courts, administrative agencies and arbitral forums. Chris regularly represents HMOs, PPOs, IPAs, TPAs, health benefit plans, fiscal intermediaries, managed behavioral healthcare organizations, plan sponsors and health care industry associations in various litigation, investigations, and regulatory matters. Chris’ experience includes all areas of health care, including payor/provider contract disputes, class action defense, ERISA preemption, subrogation disputes, regulatory challenges and whistleblower claims. Chris has also briefed health care matters for the Supreme Court as counsel for amicus curiae.

Photo of Joseph Miller Joseph Miller

Joseph M. Miller is a partner in Crowell & Moring’s Washington, D.C. office, a member of the firm’s Antitrust and Health Care groups, and serves on the Health Care Group steering committee. Joe is an antitrust attorney with over 25 years’ experience in private practice, as a general counsel and as a federal enforcer with both the Federal Trade Commission and Antitrust Division of the U.S. Department of Justice. He has testified before Congress and the FTC on health care antitrust issues and is a frequent speaker at conferences, trade associations, and client events. His practice focuses on strategic transactional advice and counseling, government investigations, and merger review across industries.

Photo of A. Xavier Baker A. Xavier Baker

A. Xavier Baker is a partner in Crowell & Moring’s Health Care Group and is located in the Washington, D.C. office. He advises clients on health care insurance and managed care regulations, investigations, transactions, and litigation. He counsels national and regional health insurers, pharmacy benefit managers, care coordination organizations, and other specialty health care service providers and trade associations on complex regulatory issues.

Photo of Joe Records Joe Records

Joe Records is a counsel in the firm’s Washington, D.C. office, where he practices in the Health Care Group. Joe’s practice includes counseling and representing clients on a broad array of regulatory matters, frequently dealing with federal health care programs, health reform, and state regulation of payers and providers. In particular, Joe has advanced clients’ interests by developing legislative and regulatory health care proposals at the federal and state levels and has helped clients evaluate the impact on their business of other proposals. He has also worked with clients to respond to federal audits, including under federal health care programs, and assisted in structuring transactions to comply with state and federal law.