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Trump’s ominous threat to withhold payment from health insurers, explained

Health and Human Services Secretary Tom Price (left, pictured with President Trump and Vice President Mike Pence), finds himself in a remarkably awkward legal situation: defending the constitutionality of ACA payments the House has sued over.
Health and Human Services Secretary Tom Price (left), finds himself in a remarkably awkward legal situation: defending the constitutionality of ACA payments the House has sued over.
Olivier Douliery / Pool / Getty Images

In April, Nicholas Bagley explained how President Trump possesses the power “to blow up insurance markets across the country.” Trump recently renewed his threats to do just that.

Unless and until Congress enacts a replacement for the Affordable Care Act, President Trump will be stuck implementing a law he detests. He has predicted that “ObamaCare will explode,” and in his frustration he will be sorely tempted to do everything in his power to make that prediction come true.

He may still have his chance. A pending court case, House v. Price (née House v. Burwell — and much turns on the name change), has given the administration a bomb it could use to blow up insurance markets across the country. At stake is the legality of the payments the federal government makes to insurance companies to help cover the medical expenses of low-income people.

Yanking those payments carries huge political risks. Trump’s full-throated support for a reckless replacement bill has convinced millions of Americans that he’s intent on taking away their insurance. If their insurance does go away, they’ll probably blame him. It’s his presidency, and his problem.

Trump, however, has actively undercut legislative efforts to put the contested payments on a sound legal footing. The administration has tried to patch over the problem by telling members of Congress that it will keep making the payments, but insurers are skittish, even panicky. They have watched Trump publicly toy with the idea of stopping the payments in an effort to extract concessions from Democrats. How can they be sure he won’t eventually follow through?

Insurers must decide very soon whether they want to participate on Obamacare’s exchanges in 2018. Lingering uncertainty over the legality of the payments, together with the Trump administration’s unreliability, will lead many of the to head for the hills. If they do, there’s a good chance the Trump administration will have a political catastrophe on its hands.

The House claimed certain governmental payments to insurance companies were unconstitutional

How did it come to be that Trump holds the power to blow up the individual markets?In July 2014, the Republican-controlled House of Representatives voted to sue the Obama administration, resulting in the case House v. Price. The House accused the administration of making billions of dollars in illegal “cost-sharing” payments to insurance companies.

The Affordable Care Act provides two kinds of subsidies to help low- and middle-income people pay for insurance on the exchanges. Premium subsidies defray the cost of premiums for people making less than four times the poverty level. For those who make less than that, cost-sharing reductions help cover the costs of deductibles and other out-of-pocket spending.

Although they serve similar goals, the two subsidies function in different ways. The premium subsidies are refundable tax credits that go to individuals: They are administered through the tax code. For cost-sharing reductions, the ACA requires insurers to cut their lowest-income customers a break on their out-of-pocket spending. In turn, the statute says the federal government will, reimburse insurers for doing so.

Here’s the catch. The Constitution says that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Under the persnickety rules governing appropriations law, it’s not enough for a statute to order the government to make a payment. Congress must adopt a law that specifically appropriates the money to make that payment. And while the Affordable Care Act does link the premium subsidies to an existing appropriation, it’s silent about the cost-sharing reductions.

In the view of House Republicans, that makes the reimbursements illegal.

The lawsuit was largely unprecedented, yet it gained traction

At first, the Republicans’ suit, filed in November 2014, was viewed as a political stunt. Fights over the appropriations power have never been hashed out in federal court, and for good reason: The political branches are supposed to work out this kind of dispute between themselves, using the tools the Constitution has assigned to them. Congress has lots of tools to bring the president to heel. It can pass new laws. It can launch investigations. It can bargain over other administration objectives. It can even move to impeach. At times, some of these options may not be politically feasible. But that just means Congress won’t use its power, not that it lacks the power to respond to executive infractions.

That’s why Congress has never been found to have standing to sue the president over a question pertaining to appropriations. Otherwise, lots of disputes that should be resolved by our elected representatives would be decided by cloistered judges with lifetime appointments — which isn’t healthy for a democracy.

On the merits, however, the House of Representatives had a point.

The Obama administration spotted the appropriations problem before the exchanges went live, and it went to Congress to ask for the cost-sharing money. Caught up in anti-Obamacare fever, however, Congress refused. That put the Obama administration in a bind. Either it could find some legal justification for making the payments or it could concede that Republicans were right — and watch the exchanges fall apart as insurers withdrew for lack of reimbursement.

Unsurprisingly, the administration opted to mount a legal defense. Unfortunately, it was a terrible one, as I argued at the time. Administration lawyers proposed that the appropriation for the premium subsidies could do double duty as an appropriation for the cost-sharing reductions. Both types of subsidies serve the same purpose, they argued: helping people afford insurance coverage. So in the administration’s view, Congress must have intended the same appropriation to serve for both.

The House had identified a genuine legal problem

This, as I say, was not a strong argument. Before the Affordable Care Act was enacted, an existing, permanent appropriation gave the IRS the power to issue tax refunds. When Congress passed Obamacare, it said the permanent appropriation for tax refunds would also cover premium subsidies — which are, after all, tax credits.

The Obama administration ended up arguing that a permanent appropriation governing tax refunds allowed it to make the cost-sharing payments. But why? The cost-sharing reductions aren’t tax credits. They’re straight-up payments to insurance companies. It’s a big stretch to read an appropriation that governs refunds for individual taxpayers as also covering payments to insurers.

Nonetheless, most observers expected the House’s lawsuit to be dismissed on standing grounds: They expected the court to say that this was a classic political dispute, not a federal court case. The House, however, got lucky, drawing a district court judge who was sympathetic to its argument that unless the court intervened, President Obama could keep flouting the Constitution with impunity.

And so the court ruled that the House had standing. Six months later, in May 2016, the court issued a second opinion on the merits: It held that the cost-sharing payments were unconstitutional and ordered the payments stopped.

Had the district court’s injunction taken immediate effect, it would have created havoc in the insurance markets. But in issuing its decision, the district court stayed its injunction — that is, put it on pause — to allow the government to appeal.

The results of a certain presidential election changed the legal calculus

Shortly after the Obama administration filed its opening brief to the appeals court, however, Donald J. Trump won the presidential election. With the appointment of Tom Price to run the Department of Health and Human Services, succeeding Sylvia Mathews Burwell, the tenor of the case changed significantly (as did its name). It’s been languishing ever since.

The House of Representatives asked for the appeals court to put the case on hold, arguing that health care policy was likely to change significantly in the new administration. The appeals court agreed to do so, and ordered status reports every 90 days.

When Republican legislators unveiled the American Health Care Act, it became clear they had big plans for the cost-sharing subsidies: They wanted to eliminate them altogether by 2020. If the Act had passed, most observers think it’s likely that Congress would have funded the cost-sharing payments during the brief transition period.

But Republicans’ repeal and replace efforts have foundered. In the meantime, House v. Price offers a back door to undoing Obamacare’s exchanges.

To destabilize the ACA insurance markets, all the administration would have to do is dismiss its appeal and stop fighting the case. At that point, the district court’s injunction — its order to stop making the illegal cost-reimbursement payments —would spring into effect.

Faced with enormous financial losses, many insurers would flee the market. Recall that the Affordable Care Act would still require insurers to cut their low-income enrollees a break — it’s just that insurers wouldn’t get reimbursed. The only way to make the numbers work would be to jack up premiums on everyone. In that scenario, the Urban Institute estimates that premiums would rise, on average, by $1,040, and that hundreds of thousands of people would lose coverage.

The Trump administration’s vexing choice

The Trump administration may well decide that’s too politically risky. If so, the conventional wisdom is that the House of Representatives and the administration could cut some kind of deal to keep the cost-sharing payments flowing.

But that may be trickier to pull off than most people think.

The most straightforward fix would be for Congress to appropriate the damn money. Democrats and some Republicans would like to do just that. But during debates in April week over an appropriations measure to avoid a government shutdown, Speaker of the House Paul Ryan ruled that out. “We aren’t doing that,” he said. “That’s not in an appropriations bill. That’s something separate that the administration does.” As an explanation, that’s nonsensical, but there may be strategic logic: Ryan may be helping Trump use the cost-sharing reductions as a bargaining chip.

If Congress won’t appropriate the money, the House and the Trump administration could try to bury the hatchet and settle the case. They might say, in effect, “We’ve agreed between ourselves to drop the lawsuit and that we’re better off without the district court’s injunction.”

Now that the case is on appeal, however, it’s not so easy as that. The Supreme Court has said that appeals courts can’t overturn district court orders when parties settle their cases, even if both parties ask nicely.

So to get out from under the district court’s injunction, the parties may have to go back to the district court. But the court can modify its prior order only if there’s been a “significant change either in factual conditions or in law.”

Does Trump’s election qualify as such a “significant change … in factual conditions”? Perhaps. Certainly it would be strange to keep an injunction in place when no one on either side of the legal fight wanted it anymore. Judges don’t usually ask too many questions when opposing parties agree about something.

But still, there’s something fishy about the asking the court to vacate the injunction — and allowing the payments to proceed. Both the district court and the House of Representatives still believe (correctly, in my view) that it’s unconstitutional for the executive branch to keep making the cost-sharing payments. The Trump administration’s lawyers likely share that assessment; indeed, Attorney General Jeff Sessions has said publicly that the suit in House v. Price “has validity.”

The only reason to vacate the injunction, then, is because it’d be awfully convenient to keep making the cost-sharing payments — even though the judiciary, the executive, and the legislature all think those payments are unconstitutional.

The judge might well balk. Indeed, she might be offended at the effort to enlist the federal courts in an unconstitutional scheme.

The best option might be to just stall. But will the courts go for it?

So what’s likely to happen? Given the Trump administration’s statement that it will keep making the cost-sharing payments, I expect the parties will ask the appeals court to keep the case on hold indefinitely. That may work, at least for a time. The payments would keep flowing, and the appropriations fight would recede into the background.

But the appeals court may not have infinite patience for that gambit. It’s one thing to pause an appeal while Congress or the executive branch considers its options after a change in administration. It’s another thing to keep a case on ice because President Trump wants to keep making unconstitutional payments.

Of greater concern, the case’s very existence makes insurers nervous. Until its resolution, House v. Price hangs over the individual market like the sword of Damocles, giving a mercurial president the power to destabilize the exchanges with the stroke of a pen.

Worse still, Trump appears to believe that his control over cost-sharing payments gives him a negotiating advantage. The desire to retain that perceived advantage likely explains his resistance to congressional efforts to appropriate the cost-sharing money. What Trump seems not to grasp, however, is that he only has leverage if his threat to withhold cost-sharing payments is credible. But if the threat is credible, insurers can’t afford to run the risk that the markets might collapse around them.

In other words, Trump can make a credible threat or he can have viable insurance markets. He can’t have both.

All of which underscores the folly of allowing the House of Representatives to bring this lawsuit in the first place. House v. Burwell was once a rallying cry for conservatives. Now House v. Price may become an albatross around Republicans’ necks.

Meanwhile, the health insurance of millions of Americans hangs in the balance.

Nicholas Bagley is a professor at the University of Michigan Law School, and a contributor to The Incidental Economist. Find him on Twitter @nicholas_bagley.


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