A three-judge panel of the U.S. Court of Appeals for the Federal Circuit heard arguments Thursday over whether the government owes health insurance plans money through subsidies mandated under the 2010 health care law, which created so-called cost-sharing subsidies for insurers to reduce low-income consumers’ out-of-pocket costs.

President Donald Trump halted the subsidies in 2017, prompting health care plans on the insurance exchanges across the country to increase their premium rates the following year. But Congress never appropriated specific funds for the subsidies, which the federal government argued ended the obligation of the Department of Health and Human Services to pay the plans. 

[Trump to Stop Paying Obamacare Cost-Sharing Subsidies]

Alisa Klein, an attorney for the Justice Department, said Congress knew that not appropriating the subsidies would increase premiums, which would then increase correlating premium tax credit subsidies. The “hydraulic relationship” between premiums and tax credits allowed the insurers to recoup the lost money, she said.

Judges William Bryson and Timothy Dyk, both Clinton appointees, and Richard Taranto, an Obama appointee, questioned the insurance attorneys on whether any potential damages should be adjusted based on the increased tax credits, noting the possibility of a financial “windfall” for the plans. But one of the attorneys for the plans, William Roberts, argued that the insurers’ workaround did not absolve the government of its obligation, likening it to a “breach of contract.”

“What we have here is the violation of a statute,” he said.

The appeal consolidates four separate cases from South Dakota-based Sanford Health Plan, Maine Community Health Options, Montana Health Co-Op and Texas-based Community Health Choice, which all won their initial lawsuits. 

A district court judge recently awarded a separate class action involving more than 100 health plans $1.6 billion in cost-sharing payments. The federal government appealed the case last month.

Health care plans are waging dozens of similar lawsuits against the administration over $12.3 billion in separate payments through a program known as “risk corridors,” which was designed to stabilize profits and losses during the first three years of the exchanges. The Supreme Court heard arguments in those cases in December, and the high court’s decision could impact the cost-sharing cases over the industry’s claims that the government maintained an implied contract with the plans even in the absence of appropriations.

Klein expressed confidence that the Supreme Court would reject the claim, even though the high court’s justices appeared favorable to the insurers’ argument. 

“They may surprise you,” Dyk said.

States’ solution

The Congressional Budget Office estimated that the cost-sharing subsidies would total around $7 billion in 2017, yet not funding them was expected to cost the government more through higher premium assistance. A bipartisan effort in Congress to fund the payments ultimately failed to gain traction, even after the White House requested the appropriations in February 2018.

Exchange enrollees who did not qualify for premium assistance were vulnerable to the premium increases, prompting the vast majority of states to take a unique approach to shield those consumers from higher rates.

Since the cost-sharing subsidies were only offered for silver-level plans, most states restricted the premium increases to silver plans.

Because premium subsidies are calculated according to silver plans, which are the most popular, the result was disproportionately lower premiums for some less generous bronze plans and more expensive gold plans.

Congress recently enacted legislation protecting states’ ability to “silver-load,” as the practice is known, after the Centers for Medicare and Medicaid Services indicated it might ban the technique.