Federal Claims Court Rules Insurer Entitled to Reimbursement of Cost-Sharing Reductions

The court of federal claims has ruled that the federal government violated a statutory obligation under the Affordable Care Act (ACA) when it failed to reimburse an insurer’s cost-sharing reduction (CSR) payments for the last quarter of 2017. As background, the ACA requires insurers to reduce cost-sharing features such as deductibles and copayments for certain low-income individuals who enroll in Exchange coverage and qualify for premium tax credits. Insurers were reimbursed for CSRs until October 2017, when HHS halted payments, citing a Department of Justice legal opinion concluding that Congress never appropriated funds for this purpose (see our Checkpoint article).

According to the court, the statutory language “clearly and unambiguously” obligates HHS to make periodic and timely payments to insurers that have implemented CSRs required by the ACA. The court rejected the government’s argument that Congress’s failure to appropriate funds overrode the statutory obligation. Moreover, according to the court, Congress’s permanent appropriation of funds for premium tax credits—but not for CSR reimbursements—merely signified an intent to fund CSRs through the annual (rather than permanent) appropriations process, and the court could not infer an intent to vitiate the reimbursement obligation based solely on Congress’s subsequent failure to make the necessary appropriations. The court also discounted the government’s contention that insurers may be able to mitigate the absence of CSR reimbursements by increasing premiums (a practice known as “silver-loading” because lower-income consumers in silver-level plans may be able to offset increased premiums with higher premium tax credits), finding no evidence in the ACA or its legislative history that CSR reimbursements should or would be subject to an offset based on an insurer’s premiums. The court further noted that this option was not available to the insurer in this case because premiums for 2017 were already set by the time HHS announced it would halt CSR payments.

EBIA Comment: Late last year, a federal court in California refused to compel the government to make CSR reimbursements (see our Checkpoint article). That case, which was filed by a group of states, was later dismissed voluntarily, on the basis that silver-loading had largely protected consumers and insurers from the absence of CSR payments. Still, as this court noted, silver-loading is not always available, and continuing disputes over the government’s CSR reimbursement obligations are creating uncertainty for insurers. Although CSRs relate to individual policies purchased on an Exchange and do not directly impact employer-sponsored plans, their indirect effects are far-reaching and contribute to confusion over the future of health care reform. Thus, CSRs are of interest to health plans of all types. For more information, see EBIA’s Health Care Reform manual at Sections XXI.B.4 (“Individual Eligibility Determinations”) and XXIX.F (“Premium Tax Credits for Lower-Income Individuals”).

Contributing Editors: EBIA Staff.