The Affordable Care Act was dealt a potential blow last Thursday, May 12, that, if upheld, could spell money troubles for exchange insurers.

U.S. District Judge Rosemary M. Collyer ruled in U.S. House of Representatives v. Burwell that the Obama administration has wrongly spent billions to reimburse insurance companies for providing health coverage at lower costs to low- and moderate-income consumers.

The ACA has several mechanisms in place to help low- and moderate-income Americans pay for the cost of their health insurance. One of these is the requirement that insurers reduce cost-sharing for individuals and families with incomes below 250 % of the federal poverty level. Cost-sharing reductions (CSRs) work in two ways. First, they reduce the out-of-pocket maximum that an individual or family has to pay for in-network services before the insurer takes over all costs. Second, the CSRs increase the actuarial value of silver plans, which is the percentage of medical costs covered by the insurer rather than by enrollees.

The ACA did not intend for insurers to bear the brunt of these costs, so requires the Treasury to reimburse insurers for these CSR costs on a monthly basis. However, the House of Representatives claims that no money was ever appropriated for these reimbursements, and appropriation is a Constitutional requirement for money to be drawn from the Treasury.

Collyer rejected the administration’s responses, one of which claims that the CSRs are integrated in the law with premium tax credits (another mechanism to help pay for coverage that offers tax refunds on certain plans to low-income individuals). According to the administration, because the tax credits are appropriated in the law, the CSRs are as well. 

What Does This Mean for Insurers?

Nothing is settled yet. The appellate court is the decider here, as Collyer recognized by staying her decision until the appellate court has reviewed and ruled.

But, as Health Affairs writes on its blog, “This is not a trivial matter. If the CSR payments to insurers stopped, the insurers would still be legally required to reduce cost sharing—at a cost of $7 billion this year and $130 billion over the next ten years—without reimbursement. Burdened with this cost without reimbursement, many insurers might cease to offer marketplace coverage. Those that remained would have to raise rates dramatically to cover the costs of reducing cost sharing while ensuring solvency.”

There could be other avenues for insurers down the road, including the courts, but that will have to wait until an appeal is made and the case is settled, which could be as late as next year.