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Obamacare Insurer Reimbursements Are Unconstitutional, Court Rules

By Casey C. Sullivan, Esq. on May 13, 2016 | Last updated on March 21, 2019

Obamacare is unconstitutional, a federal district judge ruled yesterday -- at least as far as the law's reimbursements to insurers are concerned. Under the Affordable Care Act, insurers must reduce co-payments and deductibles for low-income consumers. The federal government then reimburses insurers for those deductions, at the cost of several billion dollars a year.

But, the ACA did not specifically appropriate money for those reimbursements, and the Obama administration could not cover those payments under other provisions, the court ruled, without violating Congress's exclusive right to control government spending.

A Tale of Two Sections, One Funded, One Not

At issue were two sections of the Affordable Care Act, sections 1401 and 1402. Section 1401 creates tax credits intended to make insurance premiums affordable; section 1402 reimburses insurers for those cost reductions. Section 1401 is funded as part of the government's permanently-appropriated tax credits and refunds. The Affordable Care Act, however, provides no specific appropriations for section 1402.

The Obama administration had been using section 1401's appropriations to fund 1402's insurer reimbursements, under the idea that the appropriation for 1402 could be inferred from the structure of the statute and its legislative history.

House Republicans, who brought the lawsuit against the Department of Health and Human Services, had argued that such a funding scheme was unconstitutional, violating Congress's exclusive authority to appropriate government funds.

Judge Rosemary Collyer agreed. "The Affordable Care Act unambiguously appropriates money for Section 1401 premium tax credits but not for Section 1402 reimbursements to insurers," Collyer wrote. "Such an appropriation cannot be inferred. None of [the government's] extra-textual arguments-whether based on economics, 'unintended' results, or legislative history-is persuasive."

A Major Blow to Obamacare

The ruling is a massive setback for Obamacare, the president's most significant legislative achievement. The ruling also creates major uncertainty for the insurance industry, which is still struggling to adapt to the new realities of the Affordable Care Act. Section 1402 attempted to make that adaptation a bit easier, by shifting some of the costs of covering the public onto the government.

The Congressional Budget Office has estimated that the law's insurance reimbursement program would transfer nearly $130 billion to insurers over the next ten years. The future of those payments is now in question.

No immediate effects are expected, however. Judge Collyer stayed her ruling while the government appeals it to the D.C. Circuit.

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