Cost-sharing reductions implemented under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) lack Congressional appropriation, and the payment of reimbursements under the program is in violation of the Constitution, held the U.S. District Court for the District of Columbia, siding with House Republicans challenging the Obama Administration’s implementation of the ACA. In its decision, the court held that while the advance premium tax credit program is properly appropriated, it is not so programmatically aligned with the cost-sharing reductions in that it shares appropriation under Section 36B of the Internal Revenue Code (IRC) (31 U.S.C. §1324) (U.S. House of Representatives v. Burwell, May 12, 2016, Collyer, R).
Complaint. To help provide all Americans with affordable coverage choices, the ACA provides two main programs: premium tax credits and cost-sharing reductions (see Did Obama steal Congress’ purse? The House’s case against the Administration, September 30, 2015). According to the House’s complaint, the advance premium tax credits under Section 1401 are funded through the standing permanent appropriation for refunds due under the IRC. Cost-sharing reductions under Section 1402, however, are not funded by the law. The complaint alleges that the cost-sharing reductions are required from insurers as a condition of participation in the marketplace, with no regard to whether the insurers will receive payments from the government. Although the government is authorized to make payments to insurers to offset the costs of the reductions, “Congress has not, and never has, appropriated any funds (whether through temporary appropriations or permanent appropriations) to make any Section 1402 Offset Program payments to Insurers.” Therefore, the House claims, the payments being made to insurers for the cost-sharing reduction offset program violate Article I of the Constitution, 31 U.S.C. §1324, the ACA, and the Administrative Procedure Act (5 U.S.C. §§500 et seq.).
District court decision. In October 2015, a district court held that the Obama Administration could not pursue an interlocutory appeal in the suit (see Obama administration will have to stand and wait to appeal House lawsuit, October 20, 2015). The Administration sought an immediate appeal of the court’s earlier finding that the House had institutional standing to sue. The court acknowledged that the issue involved a controlling question of law and presented substantial grounds for disagreement, but it determined that allowing the interlocutory appeal would not “materially advance the ultimate termination of the litigation.”
Constitutional background. Congress has the sole authority to adopt laws that authorize the expenditure of public monies, as well as laws that appropriate those moneys. Authorization and appropriation by Congress are nonnegotiable prerequisites to government spending. Authorization of legislation establishes or continues the operation of a federal program or agency, either indefinitely or for a specific period. No money can be appropriated until an agency or program is authorized, though authorization may be inferred from an appropriation itself. Appropriation, on the other hand, has the limited and specific purpose of providing funds for authorized programs and provides legal authority for federal agencies to incur obligations and to make payments out of the Treasury for specified purposes. An appropriation must be expressly stated and cannot be inferred or implied. The designation of a source, without a specific direction to pay, is not an appropriation—both are required. An appropriation act must be passed by both houses of Congress and either signed by the President or enacted over a presidential veto.
Premium assistance tax credit. Section 1401 of the ACA added a new section to the IRC: 26 U.S.C. §36B, which provides for the payment of premium assistance tax credits. The appropriation for Section 1401 tax credits was made in 31 U.S.C. §1324. The parties agree that this constitutes permanent appropriation for Section 1401 premium tax credits, and the court held that the tax credits are permanently funded via the reference to 36B in the U.S. Code.
Cost-sharing reductions. Section 1402 of the ACA requires insurers offering qualified health plans (QHPs) through the marketplace to reduce deductibles, coinsurance, copayments, and similar charges for eligible insured individuals enrolled in their plans. Insurers are supposed to get their money back, but nothing in Section 1402 prescribes a process to do so, nor does it condition the insurers’ obligations to reduce cost sharing on the receipt of offsetting payments.
No appropriation for cost-sharing reductions. The court examined the question of whether Congress appropriated the billions of dollars that the HHS Secretaries have spent since January 2014 on Section 1402 reimbursements, as they rely on the statutory language that expressly appropriates money for Section 1401 premium tax credits, positing that Sections 1401 and 1402 are economically and programmatically integrated. However, the court stated that “[s]uch an appropriation cannot be inferred, no matter how programmatically aligned the Secretaries may view Sections 1401 and 1402. Paying out the Section 1402 reimbursements without an appropriation thus violates the Constitution. Though Congress authorized reduced cost sharing, it did not appropriate moneys for it in the Fiscal Year (FY) 2014 budget or since.
The Secretaries can only prevail if Section 1402 payments are properly considered to be refunds due from Section 36B of the IRC. To provide a refund or credit under the IRC means to reduce the tax liability of a taxpayer, which is precisely what Section 1401 does. The cost-sharing reductions mandated by Section 1402 do not reduce anyone’s tax liability, nor do the reimbursements made to the insurers, and neither is intended to do so. The reimbursements simply are not refunds, the court stated.
Furthermore, there are important textual distinctions in Section 1412 of the ACA (“Payment of Premium Tax Credits and Cost-Sharing Reductions”). Section 1412 reiterates the difference between Section 1401 premium tax credits, which are paid “under Section 36B of the Internal Revenue Code,” and payments for Section 1402 cost-sharing reductions, which are payable “under Section 1402.” Secondly. the language of Section 1412(c)(3) evidences that lack of Congressional intent to fuse Sections 1401 and 1402 together through a “unified” program.
The court granted summary judgment to the House and enjoined any further reimbursements under Section 1402 until a valid appropriation is in place. However, the court stayed its injunction pending appeal by the parties.
House reacts. House Ways and Means Committee Chairman Kevin Brady (R-Texas) released the following statement in response to the court’s decision: “This decision is a critical step in protecting Congress’s power of the purse from an Administration that has repeatedly ignored a fundamental principle of our Republic: the separation of powers. I am pleased that the court recognized the plain meaning of the Constitution and upheld the role of Congress in appropriating taxpayer dollars.”
Next steps. Lyle Denniston of SCOTUS Blog wrote that, if the normal route of appeal is followed, the case will move on to the U.S. Court of Appeals for the District of Columbia Circuit. The Administration has the alternative option of asking the Supreme Court to take on the case without waiting for the D.C. Circuit to rule. The question of the House’s standing to sue will remain an issue for the government to contest when it pursues its appeal.
The case is Civil Action No. 14-1967 (RMC).
Attorneys: Eleni Maria Roumel, U.S. House of Representatives, for U.S. House of Representatives. Joel L. McElvain, U.S. Department of Justice, for Sylvia M. Burwell, Secretary, U.S. Department of Health and Human Services.
Companies: U.S. Department of Health and Human Services
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