Federal Court Rules That Obamacare Subsidies Were Illegally Funded

Only Congress has the power to appropriate funds.



A federal judge ruled today that the Obama administration has been implementing Obamacare illegally, paying out billions in subsidies to insurers that aren't authorized under the law.

The lawsuit, led by House Republicans, argued that the administration had no authority to fund law's cost-sharing reductions, which provide an additional subsidy to people who earn up to 250 percent of the poverty line, which ended up being a little more than half of people enrolled in coverage through the health law's exchanges. (The cost-sharing subsidies are distinct from the law's main insurance subsidies, which cover a portion of the cost of insurance coverage for people up to 400 percent of the poverty line.) 

The subsidies were authorized by the law, but Congress rejected an appropriations request from the administration to fund them. The administration moved some money around and funded them anyway. Estimates indicate that the program would funnel about $130 billion to insurers over the course of a decade.

The House suit argued that the move was illegal, usurping the legislative branch's power of the purse. The administration argued that the decision to fund the program was just a normal matter of statutory interpretation, and any confusion over its status just a result of Obamacare's "inartful drafting."

U.S. District Court Judge Rosemary Collyer agreed, writing that "Congress is the only source for such an appropriation, and no public money can be spent without one," reports Politico.

The program won't be shut down immediately, however. Instead, it will keep running as an appeal works its way through the system. If the administration ultimately prevails on appeal, then implementation of the law proceeds as it is now.

If the House wins, then things become…complicated. One possibility that's been raised in news reports is that insurers would substantially increase premiums in order to make up for the lost funding. More likely, however, is that health law beneficiaries will continue to get their subsidies, which are mandated by law, but that insurers won't get paid for them. The insurers would then probably try to recover the payments through lawsuits. If the cost-sharing subsidies were to end, it might have complex fiscal effects that end up canceling out the savings from those payments no longer being made. 

But there are lots of legal hurdles to jump through before any of that is worked out. In the meantime, it's a reminder that, at best, Obamacare is a poorly drafted law that relies on dubious statutory interpretation in order to function, and that there's a legally plausible case to be made that it's a patchwork legislative mess that doesn't hold together without a willingness to engage in illegal and unconstitutional implementation.