The Volokh Conspiracy

Mostly law professors | Sometimes contrarian | Often libertarian | Always independent

Volokh Conspiracy

Obama, Trump and the perils of illegal Obamacare subsidies


President Barack Obama and Donald Trump meet in the Oval Office, Nov. 10, 2016. (Jabin Botsford/The Washington Post)

The Obama administration began the practice of disbursing Cost Sharing Reduction (CSR) subsidies to health insurance firms under the Affordable Care Act, even though the funds in question have never been appropriated by Congress. Now, President Trump is making the situation worse by trying to use these illegal payments as leverage to force the legislature to do his bidding. Health care policy expert Peter Suderman has an excellent article summarizing the problem:

The payments in question are known as cost-sharing reduction (CSR) subsidies. Health insurers operating under the [ACA] are required to reduce deductibles and copayments for individuals who make less than 250 percent of the poverty line, a group that encompasses a little more than half of enrollees. The federal government then pays insurers directly in order to cover the cost of further subsidizing this population.

These subsidies come in addition to the insurance subsidies that Obamacare offers to people earning up to 400 percent of the poverty line. Essentially, it's an additional layer of financial assistance designed to reduce the out-of-pocket cost burden that even Obamacare's already subsidized insurance places on the near poor.

The CSR payments provide a considerable boost to health insurers' bottom line: about $7 billion last year, and an expected $10 billion this year. By 2026, the payments are expected to total about $130 billion….

The important complication is that even though the payments are written into the law, money to pay them was never appropriated by Congress. Under the Constitution, Congress must appropriate money in order for the executive branch to spend it.

As Suderman points out, congressional Republicans filed a lawsuit contending that these payments are illegal. In May 2016, federal district Judge Rosemary Collyer ruled in favor of the plaintiffs, though she stayed her judgment pending a possible appeal.

The Constitution clearly mandates that only Congress has the power to appropriate federal funds, not the executive. Article I, Section 9, cl. 7 states that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."

Instead of simply putting an end to these illegal appropriations, Trump is trying to use them as leverage against Congress, to get it to resuscitate the stalled GOP effort to "repeal and replace" Obamacare. As Suderman explains:

Since taking office, the president has dangled the possibility that his administration might cut off payments being made to insurers as part of Obamacare-money that insurers say is vital to stabilizing the health law's insurance exchanges. Over the weekend, he raised the idea again, tweeting that, should Congress fail to act, bailouts for insurance companies "will end very soon."

The threat is meant to be leverage to force a recalcitrant Congress to act….

By refusing to commit, and by treating the payments as optional, Trump is arguably expanding on the errors of his White House predecessor, who at least maintained that he had a legal obligation, based on statute, to make the payments, with or without explicit congressional appropriation.

Trump's decision to hold the CSR subsidies hostage for political gain sets a dangerous precedent that will surely be followed by those who succeed him. What is ultimately at stake here is not only the future of the health care law, but of the constitutional separation of powers and the limits of executive branch authority. Trump's ham-fisted attempt at dealmaking is eroding those limits, and in the long run we are all worse off for it.

Suderman is absolutely right to point to the potentially dangerous precedent here. If it is illegal for the executive to spend money on X, it is also illegal for him to offer to continue to spend it on X so long as Congress does what he wants on some other issue. If, on the other hand, the payments are mandated by Congress, after all (as the Obama administration dubiously claimed), then Trump has no right to withhold them.

Sadly, this is not the only area where the administration is trying to use federal funds to coerce other political actors without proper congressional authorization. Trump and Attorney General Jeff Sessions are attempting to use a similar gambit to coerce sanctuary cities into doing their bidding, by adding unauthorized (and therefore unconstitutional) conditions to federal grants to state and local governments.

This issue is one of several where Obama's high-handed behavior set a dangerous precedent that Trump can now exploit. In some ways, using illegal spending as leverage is even worse than just doing it without trying to extract concessions for it. The latter creates a dangerous new power for the executive that can easily be abused in many ways. There are many situations where a president can try to exploit legal ambiguities to dole out unappropriated funds to influential constituencies. He can then follow Trump's example of threatening to cut the payments unless Congress does his bidding on some other matter.

So far, at least, it does not appear that Congress will give in to Trump's threats. But a future president may be more popular and more skilled at legislative deal-making than this one, and might therefore be able to use such leverage more effectively.

As Suderman notes, some GOP lawmakers apparently want to continue the CSR payments. If so, they can join with Democrats and pass a bill appropriating the funds. Alternatively, Congress can use deregulation to increase competition and make it feasible for insurers to offer affordable plans without massive subsidies. There are also various ways to combine elements of both strategies.

Any of these approaches is better than letting the executive continue to use the Treasury as a slush fund for its own priorities (as Obama did) or—even worse—use illegal appropriations as a tool to pressure Congress, as Trump is trying to do. Hopefully, Congress and—if necessary—the courts, will enforce legislative control over appropriations. The time has come to make the separation of powers great again!