California-Led Group Asks Court to Keep Obamacare Subsidies

(Bloomberg) -- With the health insurance of millions at stake, California Attorney General Xavier Becerra and New York Attorney General Eric Schneiderman, leading 18 states and the District of Columbia, asked a U.S. court for an order compelling the Trump administration to continue making Obamacare subsidy payments while their states and others fight to save them.

The filing by the attorneys general in San Francisco comes just a day after the White House announced it was ending those Affordable Care Act payments immediately. The next monthly installment is due Oct. 18, leaving a federal judge there only days to act on the request if the payments are to continue uninterrupted.

The loss of funds and financial uncertainty caused by Trump’s decision “will lead to higher health insurance costs for consumers and to insurers abandoning the individual health insurance market,” the states say in the complaint. “The number of uninsured Americans will increase once again, hurting vulnerable individuals and directly burdening the states.”

The case is one the highest-profile legal showdowns of Donald Trump’s presidency. After Congress failed to deliver a replacement for Obamacare, the president on Friday tweeted that his decision to end subsidies should force Democrats to “call me to fix” health care. Millions who bought insurance through the Affordable Care Act marketplaces may be unable to afford coverage if his move drives up premiums further, and insurers may seek to pull out of the market.

The White House called the payments a “bailout of insurance companies” and “another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system.”

“As the only federal court to address this question found, Obamacare usurped Congress’s spending power under the Constitution,” Justice Department spokesman Devin O’Malley said in a statement. “The Department of Justice looks forward to defending the president’s authority to return that power back to Congress."

Lowering Costs

Trump’s decision followed his executive order on Thursday designed to draw people away from the health law’s markets. The moves -- which critics call deliberate attempts to sabotage the law -- come as Americans are preparing to start sign-ups for coverage for 2018. The administration has also slashed advertising and outreach budgets to bolster enrollment in Obamacare plans and planned outages of the website where people can sign up.

Known as cost-sharing reduction subsidies, the money helps poorer people obtain coverage by lowering their out-of-pocket costs. Estimated to total more than $7 billion this year, the money -- which is paid to insurers -- helps cover costs for about 7 million Obamacare enrollees.

The attorneys general of Kentucky, Massachusetts, Connecticut, Delaware, Maryland, Oregon, North Carolina, Illinois, Vermont, Pennsylvania, Rhode Island, Virginia, Minnesota, New Mexico, Washington, Iowa, and the District of Columbia joined Friday’s filing by Becerra and Schneiderman. All the attorneys general are Democrats, though a few serve in states with Republican governors.

Affordable Care

The states argue that the Affordable Care Act was designed by Congress to include both cost-sharing subsidies for insurers and another set of subsidies for low-income consumers. To eliminate the cost-sharing subsidies would sabotage the entire law, Becerra said in a statement Friday.

The complaint lists numerous ways it says Trump is illegally seeking to undermine the health-care law and accuses the administration of taking steps to destabilize the market. The states say that millions of its residents will be harmed by the administration’s actions by making health insurance more expensive and less accessible.

“The increases in premiums due to the lack of cost-sharing reduction funding will be significant,” the states say in the complaint, seeking an order that the administration must make the monthly subsidy payments.

They claim that the president is violating the Administrative Procedure Act by acting arbitrarily and failing to explain why it “suddenly” decided the payments no longer had to be made, and that Trump is violating the Constitution’s Take Care Clause by failing to “take care that the laws be faithfully executed.”

“There seems to be a knee-jerk desire to undo anything done by President Obama,” Schneiderman told reporters as he announced plans to sue earlier Friday.

Washington Trial

The fight may be waged in at least two courts.

Republicans in the U.S. House of Representatives sued to halt the payments in 2014, arguing they weren’t backed by a congressional appropriation provision. While a Washington trial court judge agreed and barred the government from making them, she put her ruling on hold pending the Obama administration’s appeal.

The case was pending before the Washington-based appeals court in August when 17 states and the District of Columbia won permission to intervene in the dispute. The lawsuit has been on hold since then. On Friday, the administration told the court that it will not make the Oct. 18 subsidy payments. Becerra said it’s not clear what, if any, further action the states may take in the U.S. appeals court case.

Trump campaigned on the promise to repeal and replace Obamacare but was stymied by his party’s inability to round up enough Senate votes to pass any of several proposals. His move to cut subsidies is an effort to hobble the law by executive fiat.

Insurance companies may also challenge Trump’s decision as they’re still obligated to provide the corresponding savings to qualifying customers through the end of this year.

The cases are California v. Trump, 3:17-cv-05895, U.S. District Court, Northern District of California (San Francisco); House of Representatives v. Price, 16-5202, U.S. Court of Appeals, District of Columbia Circuit (Washington).

--With assistance from Erik Larson Joel Rosenblatt and Shannon Pettypiece

To contact the reporters on this story: Andrew Harris in Washington at aharris16@bloomberg.net, Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Elizabeth Wollman, Peter Blumberg