In a Think Tank post Thursday, I wrote about how insurers deciding to participate next year in the health exchanges established under Obamacare could be expecting funds that the federal government may not have legal authority to disburse. But that’s not the only potential pitfall for carriers: They could also end up on the hook for payment reductions caused by sequestration.
In the spring of 2013, the Obama administration submitted a report to Congress indicating that, while subsidies for health insurance premiums on the exchanges were not subject to the budget sequester, the separate program of cost-sharing subsidies—reducing deductibles and co-payments for certain low-income individuals—faced a 7.2% cut in fiscal 2014. Marilyn Tavenner, the administrator of the Centers for Medicare and Medicaid Services, confirmed this position during congressional testimony last August.
In a March report to Congress, however, the administration said that both the premium and cost-sharing subsidies were exempt from the sequester. Last month, in response to questions, Sylvia Mathews Burwell—then the head of the Office of Management and Budget, now the secretary of health and human services—told several senators that the cost-sharing and premium subsidies “will be paid out of the same account” as a way to “improve the efficiency in the administration of the subsidy payments” and that payments from that account are exempt from the budget sequester.
The problem with this? That’s not what the law says. As I pointed out last October, the premium and cost-sharing subsidies were established in two separate sections of Obamacare. The premium subsidies are codified in the Internal Revenue Code, which is administered by the Treasury Department and payable to individuals. The cost-sharing subsidies are codified in the Public Health Service Act, which is administered by the Department of Health and Human Services and payable to insurers. And while the premium subsidies are structured in a way that should exempt them from the budget sequester, the cost-sharing subsidies are not.
The administration appears to be using efficiency arguments to try to shield the cost-sharing subsidies from the sequester. But the sequester is a zero-sum proposition, so exempting the cost-sharing subsidies from sequestration means other programs would take a greater budgetary hit—and affected organizations or programs may have standing to challenge in court.
The bottom line: The nonpartisan Congressional Research Service warned in May 2013 that insurers could be on the hook to absorb the billions of dollars in sequester cuts to the cost-sharing subsidies. As with the “risk corridor” provision of Obamacare, insurers participating under the assumption that these legal questions will be easily resolved may be doing so at their own risk.
This post was originally published at the Wall Street Journal Think Tank blog.