Maybe the Trump Administration Does Have Statutory Authority To Continue Paying Cost-Sharing Subsidies After All

by Daniel Hemel — Tuesday, Oct. 17, 2017

California and 17 other states are suing the Trump administration to stop it from cutting off cost-sharing reduction (CSR) payments to health insurers under the Affordable Care Act. (Note that this is different from the strategy that Tom Baker and I proposed this past April, and that I wrote about in the Washington Post yesterday, which would involve states paying the insurers themselves and then suing the federal government for reimbursement.) California et al. are arguing that 31 U.S.C. § 1324 creates a permanent appropriation for CSR subsidies, and that the Trump administration’s argument that it lacks the authority to continue the CSR payments is meritless. The states are asking a federal district court in San Francisco to hold that the subsidy cut-off violates the Administrative Procedure Act, which instructs courts to set aside agency actions that are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.

I’ll admit that I was initially skeptical of the § 1324 theory when the Obama administration first floated it in House v. Burwell. The theory starts with the text of section 1402 of the ACA (42 U.S.C. § 18071), which requires health insurers offering silver plans on ACA exchanges to reduce co-pays and deductibles for individuals who are allowed premium tax credits under 26 U.S.C. § 36B. Section 1402 goes on to say that “the Secretary [of Health and Human Services] shall make periodic and timely payments to the [insurer] equal to the value of the reductions.” But, as anyone who has been following the CSR saga now knows, section 1402 does not create a permanent appropriation for the subsidies, so it’s not immediately clear how HHS can legally make these (legally required) payments.

In comes 31 U.S.C. § 1324 to the rescue. That provision, as amended by the ACA, says that “[n]ecessary amounts are appropriated to the Secretary of the Treasury for refunding internal revenue collections as provided by law,” including “[r]efunds.” It goes on to say that “[d]isbursements may be made from the appropriation made by this section only for . . . refunds to the limit of liability of an individual tax account” and refunds under certain specific provisions of the Internal Revenue Code. One of the specified provisions is 26 U.S.C. § 36B.

The Obama administration argued in House v. Burwell that CSR subsidies can be paid out of the permanent appropriation under 31 U.S.C. § 1324. The Obama administration made a number of very strong arguments based on the structure of the ACA, but there was the sticking point of the statutory text. CSRs are based on eligibility for premium tax credits under 26 U.S.C. § 36B, but it’s very hard to see how subsidies to insurers due under title 42 qualify as “refunds” under the Internal Revenue Code.

Some have suggested that the language of section 1402 — “the Secretary shall make periodic and timely payments” to insurers — is enough to authorize payment. As Georgetown law professor David Super told Slate: “[Y]ou do not have to have a law that says ‘appropriations’ across the top. You just need a law directing that the money be spent.” That’s a plausible view, but it is in some tension with the text of 31 U.S.C. § 1301(d), which says that “[a] law may be construed to make an appropriation out of the Treasury . . . only if the law specifically states that an appropriation is made.”

In House v. Burwell, the district court relied on 31 U.S.C. § 1301 and a 1979 decision by the Comptroller General to conclude that the CSR provision (section 1402) could not be construed as an appropriation. The Comptroller General decision in question involved payments from the Treasury Department to the governments of Guam and the Virgin Islands. See Remission to Guam and Virgin Islands of Estimates of Moneys To Be Collected for Taxes, Duties, and Fees, B-114808, 1979 U.S. Comp. Gen. LEXIS 2213 (Comp. Gen. Aug. 7, 1979). There, the relevant statute said that “[t]he Secretary of the Treasury, prior to the commencement of any fiscal year, shall remit to the Government of Guam the amount of duties, taxes, and fees which the Governor . . . has estimated will be collected in or derived from Guam under this section during the next fiscal year.” (Another section said essentially the same for the Virgin Islands.) The problem was that Congress did not appropriate funds for the payments. The Comptroller General held that the “shall remit” language in the relevant statute didn’t do the trick, and that Treasury therefore could not make the payments to Guam and the Virgin Islands until Congress appropriated funds.

The Comptroller General’s decision in the Guam and Virgin Islands case might seem to be on all fours with the CSR case. But it’s not. There is another line of Comptroller General cases holding that funds can be paid out of a related appropriation if the purposes of the expenditures are closely related. See Dep’t of Health & Human Servs.Risk Corridor Program, B-325630, 2014 U.S. Comp. Gen. LEXIS 282, at *10 (Comp. Gen. Sept. 30, 2014) (“[W]e have long held that existing agency appropriations that generally cover the type of expenditure involved are available for expenses of new or additional duties imposed by proper legal authority.”). “The test for availability,” according to the Comptroller General, “is whether the duties imposed by the new authority bear a sufficient relationship to the purposes for which the appropriation previously enacted was made, so as to justify the use of that appropriation for the new duties.” Availability of Fiscal Year 1983 Funds for Fair Mkt. Value Determinations of Private Interests in Cranberry Wilderness Area, B-211306, 1983 U.S. Comp. Gen. LEXIS 1056, *8 (Comp. Gen. June 6, 1983); see also Use of General Operating Funds for Appointing Magistrates Pursuant to the District of Columbia Family Court Act of 2001, B-290011, 2002 U.S. Comp. Gen. LEXIS 279 (Comp. Gen. Mar. 25, 2002). This “sufficient relationship” test follows from the text of 31 U.S.C. § 1301(a), which says that “[a]ppropriations shall be applied only to the objects for which the appropriations were made.” In other words, an appropriation for expenditure X can be applied to expenditure Y as long as the “objects” of X and Y are the same. (But there still needs to be — per 31 U.S.C. § 1301(d), a specific appropriation for X.)

One might ask whether the Comptroller General’s decisions should be binding on a court. The Comptroller General, who directs the Government Accountability Office, is a legislative branch official with no authority to tie the hands of a district court judge. But if we’re going to follow the Comptroller General’s interpretation of 31 U.S.C. § 1301(d) (as the district court did in House v. Burwell), then there is little reason to disregard its interpretation of § 1301(a). In any event, the Comptroller General’s interpretation of 31 U.S.C. § 1301(a) as setting up a “sufficient relationship” test is, at the very least, a plausible one.

And if the “sufficient relationship” test is a permissible interpretation of 31 U.S.C. § 1301(a), then California et al. should win their lawsuit. The Trump administration’s cut-off of CSR subsidies was based on its view that it lacked authority to make those payments. Yet as Aaron Nielson and I note in our article on the “Chevron Step One-and-a-Half” doctrine, federal courts routinely set aside agency actions that are based on the agency’s misinterpretation of its statutory authority. So if 31 U.S.C. §§ 1301 and 1324 can be read in conjunction with section 1402 of the ACA to allow CSR subsidies to continue, the Trump administration cannot cut off those subsidies without articulating a basis for its discretionary decision. (That would be hard, given the President’s concession that the cut-off of subsidies will be extraordinarily disruptive to insurance exchanges.)

All of which is to say: the Administrative Procedure Act claim brought by California et al., which at first glance seemed to me like a hail-Mary, actually appears to be quite strong. The relevant statutes (as illuminated by the Comptroller General’s longstanding interpretations) do support the view that the Trump administration can use appropriations for premium tax credits to pay CSR subsidies. It’s not quite the same argument that the Obama administration made in House v. Burwell, but hopefully the state AGs suing the Trump administration will articulate the theory with sufficient clarity as to convince the district court to stop the Trump administration’s subsidy cut-off.

Cross-posted at Whatever Source Derived.

Leave a Reply

Your email address will not be published. Required fields are marked *