In a brash move likely to roil insurance markets, President Donald Trump plans to halt payments to insurers under the Obama-era health care law that he has been trying to unravel for months.
Two people familiar with the decision described the plan late Thursday night, seeking anonymity because they were not authorized to speak publicly.
The White House said in a statement that the government cannot legally continue to pay the so-called cost sharing subsidies because they lack a formal authorization by Congress. The administration has been making the payments from month to month, even as Trump threated to cut them off to force Democrats to negotiate over health care.
In a statement, the White House said the Department of Justice and the Department of Health and Human Services both concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare.
"The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system," the White House said in the statement. "Congress needs to repeal and replace the disastrous Obamacare law and provide real relief to the American people."
The president's action is likely to trigger a lawsuit from state attorneys general, who contend the subsidies to insurers are fully authorized by federal law, and the president's position is reckless.
Word of Trump's plan came on a day when the president had signed an executive order directing government agencies to design insurance plans that would offer lower premiums outside the requirements of President Barack Obama's Affordable Care Act.
Frustrated over setbacks in Congress, Trump is wielding his executive to bring the "repeal and replace" debate to a head. He appears to be following through on his vow to punish Democrats and insurers after the failure of GOP health care legislation.
On Twitter, Trump has termed the payments to insurers a "bailout," and administration officials have questioned their legal authorization. It's unclear if the president will get Democrats to negotiate by stopping payment.
Experts have warned that cutting off the money would lead to a double-digit spike in premiums, on top of increases insurers already planned for next year. That would deliver another blow to markets around the country already fragile from insurers exiting and costs rising. Insurers, hospitals, doctors' groups, state officials and the U.S. Chamber of Commerce have urged the administration to keep paying.
Leading GOP lawmakers have also called for continuing the payments to insurers, at least temporarily, so constituents maintain access to health insurance. Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander, R-Tenn., is working on such legislation.
The so-called "cost-sharing" subsidies defray out-of-pocket expenses for people with low-to-modest incomes, and can reduce a deductible of $3,500 to a few hundred dollars. Assistance is available to consumers buying individual policies; people with employer coverage are unaffected by the dispute.
Nearly 3 in 5 HealthCare.gov customers qualify for help, an estimated 6 million people or more. The annual cost to the government is currently about $7 billion.
But the subsidies have been under a legal cloud because of a dispute over whether the Obama health care law properly approved the payments to insurers. Adding to the confusion, other parts of the Affordable Care Act clearly direct the government to reimburse the carriers.
For example, the ACA requires insurers to help low-income consumers with their copays and deductibles.
And the law also specifies that the government shall reimburse insurers for the cost-sharing assistance that they provide.
But there's disagreement over whether the law properly provided a congressional "appropriation," similar to an instruction to pay. The Constitution says the government shall not spend money unless Congress appropriates it.
House Republicans trying to thwart the ACA sued the Obama administration in federal court in Washington, arguing that the law lacked specific language appropriating the cost-sharing subsidies.
A district court judge agreed with House Republicans, and the case has been on hold before the U.S. appeals court in Washington. Up to this point the Trump administration continued making the payments, as the Obama administration had done.
A panel of appellate judges recently ruled that a group of states can defend the legality of the subsidies if the Trump administration decides to stop paying.
While the legal issue seems arcane, the impact on consumers would be real.
Independent experts estimate that premiums for a standard "silver" plan will increase by about 19 percent without the subsidies. Insurers can recover the cost-sharing money by raising premiums, since those are also subsidized by the ACA, and there's no legal question about their appropriation.
Consumers who receive tax credits under the ACA to pay their premiums would be shielded from those premium increases.
But millions of others buy individual health care policies without any financial assistance from the government and could face prohibitive increases. It's also estimated that taxpayers would end up spending more.