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A court case that could hurt Obamacare's health

Just when you thought Obamacare was past legal challenges.

A pending federal lawsuit threatens to end the billions of dollars in reimbursement that insurers get from the government annually to lower out-of-pocket health expenses for up to 7 million Obamacare customers. As detailed in a new Commonwealth Fund analysis released Thursday, that program can dramatically cut the medical costs that many customers pay under their Obamacare health plans.

A person walks into a UniVista Insurance company office where people are signing up for health care plans under the Affordable Care Act in Miami.
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A person walks into a UniVista Insurance company office where people are signing up for health care plans under the Affordable Care Act in Miami.

If successful the suit — brought by the House of Representatives — would set the stage for possibly yet another major Supreme Court showdown on the Affordable Care Act, during the next president's first term.

The House's suit claims the administration acted illegally in giving insurers billions of dollars in reimbursement for Obamacare customer's out-of-pocket costs because Congress had not specifically authorized such spending.

The administration, in turn, argues that the cost-sharing reimbursements to insurers are legal because they are "inextricably intertwined" with federal spending on subsidies to help pay for qualified Obamacare customers' monthly premiums, which Congress did authorize. Those premium subsidies survived a major challenge heard at the Supreme Court last year.

If the House prevails in the newest case, insurers would still be obligated under the Affordable Care Act to reduce the out-of-pocket costs for Obamacare customers who earn 250 percent or less of the federal poverty level — but would get no compensation for their expenses in doing so from the government.

That in turn could lead insurers to raise their premiums by an average of $1,040 per person annually, and cost the federal government almost $50 billion more over a decade in subsidies it must issue to offset the price of premiums paid by most Obamacare customers, according to an Urban Institute analysis. That same analysis estimates that about 1 million people would leave the Obamacare exchanges to seek less-expensive health coverage, and suggests that some insurers would drop out of the exchange business as well.

The fallout would be "complicated, and it's going to be a roller coaster of a ride if the [Washington, D.C., federal] district court rules against the administration," said Nicholas Bagley, a University of Michigan Law professor and Obamacare expert.

"You'd see a lot of people forced to shed coverage, which would undermine the goals of the Affordable Care Act."

Bagley doesn't believe the House would win at the appellate level because of the judiciary branch's traditional reluctance to intervene in spending disputes between the executive and legislative branches. Jonathan Turley, the lawyer who is representing the House in the case, declined to comment.

The Commonwealth Fund analysis detailed how many Obamacare customers — to varying degrees depending on where they live — are seeing the cost-sharing aid lowering their insurance deductibles by thousands of dollars as they begin to use their 2016 health plans.

Sara Collins, vice president for health-care coverage and access at the fund, said Obamacare's cost-sharing aid "will reduce out-of-pocket costs substantially for low- and moderate-income people."

"However, because health insurance plans are so different, how much your potential costs drop depends on where you live and how much care you need," Collins said.

Cost-sharing reductions are available to people who buy a so-called silver plan on government-run Obamacare exchanges, and who earn between 100 and 250 percent of the poverty level, or $11,880 and $29,700 for a single person. Silver plans are ones that, on average, cover 70 percent of their customers' health costs, with the customer being responsible for paying the balance of the charges out of pocket, in the form of deductibles, copays and coinsurance.

The Obamacare cost-sharing aid means that qualified customers will only owe between 6 percent and 27 percent of their medical costs, and not the average 30 percent that other, higher-income customers would personally pay.

The Commonwealth Fund analysis looked at median out-of-pocket costs for a 40-year-old nonsmoking man who was enrolled in silver plans in 38 markets served by the federally run Obamacare marketplace HealthCare.gov.

The analysis found that the median deductible for an enrollee earning $25,000 per year would be $2,500, compared to a median deductible of $3,500 for a man who earns $35,000 annually or more, and doesn't qualify for the cost-sharing reductions. If the same man earned $17,000 annually, his deductible would be just $125.

The maximum caps on a person's annual total out-of-pocket spending under their Obamacare plan likewise is sharply reduced as incomes get lower if they qualify for cost-sharing aid, the analysis noted.

The median out-of-pocket limit for 38 silver plans is $6,500. But with cost-sharing subsidies, a man who earns $25,000 annually would have an out-of-pocket cap of $5,000. The cap would drop to $1,850 for an enrollee who earns $20,000, and just a $650 cap for a man who earns $17,000.

Collins said some, if not many, people who benefit from the cost-sharing reductions might not even be aware of them, because the insurer is directly reimbursed by the federal government for lowering the out-of-pocket costs for qualified enrollees, who don't see the nonsubsidized price they would otherwise be paying.