Judge denies California’s bid to reinstate Affordable Care Act subsidies

Newly confirmed federal Judge Vince Chhabria Newly confirmed federal Judge Vince Chhabria Photo: SF City Attorney's Office / SF City Attorney's Office Photo: SF City Attorney's Office / SF City Attorney's Office Image 1 of / 3 Caption Close Judge denies California’s bid to reinstate Affordable Care Act subsidies 1 / 3 Back to Gallery

A federal judge on Wednesday denied an attempt by California to force the Trump administration to pay billions of dollars to insurance companies to subsidize health plans for low-income Americans.

The payments, known as cost-sharing subsidies, were established under the Affordable Care Act to reimburse insurers for offering lower deductibles and co-payments for some consumers who buy health plans on the insurance exchange. The payments are one of two types of ACA subsidies that lower the cost of health care for millions of Americans; the other type helps consumers pay for insurance premiums.

The administration announced this month that it would stop making the cost-sharing payments, suggesting they are handouts to insurance companies. The next day, California and 17 other states sued the administration, arguing that its decision to end the payments was unlawful. As part of the lawsuit, the states sought an emergency temporary restraining order from the U.S. District Court for the Northern District of California to force the administration to resume the payments as the case is being litigated, which may take months. This order was denied Wednesday, but the suit against the administration will continue.

Attorneys for the states failed to convince U.S. District Judge Vince Chhabria that there would be immediate harm to consumers if the payments are not reinstated.

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In a hearing Monday, Chhabria said that because California and dozens of other states had anticipated President Trump’s decision to halt the payments, they took early action to shield consumers from having to absorb the sharp premium hikes that would have resulted from the federal government ending the subsidies. Trump had indicated several times since taking office in January that he thinks the cost-sharing subsidies should be discontinued.

“It appears that because of the measures taken by the states in anticipation of a decision by the administration to terminate the payments, the large majority of people who purchase insurance on exchanges throughout the country will either benefit or be unharmed,” Chhabria wrote in the ruling.

Covered California, for instance, structured the additional premium increases into one type of health plan sold on the exchange. But consumers who buy that plan, the silver tier, will not have to pay the additional increase themselves because they will receive a larger premium subsidy to offset the added cost. And consumers who buy the silver plan but earn too much to qualify for a premium subsidy will have the option of buying a plan off the exchange that has similar benefits. This option was negotiated by Covered California to protect consumers in case the cost-sharing subsidies were cut off.

“It seems like California is actually doing a really good job of responding to the termination of these payments in a way that is not only avoiding harm for people, but is actually benefiting people,” Chhabria said at the hearing.

The lead attorney for the California attorney general’s office, Gregory Brown, argued unsuccessfully that cutting off the payments is causing chaos in the individual market at a critical time, right before open enrollment is scheduled to begin Nov. 1. Brown said insurers, spooked by the uncertainty, may stop selling on the exchange after 2018 and leave consumers with fewer health-plan choices.

“We’re not looking to give insurance companies a windfall, but we’re looking to give them stability,” Brown said.

Insurers, however, have been locked in for 2018 for months because they must submit their proposed rates to regulators several months before open enrollment begins. In California, the most significant pullback by an insurer for 2018 is Anthem, which will only sell plans in three regions of the state, compared with the 19 regions it previously sold in.

Covered California officials estimate that the 11 insurers that sell plans through the exchange will lose a collective $188 million in 2017 as a result of the cost-sharing payments being discontinued. That figure represents nearly a third of the annual $750 million that Covered California insurers receive from the subsidies.

Nationally, the cost-sharing subsidies amount to roughly $7 billion a year. While the money goes to insurance companies, consumers also benefit because the subsidies allow insurers to offer lower deductibles, co-payments and other out-of-pocket costs for consumers. In California, 889,000 of the 1.3 million residents who buy plans on the exchange benefit from the subsidies.

The legality of the subsidies was challenged in a separate lawsuit filed by the Republican-led House of Representatives, which sued the Obama administration in 2014, arguing the payments were illegal because Congress did not formally approve the funding. A federal judge sided with the House, but the Obama administration appealed. The case was put on hold after Trump won the election and congressional Republicans attempted to repeal the Affordable Care Act through legislation.

A spokeswoman for California Attorney General Xavier Becerra said Wednesday that the states will continue pressing for a permanent resolution to the lawsuit that they hope will require the administration to resume the payments.

Chhabria wrote in the order that the case is likely to be decided by early 2018.

Catherine Ho is a San Francisco Chronicle staff writer. Email: cho@sfchronicle.com

Twitter: @Cat_Ho