Obamacare’s biggest challenge right now has nothing to do with the for-now failed Republican bid to repeal and replace it. It’s President Trump’s threats to undermine obscure but important payments that help millions of Americans afford their health care.

Even with Congress stalled on a replacement bill, Trump could still deal a devastating blow — a push toward repeal by other means — by getting rid of the law’s cost-sharing reduction subsidies.

Trump is threatening to do it. In the days after Senate Republicans failed to pass a bill to repeal or replace the health care law, the president tweeted that he was prepared to cut off the cost-sharing subsidies and let Obamacare implode.

The subsidies, which make health care even more affordable for lower-income people who get insurance through Obamacare’s marketplaces by lowering copays and deductibles, aren’t as well-known as other types of spending in the law, such as its tax credits (which help people afford premiums) or its Medicaid expansion.

But the cost-sharing payments go directly to insurers, who are required to lower costs even if they don’t get the federal payments. So cutting off payments would disrupt Obamacare’s insurance markets and maybe cause them to collapse entirely. Insurers would have to decide whether to increase premiums for everyone in order to lower co-pays for people who get the subsidies. They might end up pulling out of the market altogether over the uncertainty, leaving some places with few or no insurers.

Legislation to repeal Obamacare is stymied in Congress. But cutting off the subsidies would be the most dramatic action taken by Republicans against the health law since they took control of Washington.

CSRs reduce health care costs for Americans with lower incomes

Obamacare expanded health coverage for Americans in two major ways. It expanded Medicaid to cover poor adults making no more than 138 percent of the poverty line ($16,000 for an individual). And for people who make more money than that but don’t get health coverage through their jobs, the law created marketplaces where those people could buy insurance. Insurers were required to sell plans to everyone, no matter their medical history, at similar prices, and to cover a range of “essential health benefits.”

But with those changes, it still would have been difficult for many people — both low-income and middle-class — to afford insurance, not to mention the deductibles and copays they’d have to pay to actually see a doctor or fill a prescription. So people buying through the marketplaces also get financial assistance. Federal tax credits help pay monthly premiums for anyone making up to 400 percent of the poverty line ($48,000 for an individual).

People who earn too much for Medicaid but are still low-income — up to 250 percent of the federal poverty line, about $30,000 for one person — also got cost-sharing reductions for their private insurance. The federal government makes those payments to the health insurer to lower the out-of-pocket costs, the deductible and copayments, that those people have to pay for their health care. The less money people make, the more help they receive.

More than half of people who buy individual insurance through Obamacare got this help. About 12 million people bought health insurance through Obamacare’s insurance markets this year, and 7 million of them qualified for CSRs, according to the Kaiser Family Foundation.

The impact can be dramatic: Somebody who doesn’t qualify for a CSR and buys a typical Obamacare plan could have to pay as much as $3,609 for a deductible before her plan starts to cover her care. But a person who qualifies for the most generous CSR — whose income is at the poverty line or only a little above it — could have to pay only $255 before his coverage kicks in.

Last year, CSR payments cost the federal government $7 billion, which means that, on average, CSRs lowered out-of-pocket costs by about $1,000 for each person.

The goal of Obamacare was to make health coverage and care more affordable. Having an insurance card doesn’t do much good if you can’t actually afford whatever your plan requires you to pay. If you want everybody, no matter their income, to be able to purchase the same plans, you need some extra help for people making less money. CSRs were that extra help. They made the law work for the people buying insurance who would struggle the most to pay for their care.

“You have to protect low-income people not just from high premiums but from high out-of-pocket costs,” Jonathan Gruber, an MIT professor who helped the Obama administration and congressional Democrats as they were designing the law, told me.

There is one wrinkle in the law: Health plans are required to offer people under 250 percent of the poverty line a plan with smaller deductibles and copayments even if the federal government doesn’t give them any money at all. Without the CSR payments, though, that might not be workable for insurers — it would dramatically increase their costs. They would have to offer very generous coverage to those people without receiving any additional financial help from the government, and their likely recourse would be to hike premiums.

So the law also created the CSR payments that the federal government makes to insurers, which allows the financing to work without premiums skyrocketing.

But House Republicans seized on an apparent legislative flaw to challenge the payments in court — and put the entire program at risk.

A Republican-led lawsuit challenged the CSR payments

Not long after Obamacare’s marketplaces opened for business in 2014, House Republicans filed a lawsuit that argued the cost-sharing reduction payments being made by the Obama administration were illegal.

It was a case that went to the core of the Constitution. The brains behind it, constitutional lawyers David Rivkin and Elizabeth Price Foley, portrayed the stakes this way:

The lawsuit is necessary to protect the Constitution's separation of powers, a core means of protecting individual liberty. Without a judicial check on unbounded executive power to suspend the law, this president and all who follow him will have a powerful new weapon to destroy political accountability and democracy itself.

The Constitution says Congress is responsible for deciding how the federal government’s money will be spent. House Republicans alleged that although Obamacare created the CSR payments, Congress still needed to approve them in a separate spending bill or as part of the bigger spending bills that lawmakers pass periodically to fund the entire government. Because Congress had not done so, the House alleged that the payments being made by the Obama administration starting in 2014 were unconstitutional.

The Obama administration argued that Obamacare had permanently funded the CSR payments and so it did not need any additional authority from Congress to make the payments. It also argued that regardless of the facts of the case, the House didn’t actually have the ability to bring a case because it wasn’t harmed by the cost-sharing reduction payments, a legal concept known as “standing.”

Some liberal legal experts said the House’s argument does have some merit. The text of the law did not unambiguously appropriate the CSR payments — and the Obama administration at one point, perhaps in recognition of that, had asked Congress to approve the spending. But others, including the architects of the law, dismissed it as a politically motivated attempt to undercut Obamacare. Many experts also believed that the House didn’t have standing to pursue the case in the first place.

Rosemary Collyer, the judge hearing the case and a Republican appointee, first ruled in September 2015 that the House did in fact have standing to sue the administration over the payments. She sided with the House in May 2016, deciding that the CSR payments could not be made without further congressional approval.

However, she suspended the decision so that the Obama administration could appeal, allowing the payments to continue until the case is fully resolved. The Obama administration appealed the ruling in July 2016 to the US District Court of Appeals in Washington. But litigation moves slowly, and the case didn’t advance much.

Then in November, Donald Trump was elected president — and his government is now responsible for defending Obamacare, a law he has vowed to repeal and predicts will implode. The House asked the appeals court in December to postpone the lawsuit so that they and the newly elected administration could figure out what to do.

Cutting off CSR payments could throw the markets into chaos

The CSR litigation might not have mattered as much if Republicans had coalesced around a health care plan in the first six months of Trump’s presidency, as they have attempted and so far failed to do.

But Congress has failed to pass a repeal-and-replace bill or any kind of Obamacare repeal. The Senate put three different health care bills on the floor in late July and failed to approve every one of them.

This lawsuit gave Republicans another chance to undercut the health care law, even without passing their own bill. Because if Obamacare is here to stay, then the fate of the CSR payments is now an essential question.

So Trump could either choose to continue defending the CSR subsidies, making payments in the interim and keeping the markets stable — or he could decide to drop the suit, stop the payments, and precipitate a market implosion that could leave many vulnerable Americans without health coverage.

If the House prevailed, and the CSR payments were not paid, insurers would still be required to reduce cost sharing, but they would now have to do it without the government’s help. They would have to raise premiums dramatically to make up the lost revenue.

The irony is that if plans do raise premiums, the federal government would be on the hook for much of those costs. The government absorbs premium increases through the tax credits that help people afford coverage. The law is designed to keep premiums manageable for people, so it falls on the government to cover any excess increases.

“It’s on the feds anyway,” as MIT’s Gruber told me.

Or, perhaps more likely, plans could drop out of the market altogether. “If I were an insurer, I’d just take my marbles with me and focus on other more profitable lines of business,” Larry Levitt at the Kaiser Family Foundation told me.

Trump has repeatedly threatened the CSR payments over the past six months, particularly when his party’s hopes of repealing Obamacare looked bleakest. His administration has continued to make the payments on a month-to-month basis, but with no assurances to insurance companies that they will continue.

If the payments stop, yes, lower-income Americans would technically still be eligible for lower-cost plans — but many experts expect insurers would just pull out of the markets. That could lead to more areas with one or no plan available to people, a situation for which there is no remedy and which leaves people in those areas without any coverage.

After the embarrassing failure by Senate Republicans to pass any kind of Obamacare repeal bill last week, Trump reupped his threats to cut off the payments. Politico reported he was meeting with top administration officials to make a decision about the payments going forward.

If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon! — Donald J. Trump (@realDonaldTrump) July 29, 2017

Trump’s threats are now pushing up against some all-important deadlines for Obamacare. Health plans have until mid-August to readjust their premiums for next year. Many have priced their plans higher than they otherwise would, out of fear that the Trump administration will pull the CSR payments; they could lower their premiums if they were assured the payments would continue.

Then in September, insurers have to make a final call about whether to sell Obamacare plans in 2018. There is a real risk that if the Trump administration refuses to guarantee that the CSR payments will be made, some insurers will pull out of the market — which could leave even more of the country without insurance options.

Trump is taking Obamacare hostage, but at his own risk

Trump clearly sees the CSR payments as major leverage in the ongoing health care fight.

He told the Wall Street Journal that Democrats should be calling him, begging to work together on a health care plan, lest he drop the CSR lawsuit and let the payments lapse. He even worked behind the scenes to walk back the HHS statement that had suggested the payments would be made.

But based on the available polling and comments from his own party, Trump has seriously misjudged his position.

First and foremost: Americans would overwhelmingly blame Trump and Republicans if something went wrong with Obamacare, according to the best available surveys.

One possible resolution would be for congressional Republicans to take the metaphorical hostage out of Trump’s hands.

Republicans in Congress have all along seemed much more reluctant than Trump to allow Obamacare’s markets to implode by pulling the cost-sharing subsidies. Now, with the failure of Senate Republicans to repeal the law, an increasing number of them are turning toward a bipartisan health care solution — one that is likely to include funding for CSRs.

Politico reported that a group of 40 House Republicans and Democrats were coalescing behind an alternative health care plan to stabilize Obamacare. CSR payments would be funded as part of that plan.

A number of other upcoming must-pass bills — a government spending bill, a reauthorization of the Children’s Health Insurance Program — could give Congress an opportunity to fund the subsidies. But the underlying point is that if Congress were to act, Trump would no longer have the option to cut off the CSR payments as an attack on the health care law.

In the meantime, the one thing Trump’s threat does do, though, is make insurers nervous. As Sarah Kliff reported recently, health plans are struggling to decide whether to stay in the law’s marketplaces, because they don’t yet know what’s going to happen to the CSR payments. Trump’s rhetoric could help destabilize the markets on its own — though, again, he may end up taking the blame.

So Trump has made his threat to Obamacare, the result of this long history that gave him that opportunity. But he appears to be holding the metaphorical gun to his own head.