The U.S. Supreme Court's new Affordable Court Act ruling could add some stability to the individual and family major medical insurance market, at a time the COVID-19 is shaking everything up.

The court ruled, in a 8-1 decision released today, that Congress can't cancel what looks like an agreement to pay insurers for participating in a program by simply zeroing out funding for the payments.

The court came to that conclusion in connection with Maine Community Health Options v. United States (Case Number 18-1023). The case involved one of the five major subsidy programs the federal government used to start the Affordable Care Act (ACA) public exchange program.

(A copy of Sotomayor's opinion is available here.)

The Maine Community Health Options ruling could end up affecting the fate of two of the ACA subsidy programs, and the survival of all of the ACA.

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ACA primer

Members of Congress created the main part of the Affordable Care Act statutory package, the Patiet Protection and Affordable Care Act, in 2008 and 2009, when Democrats had a solid majority in both the House and the Senate, and Barack Obama was president.

Traditionally, health insurers in most states had kept health insurance claim costs manageable by rejecting applicants who already had serious health problems. Health insurers charged higher when they did accept applicants who had conditions such as asthma, diabetes or obesity.

The ACA drafters took away most of health insurers' traditional defenses. They prohibited use of information about people's health problems in insurers' major medical coverage sales and pricing decisions.

To compensate health insurers for at least part of that loss, the ACA drafters set up the ACA public exchange program. The ACA public exchange program was supposed to set up a web-based health insurance supermarket in each state, to help consumers shop for health coverage, and to use subsidies to buy the coverage.

Drafters also included an individual mandate provision. The provision required many people to have what the government classified as a minimum level of health coverage or else pay a penalty.

ACA drafters hoped to push and pull many young, healthy people to pay at least something for coverage, even when they felt great.

The idea was to protect young, healthy people against unexpected catastrophes, and to reduce the average level of risk in the insured population, to help make up for all of the people with diabetes, cancer and heart disease that insurers would suddenly have to cover.

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The ACA subsidy programs

The ACA drafters created two temporary subsidy programs and one permanent subsidy program aimed at health insurers.

One temporary program, the ACA reinsurance program, was supposed to use a broad-based fee imposed on most types of health plans and coverage issuers to help pay the medical bills of people with individual coverage who ended up having catastrophic claim costs in 2014, 2015 or 2016.

A second temporary program, the ACA risk corridors program, was supposed to use cash from thriving ACA plan issuers to help issuers that had problems on the exchange in 2014, 2015 or 2016.

A third program, the ACA risk-adjustment program, is supposed to use a national patient risk scoring system to measure the riskiness of each carrier's enrollees. Carriers with enrollees with low risk scores are supposed to send cash to the plans with the enrollees with high risk scores.

The ACA drafters also created two big subsidy programs that were focused on the individual enrollees.

One was the ACA premium tax credit subsidy, and the other was the ACA cost-sharing reduction subsidy.

The ACA premium tax credit subsidy helps people with income from about 100% of the federal poverty level to 400% of the federal poverty level pay their premiums.

The ACA cost-sharing reduction subsidy is supposed to provide extra subsidy money for premium tax credit users with income under 250% of the federal poverty level, to help them pay health coverage deductibles, co-payments and coinsurance amounts.

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ACA risk program performance

In practice, ACA reinsurance program was popular and ended up working reasonably well. Some states have replaced the temporary program with their own state reinsurance programs.

The ACA risk-adjustment program is still in place but has frustrated the insurers that have been told to pay money into the system. Some insurers say the risk-adjustment formula is unfair to insurers with low premiums.

The ACA risk corridors was an immediate flop: Too few ACA exchange plan issuers did well in the first three years of exchange operation to pay more than a small fraction of the amounts owed to the thriving issuers. Opponents of the ACA in Congress succeeded at adding provisions to must-pass budget bills that blocked the federal government from using any money other than payments from the thriving issuers to help the struggling issuers. Some small health insurers went out of business at least partly because of the failure of the risk corridors program to make the expected payments.

Health insurers say the risk corridors program managers now owe them about $12 billion.

On the individual subsidy program side, the ACA premium tax credit subsidy program was designed to draw on general federal revenue and has been stable.

Critics of the ACA cost-sharing reduction subsidy program say it should be funded with an ordinary congressional appropriation, rather than drawing on the same pool of money that the premium tax credit subsidy was supposed to use money appropriated by Congress. Congress has refused to appropriate the money.

The U.S. Court of Federal Claims has ordered the federal government to make $1.6 billion in cost-sharing reduction subsidy payments to health insurers for coverage provided in 2017 and 2018. The Centers for Medicare and Medicare Services is still deciding how much cost-sharing reduction subsidy money might be at stake for 2019.

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Maine Community Health Options ruling implications

One immediate effect of the new ruling is that it could make the ACA individual major medical market more appealing to health insurers, by raising the possibility that health insurers in the market could split a $12 billion pot of recovery cash, and at least reducing the possibility that the federal government will suddenly yank other promised payments away.

Matt Eyles, president of America's Health Insurance Plans, said in a statement about the ruling that millions of Americans rely on the individual and small group markets for their coverage and care.

"They deserve a steady market that provides them with affordable choices," Eyles said. "Health insurance providers are focused on delivering for them, and they depend on the federal government to be a fair and reliable business partner committed to the same goal."

The ruling could also affect other ACA cases that are still working their way through the courts.

Justice Sonia Sotomayor writes in the new ruling, for seven other justices, that Congress can't cancel an agreement to pay someone by refusing to provide the funding for the payment.

Sotomayor writes:

As we have explained, " '[a]n appropriation per se merely imposes limitations upon the Government's own agents,'" but "'its insufficiency does not pay the Government's debts, nor cancel its obligations.'"

This point could affect other cases that hinge on efforts by Congress to block programs by setting appropriations for the programs at zero.

Members of Congress have used the "zeroing out" strategy because some spending and appropriations bills can get through the Senate with just 51 votes.

Other bills, such as bills that change federal policies, usually need at least 60 votes to come up for a vote on the Senate floor.

That means zeroing out the funding for a program is usually easier than changing or canceling the program.

Here are the three streams of ACA litigation that could be affected by the debate about what exactly Congress can zero out:

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1. The ACA cost-sharing reduction subsidy program fight

ACA opponents in Congress have tried to block the operation of the cost-sharing reduction subsidy program by refusing to let Congress appropriate the money to operate it.

That means a federal appeals court, or even the Supreme Court, could revisit the Sotomayor opinion the next time a cost-sharing reduction subsidy case comes up.

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2. The ACA risk-adjustment program subsidy program fight

Some health insurers say the federal government should lubricate the ACA risk-adjustment program by adding federal subsidy money, the way it uses already subsidy money to lubricate the Medicare Advantage risk-adjustment program, rather than making the ACA subsidy program be entirely self-sustaining.

The arguments health insurers have made about the federal government's responsibility for funding the risk-adjustment program have been similar to the arguments made about the risk corridors program.

Health insurers could point to the Sotomayor opinion when arguing ACA risk-adjustment program cases in court. They may say the United States still has an obligation to make the payments described in the ACA cost-sharing reduction subsidy program provisions, even though te funding for the program has gone away.

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3. The ACA constitutionality fight

In 2017, Congress has passed a budget package that included a provision that zeroed out the ACA individual mandate penalty. The ACA still requires many people to have a minimum level of health coverage or pay a penalty, but the penalty owed is now zero.

In 2012, the U.S. Supreme Court ruled that ACA opponents could not oppose the ACA individual mandate because the mandate penalty was a tax, and a federal law, the Anti-Injunction Act of 1867, prohibits plaintiffs from suing to block federal taxes.

ACA opponents now argue, in the case that was originally known as Texas v. USA, and is now known as California v. Texas, that, because the ACA individual mandate provision is no longer a tax provision, plaintiffs can now challenge the constitutionality of the provision in federal court.

The ACA coverage ownership provision is now an unconstitutional requirement for people to own a commercial insurance product, the ACA contains no provision saving the rest of the statutory package if one part is found to be unconstitutional, and that means all of the ACA is now unconstitutional, ACA opponents contend.

Because ACA opponents relied on zeroing out of the individual mandate penalty to block the individual mandate, rather than repealing or changing the language of the penalty provision, the Supreme Court could end up debating whether simply zeroing out the mandate penalty amount changed the nature of the penalty provision.