Affordable Care Act Not Affordable


Constitution Requires Congress to Appropriate Funds Before It Can Be Spent

Insurance should be based on a contract between the insurer and the person seeking insurance. The so-called Affordable Care Act (ACA) requires insurers to write government mandated insurance and tries to cover the extra costs created by the statute by using tax credits and payments to insurers. The current Congress, not a fan of the ACA, using the power of the purse granted to it by the Constitution, did not fund everything desired by the authors of the ACA. The executive branch, contrary to the will of Congress tried to spend money not appropriated.

In United States House of Representatives v. Sylvia Matthews Burwell in her official capacity as Secretary of the United States Department of Health and Human Services, United States District Court,  — F.Supp.3d —- District of Columbia, 2016 WL 2750934, Civil Action No. 14-1967 (RMC May 12, 2016) the House of Representatives sued and asked District Judge Rosemary M. Collyer to compel the executive branch to follow the law and only spend money Congress appropriated.


This case involves two sections of the Affordable Care Act: 1401 and 1402. Section 1401 provides tax credits to make insurance premiums more affordable, while Section 1402 reduces deductibles, co-pays, and other means of “cost sharing” by insurers. Section 1401 was funded by adding it to a preexisting list of permanently-appropriated tax credits and refunds. Section 1402 was not added to that list. The question is whether Section 1402 can nonetheless be funded through the same, permanent appropriation.

Congress passes all federal laws in this country. [U.S. Const. art. I, § 1]  Those “Powers” includes sole authority to adopt laws that authorize the expenditure of public monies and laws that appropriate those monies. Authorization and appropriation by Congress are nonnegotiable prerequisites to government spending. Appropriation legislation provides legal authority for federal agencies to incur obligations and to make payments out of the Treasury for specified purposes. An appropriation must be expressly stated; it cannot be inferred or implied.

Section 1401 (“Refundable Tax Credit Providing Premium Assistance for Coverage under a Qualified Health Plan”)

The thrust of Section 1401 was to add a new section to the Internal Revenue Code: 26 U.S.C. § 36B. See ACA § 1401(a). Section 36B provides in principal part that “there shall be allowed as a credit against the [income] tax imposed by this subtitle for any taxable year an amount equal to the premium assistance credit amount of the taxpayer for the taxable year.” 26 U.S.C. § 36B(a). Those taxpayers “whose household income for the taxable year equals or exceeds 100 percent but does not exceed 400 percent of an amount equal to the poverty line for a family of the size involved” are entitled to tax credits to cover their health insurance premiums. 26 U.S.C. § 36B(c). Section 1401 is codified in the Internal Revenue Code, not in Title 42.

Section 1402 (“Reduced Cost–Sharing for Individuals Enrolling in Qualified Health Plans”)

The insurers are supposed to get their money back. An issuer of a qualified health plan making reductions under this subsection shall notify the Secretary of HHS of such reductions and the Secretary shall make periodic and timely payments to the issuer equal to the value of the reductions. Nothing in Section 1402 prescribes a “periodic and timely payment.

Section 1412 (“Advance Determination and Payment of Premium Tax Credits and Cost–Sharing Reductions”)

Section 1412 of the ACA requires the Secretaries to consult and establish a program under which eligibility determinations are made in advance. After the Secretary of HHS tells the Secretary of the Treasury and the pertinent Exchange who is eligible for either benefit, Treasury makes advance payments of such credit or reductions to the issuers of the qualified health plans on such Exchange in order to reduce the premiums payable by individuals eligible for such credit.

Since January 2014, Treasury has been making advance payments of premium tax credits and cost-sharing reimbursements to issuers of qualified health plans to eligible individuals. These payments have been based on the Secretaries’ determination that “the permanent appropriation in 31 U.S.C. § 1324, as amended by the Affordable Care Act, is available to fund all components of the Act’s integrated system of subsidies for the purchase of health insurance, including both the premium tax credit and cost-sharing portions of the advance payments required by the Act.”


The question is whether Congress appropriated the billions of dollars that the Secretaries have spent since January 2014 on Section 1402 reimbursements.  Section 1402 reimbursements must be funded annually. Far from absurd, that is a perfectly valid means of appropriation. The results predicted by the Secretaries flow not from the ACA, but from Congress’ subsequent refusal to appropriate money. Such an appropriation cannot be inferred, no matter how programmatically aligned the Secretaries may view Sections 1401 and 1402. Paying out Section 1402 reimbursements without an appropriation violates the Constitution. Congress authorized reduced cost sharing but did not appropriate monies for it, in the FY 2014 budget or since. Congress is the only source for such an appropriation, and no public money can be spent without one.

The Secretaries’ Textual Arguments

The Secretaries argue that the text of 31 U.S.C. § 1324 and other “relevant statutory provisions” of the ACA (and other statutes) authorize their expenditures for cost-sharing reimbursements. It is a most curious and convoluted argument whose mother was undoubtedly necessity.

“Conspicuously absent” text

The Secretaries also rely on the absence of certain text. As it often does, Congress said in certain parts of the ACA that there “are authorized to be appropriated such sums as are necessary.”  But that language is not in Section 1402. The Secretaries do not argue—nor could they—that these words are necessary to appropriate monies in the future. Instead, they deduce that the absence of this language means that Congress felt it unneeded, ostensibly because Section 1402 was already funded permanently.

Congress authorized Section 1402 but did not appropriate for it. That is perfectly consonant with principles of appropriations law. So long as programs are authorized, Congress may appropriate funds for them, or not, as it chooses.

Post–ACA legislation

The problem the Secretaries have tried to solve here is very different: it is a failure to appropriate, not a failure in drafting. Congress’s subsequent inaction, not the text of the ACA, is what prompts the Secretaries to force the elephant into the mousehole.

Unintended consequences

Would it have been “nonsensical” or “absurd” for Congress to authorize a program permanently in 2010 but not appropriate for it permanently at the same time? The answer is “no.” To recapitulate, the consequence at issue here is that a permanently authorized benefit program was made dependent on non-permanent appropriations. That approach is perfectly consonant with principles of appropriations law; most federal entities operate in the same fashion. The Secretaries’ argument, taken to its logical conclusion, is that every permanent authorization must also constitute a permanent appropriation or else an “absurd result” would obtain. That is assuredly not the law.

The best evidence of the contemporary understanding of the ACA comes from the parties’ preparation for the effective date of the law. The Secretaries ignore their own actions and focus instead on congressional inaction. No one disputes that 31 U.S.C. § 1324 is an appropriation; the question is whether that statute, as amended by ACA § 1401(d)(1), permanently appropriates money for Section 1402 reimbursements. The Court concludes that it does not.


The Court granted summary judgment to the House of Representatives and enter judgment in its favor. The Court will also enjoin any further reimbursements under Section 1402 until a valid appropriation is in place


When a government gets involved in the business of insurance it changes the contract of insurance from a contract between two people to a governmental mandated mess whose premiums are not based on actuarial calculations but promises of reimbursements from the government. The statute was so badly written that it failed to appropriate funds to do what the statute wanted to do. An elephant does not fit in a mouse hole. Authorization and appropriation by Congress are nonnegotiable prerequisites to government spending. Congress should never screw up a contract of insurance by statute.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 49 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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