The Trump administration has continued to make the payments, though the president has repeatedly threatened to cut them off, calling them a "bailout".
How Thursday's order will impact the insurance and hospital industries will be studied by a commission comprised of federal health officials who will find ways to limit consolidation in the markets and increase competition. the order says.
Almost 6 million enrollees, or 57%, qualify for the cost-sharing payments this year, according to the most recent data from the Department of Health and Human Services.
"Based on guidance from the Department of Justice, the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare", the White House press secretary said late Thursday.
"On September 26, Republicans in the US Senate decided not to vote on the latest plan to repeal and replace Obamacare when they failed to secure enough votes".
President Trump has made the payments, guaranteed to insurers under Obamacare to help lower out-of-pocket medical expenses for low-income consumers, each month since taking office in January.
"If there's a lot of hoopla around new options that may be available soon, it could be one more thing that discourages enrollment [in the ACA]", he said. National Review's Ramesh Ponnuru disagreed, writing that Obamacare's delegation of some health care policymaking to the executive branch opened the door to Thursday's intervention.
Blue Cross and Blue Shield of North Carolina earlier this year raised premiums by more than 20 percent, but said it would have only raised premiums by about 9 percent if Trump agreed to fund the payments.
Congressional Republicans have argued that the Obama administration should have sought congressional approval for the payments in a spending bill.
A judge for the federal district court for the District of Columbia ruled in favor of the Republicans, and the Obama administration appealed the ruling.
Insurers, state regulators from both political parties and consumer advocates had hoped that Congress would step in and appropriate the money so rate increases could be scaled back next year.
Several insurers have cited uncertainty over the payments in hiking premiums for 2018 or exiting insurance markets altogether.
Sen. Lamar Alexander, R-Tenn., and Sen. Patty Murray, D-Wash., have been working on a compromise to do that. And some Republicans fear they will be blamed if markets collapse. The White House also said that it gives employers more leverage to negotiate with insurance companies in purchasing health insurance plans for employees.
"The president is walking away from the good faith, bipartisan Alexander-Murray negotiations and risking the healthcare of millions of Americans", they said.
Tellingly, the White House dropped this news in the dead of night, which means Friday should be an even more chaotic news day than usual.
"We're going to also pressure Congress very strongly to finish the repeal and the replace of Obamacare once and for all", Trump said.
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