AZ Court of Appeals upholds Medicaid (AHCCCS) expansion plan

The Arizona Court of Appeals has affirmed the Maricopa County Superior Court decision upholding former governor Jan Brewer’s Medicaid (AHCCCS) expansion plan in 2013. The Arizona Capitol Times (subscription required) reports, Arizona appeals court says Medicaid expansion law is constitutional:

The appellate court in its opinion (.pdf) said the law imposed an assessment that is exempt from the requirement that any act by lawmakers increasing state revenues, such a tax hike, must get a two-thirds vote in the Legislature [the “Two-Thirds for Taxes” amendment, Prop. 108 (1992)].

The health care law was approved by a simple majority.

At issue is the assessment on hospitals, which the state uses to draw down matching federal funds.

The law has allowed Arizona to expand eligibility to residents who earn between 100 and 138 percent of the federal poverty level.

In 2015, Maricopa County Superior Court Judge Douglas Gerlach also upheld the law, ruling that the hospital assessment that funds the program is not subject to Arizona Constitution’s supermajority provision.

Judge Gerlach said the case came down to two issues: whether the assessment is a tax and whether it is subject to an exemption for, “fees and assessments that are authorized by statute, but are not prescribed by formula, amount or limit, and are set by a state officer or agency.”

Goldwater Institute Attorney Christina Sandefur had argued that the assessment is actually a tax because it is not voluntary, the proceeds are redistributed by the state and it is not tied to any benefit received in return by the hospitals that pay it. She said not every hospital that pays the assessment treats Medicaid patients, and that those hospitals would not benefit from the expansion.

But Gerlach said Sandefur’s argument that an assessment or fee must be voluntary has been rejected in previous cases. He also noted that the hospital assessment is transaction-based because the amount paid by each hospital is determined by its number of discharged patients. And the fact that the assessment is imposed by an agency head – in this case, the AHCCCS director – instead of the Legislature lends itself to the notion that it is not a tax.

The judge also disputed the idea that hospitals have not benefited.

“Arizona hospitals have benefited financially because they have experienced a decline in the amount of uncompensated health care that they provide to persons who require medical attention but have no health insurance,” Gerlach then wrote.

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The case was brought by 36 Republican legislators who voted against the plan.

The appeals court said the hospital assessment has the characteristics of an assessment, not a tax, and arguments to the contrary missed the mark.

First, the court, said the assessment is imposed by the director of the Arizona Health Care Cost and Containment System. Second, the law allows AHCCCS to establish modifications or exemptions, which means the assessment is not necessarily charged to every hospital. Even if it were, it is “narrowly applied” only to hospitals and “not a broad class of citizens as is typical of a tax,” the court said.

Finally, the court said the plaintiffs were wrong in arguing that the levy is expended for general public purposes, making it akin to a tax. Instead, the court lifted from the law’s language to conclude that the assessment is “for the benefit of hospitals.”

The Goldwater Institute, which is litigating the case on behalf of the Republican legislators who sued, said it will appeal the case to the Arizona Supreme Court.

Supreme Court Justice Clint Bolick, who was vice president for litigation at the Goldwater Institute’s Scharf-Norton Center for Constitutional Litigation at the time this lawsuit was filed, should be required to recuse himself from participating in this appeal under the court’s rules of ethics.

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