DALLAS (CN) - Obamacare regulations that force states to pay a health insurance providers fee or risk losing Medicaid funding impose a coercive and unconstitutional tax, three states claim in Federal Court.
Texas, Kansas and Louisiana sued the federal government in Wichita Falls Federal Court on Thursday. They say they were first notified of the fee in March and have paid it, but argue the "new regulatory framework poses myriad statutory and constitutional" issues.
"Nothing in the language of the Affordable Care Act provides clear notice to the states that a condition of the federal funding for their Medicaid and Child Health Insurance Program (CHIP) managed care organizations was paying the health insurance providers fee and associated costs to the managed care organizations to pay to the federal government," the 20-page complaint states.
"This notice was not even provided by rule but was ultimately provided by a private entity wielding legislative authority. The statute and regulations governing the health insurance providers fee include no specific language excluding the activities of for-profit managed care organizations providing Medicaid or CHIP services from being included in the fee."
Managed-care organizations play a crucial role in Medicaid and CHIP in the plaintiff states. They will provide Medicaid services to 87 percent of Texas' full-benefit population this year and will receive $16.6 billion for health care services - 17 percent of Texas' budget, according to the complaint.
The states say that under the new regulations, actuarial standards of practice determined by the private Actuarial Standards Board and adopted by the Centers for Medicare and Medicaid Services requires states to pay managed-care organizations "an amount sufficient to cover the health insurance providers fee and any amount of additional taxes that the managed-care organizations incur as a result of" Medicaid and CHIP payments.
They disagree with this standard, citing earlier U.S. Supreme Court and D.C. Circuit rulings that ban federal lawmakers from delegating regulatory authority to private entities, that it is "legislative delegation in its most obnoxious form," according to the complaint.
Without an actuary certifying a managed-care organization's contract, it will not be eligible to participate in Medicaid or CHIP, the states say.
"In the next decade, the health insurance providers fee is projected to allow the federal government to collect between $13 and $15 billion from the states," the complaint states. "By functionally requiring that the plaintiff states reimburse managed care organizations for payment of tax liabilities, the United States has imposed those taxes on the states."
Texas Attorney General Ken Paxton said Tuesday the regulation "coercively threatens" to cut off Medicaid funding for millions of Texans and over 350,000 children.
"This threat to cut Medicaid funding to Texans unless the state continues to pay hundreds of millions in taxes to Washington amounts to the very 'gun to the head' the Supreme Court warned about in earlier rulings on Obamacare," Paxton said in a statement. "Not only is the federal government threatening the health care needs of millions of Texans, but it is doing so using Texans' own money, collected from them through taxes. This represents yet another huge overstep of authority for this administration, which once again has demonstrated their willingness to circumvent the Constitution in order to achieve their policy goals."
Paxton said the adoption of the Actuarial Standards Board's unconstitutional tax on the states funds "the insolvent Obamacare mandate" and "robs the tax coffers" of citizens.
Texas paid $86 million in 2013 and $140 million a year since.
The states seek an injunction and declaration that the fee is unconstitutional, arbitrary, capricious, coercive and in violation of the Administrative Procedure Act.
They are represented by Texas Assistant Attorney General Thomas A. Albright in Austin.
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