State lawyer to court: Hospital levy to expand Medicaid not a tax

PHOENIX — The lead attorney for the state’s Medicaid program wants the Court of Appeals to reject a claim by some legislators that the levy funding its expansion was illegally enacted.

The attorney, Douglas Northup, does not dispute the Arizona Constitution requires a two-thirds vote of both the House and Senate for any new tax or any increase in state revenues. It also is a matter of fact that there were enough lawmakers opposed to the 2013 vote for the assessment on hospitals to pay the state’s share of the cost to deny the measure a two-thirds margin.

But Northup is telling appellate judges that the constitutional requirement does not apply here because the more than $200 million a year being collected from hospitals is something they want because it helps their bottom line.

Northup also said the levy cannot be considered a tax because the Legislature did not set the tax rate and the money raised does not go into the state’s general fund.

Instead, Tom Betlach, director of the Arizona Health Care Cost Containment System, the state’s Medicaid program, determines how much each hospital pays and can decide which hospitals should be exempt. And Northup said the money is set aside solely to pay the state’s share of the federal Medicaid dollars.

The issue about whether the levy is a tax is more than an academic dispute. If the lawmakers win the case, potentially 350,000 people would lose their state-provided health insurance.

At the heart of the fight is the 2013 decision by then-Gov. Jan Brewer to take advantage of the Affordable Care Act. It has the federal government pick up most of the costs for expanding health-care coverage for up to 138 percent of the federal poverty level, which is about $27,700 a year for a family of three. Before the expansion, the program covered only those below the poverty line, or less than $21,000 for the same size family.

But to get those funds, the state first had to restore coverage for childless adults, which had been dropped years earlier in a budget-saving maneuver. To cover that cost and other state expenses, Brewer proposed — and lawmakers approved — giving Betlach authority to impose a charge on hospitals.

Back to homepage

Subscriber Login

Keep reading with a digital access subscription.

Subscribe now

The plan was adopted by a simple majority of the House and Senate, with the Republican governor cobbling together a coalition of Democrats and some members of her own party to vote for it.

Hospitals did not object because Betlach set up the levy so that every hospital chain would actually make money from the deal: More patients with government-provided insurance coverage means fewer bills written off as bad debt because of a person’s inability to pay. He even structured it so some hospitals that would not benefit from Medicaid expansion would owe nothing.

But the lawmakers who voted against expansion sued, contending the levy is a tax illegally enacted because it lacked the two-thirds margin required by the 1992 voter-approved constitutional amendment.

A trial judge disagreed, with the case now at the Court of Appeals.

Northup told the appellate judges the state’s participation in Medicaid has been good for the state — and not just because more people have coverage. He said the total federal contribution over a two-year period was about $2 billion.

But he also said a strict reading of the Arizona Constitution backs his contention that the levy is not the kind that requires a two-thirds vote.

No date has been set for a hearing.