Arizona's high court upholds state's hospital levy, Medicaid expansion law

PHOENIX — The state’s high court on Friday upheld the legality of an assessment on hospitals that helps pay for health care for 400,000 Arizonans.

In a unanimous decision, the justices rejected the contention by the lawyer for some Republican lawmakers that the levy, approved by the Legislature in 2013, was illegally enacted.

Attorney Christina Sandefur of the Goldwater Institute argued that it really was a tax, making it subject to a 1992 voter-approved constitutional amendment requiring a two-thirds vote in both the House and Senate. The levy passed with a simple majority.

But Chief Justice Scott Bales, writing for the court, said the assessment does not fit within the legal definition of what is a “tax” subject to the supermajority requirement.

He also said the constitutional provision does not apply in cases of assessments approved not by lawmakers but instead by a state agency. That, Bales said, is the case with the $290 million being raised here, with the levy being imposed on hospitals by Tom Betlach, director of the Arizona Health Care Cost Containment System, the state’s Medicaid program.

The justices also rejected Sandefur’s arguments that even if the assessment was imposed by Betlach, the authorization for him to do that should still have been approved by a two-thirds vote. The justices said that’s not the way the constitution is worded.

Sandefur blasted the ruling, calling it “a major blow to taxpayer rights.”

“Essentially what this court has done is created a very dangerous loophole,” she told Capitol Media Services.

“It allows legislators to call taxes ‘assessments’ and give away the taxing power to an unelected and unaccountable administrator,” Sandefur said. “We believe this is exactly the opposite of what the voters intended.”

She said voters who want to plug that loophole will need to go back to the ballot with a new amendment.

House Speaker J.D. Mesnard, who opposed the Medicaid expansion and was one of the lawmakers who sued to overturn the levy, said he does not think voters wanted the exception to the supermajority requirement that the high court says exists.

“It is clear Arizonans support requiring a two-thirds vote of the Legislature when taking more of their money,” he said. And Mesnard said that’s particularly true in cases like this, involving hundreds of millions of dollars a year.

But Mesnard said he’s not sure if it will take yet another constitutional amendment to cure the problem — if lawmakers can restrain themselves.

“It will be incumbent on the Legislature moving forward to resist the temptation to use the court’s opinion in this case to circumvent the taxpayer protections intended,” he said. “We must not abuse the flexibility they have given us.”

Friday’s ruling is more than an assurance that government-paid health care will continue for the nearly 400,000 Arizonans who were added to the state’s Medicaid rolls through the assessment. It also is a significant victory for former Gov. Jan Brewer, who came up with the plan to expand the state’s Medicaid program.

“Medicaid restoration honored the will of the voters, saved lives, prevented rural hospitals from closing and preserved the Arizona economy,” the former governor said in a statement.

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But the ruling is more mixed for current Gov. Doug Ducey.

On the one hand, Ducey’s administration defended the legality of the assessment in court.

But Ducey, who was state treasurer at the time of the 2013 vote, never wanted the expansion of Medicaid, actively opposing the legislation. In fact, he charged that Scott Smith, his foe in the 2014 Republican gubernatorial primary, was too liberal on Medicaid expansion.

That ambivalence was reflected in Ducey’s own statement.

“The court has spoken, and I respect its ruling,” the governor said. “The state of Arizona will continue to follow the law passed by the Legislature in 2013.”

It was Brewer who decided in 2013 to take advantage of a provision of the Affordable Care Act to expand Medicaid coverage. That law allowed the federal government to pick up most of the costs for expanding health coverage to those earning up to 138 percent of the federal poverty level, currently about $28,180 for a family of three. Before expansion, AHCCCS covered only those below the poverty line, or $20,420 at current levels for the same-size family.

But to qualify for those federal dollars, the state had to first restore coverage for childless adults. Enrollment for them had been frozen years earlier in a budget savings maneuver. To cover that cost and other state expenses, Brewer proposed giving Betlach authority to impose a charge on hospitals.

Hospitals did not object, because Betlach crafted the levy so that every hospital chain actually would make money from the deal: More patients with government-provided insurance coverage means fewer bills written off as bad debts because of an inability to pay.

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.

But the Republican lawmakers who voted against expansion sued, contending the levy was illegally enacted. And enough of them opposed the assessment to block it if actually required a two-thirds vote.

Sandefur told the justices in arguments last month that a 1992 constitutional amendment requires a supermajority for anything that increases state revenues. But the high court did not see it that way.

Bales said the mandate first applies to “the imposition of any new tax.”

He conceded that word is not defined. But Bales said he and his colleagues do not believe it applies in this case.

“The assessment is imposed only on hospitals, which cannot pass on the costs to patients or third-party payors,” Bales wrote. And he noted Betlach even was given the power to exempt certain hospitals, like the Mayo Clinic, that might not benefit because they take few Medicaid patients.

And Bales said while the levy does serve a broad public purpose — more people with health insurance — it was designed to provide financial relief to hospitals, the very group paying it.