Home / Capitol Insiders / In battle to cut Medicaid, Arizona faces new challenge

In battle to cut Medicaid, Arizona faces new challenge

Attorney General Eric Holder listens at left, as Health and Human Services Secretary Kathleen Sebelius gestures during a news conference at the Justice Department in Washington, Thursday, Feb. 17, 2011, to address the law enforcement actions of the Medicare Fraud Strike Force.  (AP Photo/Jacquelyn Martin)

Attorney General Eric Holder listens at left, as Health and Human Services Secretary Kathleen Sebelius gestures during a news conference at the Justice Department in Washington, Thursday, Feb. 17, 2011, to address the law enforcement actions of the Medicare Fraud Strike Force. (AP Photo/Jacquelyn Martin)

With the federal government out of the way, Arizona officials seeking to cut hundreds of thousands of people from the state’s Medicaid rolls are facing a different kind of adversary: some of those hundreds of thousands of people.

On Feb. 15, the state learned it didn’t require a waiver from the U.S. Department of Health and Human Services to reduce enrollment in the Arizona Health Care Cost Containment System, or AHCCCS. A letter from HHS Secretary Kathleen Sebelius’ office said the state may eliminate 250,000 patients as of Sept. 30.

After requesting a federal waiver in January to allow Arizona to drop 280,000 patients, state officials had expected a lengthy siege against the federal government.

But now the state has moved closer to an inevitability that comes with political battles these days: a day in court.

Tim Hogan, executive director of the Arizona Center for Law in the Public Interest, said his organization is working with the William E. Morris Institute for Justice in anticipation of filing suit on behalf of people claiming to be harmed by the reductions, which Hogan contends are unconstitutional.

How a legal challenge unfolds depends on what mechanism the state uses to make the cuts and the timing of those cuts, Hogan said.

But he added that the legal argument probably will hinge on the interpretation of the Voter Protection Act and whether Proposition 204, whose passage in 2000 expanded the number of people covered by AHCCCS, can be undone without voter approval.

The question, Hogan said, does have precedent in a 2009 Arizona Supreme Court decision.

The Legislature, facing huge revenue shortfalls, took $7 million in interest from the coffers of the Arizona Early Childhood Development and Health Board, known as First Things First, the product of a 2006 initiative. The initiative established a new tax on tobacco products to pay for First Things First.

The Arizona Supreme Court ruled the Legislature did not have the authority to sweep the funds.

“It’s pretty significant, it’s the only case and it kind of establishes the general parameters for assessing compliance with the Voter Protection Act and how you read these initiatives,” Hogan said.

Hogan said the state wanted to read the initiative that formed First Things First very narrowly, but the court decided instead to look at the intent of the voters.

In the case of the AHCCCS funds, voters increased the number of people covered and required that the funding come from the settlement of tobacco litigation and supplemented “by any other available sources including legislative appropriations and federal monies.”

Matt Benson, spokesman for Gov. Jan Brewer, said: “In this instance, given that we’re facing a budget shortfall well in excess of $1 billion over the next year to year and a half, we don’t believe there are other available funds on hand.”

Brewer’s budget proposal calls for the state to cut $542 million from AHCCCS to help balance a projected $1.15 billion budget deficit in the fiscal year 2012.

The waiver the state asked for from HHS would cut Medicaid eligibility for childless adults and for parents whose children are on AHCCCS. The federal health care law passed in 2010 prohibits states from reducing Medicaid eligibility.

Sebelius said in a letter that Arizona could choose not to renew an agreement under which the federal government provides matching funds for 250,000 childless adults in the system. The agreement expires Sept. 30.

The state still would be required to cover 30,000 parents of children who are on AHCCCS.

Benson said the tobacco settlement now pays for just a fraction of those people, and taxpayers have spent about $700 million a year propping up Prop. 204.

Paul Eckstein, the attorney who represented First Things First in its successful 2009 case, said the state has a “credible argument” on the AHCCCS funds by homing in on the words “any other available sources.”

“It’s not a slam dunk by any means and there’s ambiguity, and where there’s ambiguity, courts tend to cut the legislature some slack,” Eckstein said.

There is no downside for policymakers trying to cut the rolls and taking a chance in court because if the state loses a lawsuit, it will still have to find the money somewhere, Eckstein said.

Arizona State University law professor Paul Bender, who is not involved with any potential lawsuits, said the way he reads the funding provision of Prop. 204 is that voters said the state must get money to provide the benefits from wherever possible.

 “It’s hard for me to say you can use that language to say, ‘We don’t have to fund it,’” Bender said. “I understand that that causes a big budget problem, but that’s because that’s Arizona law and they have to live with Arizona law.”

Voters added the Voter Protection Act to the state Constitution in 1998. It limits the Legislature’s authority to amend voter-approved measures in initiative elections and to divert or appropriate funds “created or allocated to a specific purpose” by the measures.

The Legislature can make technical amendments, but only by a supermajority, or three-fourths, vote and in furtherance of the purpose of the measure.

“It is hard for me to believe that anything removing people who were added can be said to further the purpose of the legislation,” Eckstein said.

The big question will be how clear and unequivocal the proposition was in expanding the eligibility, Eckstein said.

According to the 2009 Supreme Court ruling, the state contended that it wasn’t violating the supermajority provisions, amending the measure or diverting funds.

The state based its argument on language of the 2006 initiative that created First Things First. The initiative said that interest or income from investments into an account must be credited to that account “except as otherwise provided by law.”

The court, however, examined statements in the secretary of state’s voter publicity pamphlet to determine that siphoning money from the First Things First to the general fund was not consistent with the purpose of the initiative.

“Rather, the purpose of the initiative was to ensure that revenues serve the specific program aims of the initiative,” wrote Justice Michael Ryan on behalf of the court.

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