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AZ Supreme Court to decide if Medicaid levy a tax

The Arizona Supreme Court from left are Robert Brutinel, John Lopez, John Pelander, Scott Bales, Andrew Gould, Clint Bolick, Ann Scott Timmer.

The Arizona Supreme Court from left are Robert Brutinel, John Lopez, John Pelander, Scott Bales, Andrew Gould, Clint Bolick, Ann Scott Timmer.

The state’s high court agreed Tuesday to decide whether a levy that funds Arizona’s expanded Medicaid program was illegally enacted.

Without comment, the justices said they want to give foes of the levy — current and former state lawmakers — a chance to make the case that it really is a tax.

What the court decides will be significant, as it takes a two-thirds vote of both the House and Senate to raise taxes. And since the measure did not get that margin, a finding that the levy actually is a tax would mean the Arizona Health Care Cost Containment System, the state’s Medicaid program, could no longer collect it.

More significant, without the approximately $265 million being collected each year, the state could no longer afford to provide care to about 400,000 Arizonans who were added to the plan as a result of the 2013 action.

Tuesday’s action does not mean the justices have already reached a conclusion. But just the decision to review lower court ruling upholding the legality of the levy places it in potential jeopardy.

At the heart of the fight is who gets government-provided health coverage.

Prior to 2013 AHCCCS provided care for those below the federal poverty level.

That year then-Gov. Jan Brewer sought to take advantage of a provision of the Affordable Care Act where Congress agreed to pick up most of the costs for expanding health-care coverage to those making up to 138 percent of the federal poverty level. That is currently about $28,180 a year for a family of three.

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

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.

That led the GOP lawmakers who voted against it to file suit. While they were in the numeric minority, there actually were enough of them to block the levy if it really is a tax and really required a two-thirds vote.

Christina Sandefur, attorney for the Goldwater Institute, which is representing challengers, is arguing to the justices that they need to respect the 1992 voter-approved amendment to the Arizona Constitution requiring a two-thirds vote.

She said it was designed as a check on new taxes. More to the point, Sandefur said it was specifically designed to empower a minority of lawmakers — in this case, just over a third — to block new taxes.

That argument did not impress the Court of Appeals. In a ruling earlier this year, the judges said what the Legislature enacted does not fit within what the constitution defines as a tax.

Appellate Judge Paul McMurdie, writing for the three-judge panel, acknowledged the 2013 law empowered AHCCCS Director Tom Betlach to impose a levy. And that vote, he said, was approved by just a simple majority.

But he pointed out that the levy itself was not imposed by the Legislature.

“Instead, the levies are imposed by an entity with discretion to set and administer them,” the judge explained, meaning AHCCCS. And he said the constitutional provision requiring a two-thirds vote has a clear exception for fees set by a state agency.

Nor was the court impressed by Sandefur’s argument that even if Betlach gets to decide the amount of the assessment, it took an act of the legislature to authorize him to levy it.

“That is the most circular argument I think I’ve ever heard,” McMurdie told her during oral arguments.

The court also rejected Sandefur’s contention that the levy is a tax because the funds collected are being expended for “general public purposes.” That, she argued, is the very definition of a tax.

McMurdie conceded the ultimate goal of expanding Medicaid was to provide health care to more of Arizona’s working poor.

But he said the actual beneficiaries are the hospitals — the entities paying the levy — who have fewer people showing up at their doors unable to pay because they lack insurance.

The hospitals, for their part, never challenged the levy. That’s because Betlach structured it in a way so the amount charged would be less than the reduction in unpaid bills.

No date has been set for the hearing.

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