Dozens join in a rally against proposed cuts in the Maine Medicaid budget.(AP Photo/Pat Wellenbach)

State Medicaid programs are contending that the federal government is getting ready to rob Peter to pay Peter.

The Medicaid Health Plans of American (MHPA), Washington, says letting the government apply the “health insurer fee” provisions in Section 9010 and Section 10905 of the Patient Protection and Affordable Care Act of 2010 (PPACA) to companies that run Medicaid plans would, in effect, amount to taxing Medicaid plans to help pay for expansion of Medicaid plans.

Imposing the fee on Medicaid managed care plans could increase state Medicaid costs by about $14 billion over the 10-year period starting in 2014, MHPA officials say, citing an analysis prepared by analysts in the Brookfield, Wis., office of Milliman Inc.

Because of the way Medicaid funding works, the federal government would spend about $25 billion on Medicaid plans’ health insurance tax obligations.

Medicaid health plans could end up paying a total of one-sixth of the health insurance fee tax revenue collected, MHPA officials say.

MHPA officials are estimating that keeping the PPACA health insurer fee rules as they are now could lead to an average increase in Medicaid managed care premiums of about 1.5% and an increase of up to 2.5% in some states.

PPACA drafters included the health insurer fee in an effort to generate some of the revenue needed to fund the program, and to keep large health insurers from getting windfall profits as a result of PPACA provisions requiring most individuals to own health coverage and most employers to provide coverage starting in 2014.

The fee, which is classified as an excise tax, is supposed to start out generating $8 billion in annual fee revenue in 2014 and produce about $14 billion in revenue in 2018.

PPACA exemptions nonprofit insurers that get more than 80% of their premium revenue from Medicare, Medicaid and other government health insurance programs are exempt from the fee, and other nonprofit insurers can exclude 50% of their premium revenue from the health insurer fee calculations, the Milliman analysts say.

The exemptions might help nonprofit carriers, but they would not do much for the large, for-profit companies that help run many Medicaid plans, the Milliman analysts say.

One side effect could be that nonprofit Medicaid carriers would suddenly have a big new competitive edge over for-profit Medicaid carriers, MHPA officials say.