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Regulation and Compliance > State Regulation

Six states sue over Medicaid plans’ PPACA fee bills

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Texas and five other states are suing the federal government over how the government applied the Patient Protection and Affordable Care Act (PPACA) health insurer fee to some of the carriers that run the states’ managed Medicaid and managed Children’s Health Insurance Program (CHIP) plans.

The states bringing the suit, State of Texas et al. vs. United States of America et al., say, in a complaint filed in the U.S. District Court for the Northern District of Texas (Civil Action Number 7:15-CV-00151-O), that the court should exempt managed Medicaid and managed CHIP plans from the fee.

The fee is really a tax that the federal government is imposing on state governments, and that kind of intergovernmental tax is unconstitutional, the states say.

The states also object to the process the Obama administration used to decide the scope of the insurer fee. The states say the administration let the Actuarial Standards Board — a private, nonprofit entity formed by the American Academy of Actuaries and other actuarial groups — set the scope of the fee in Actuarial Standard of Practice (ASOP) Number 49, a document published in March 2015.

Letting the Actuarial Standards Board determine whether managed Medicaid and managed CHIP plan administrators should pay the tax “constitutes an unconstitutional delegation of Congress’s legislative power to a private entity in contravention of the United States Constitution,” the states say.

That kind of delegation is arbitrary and capricious, the states say.

The states want the court to declare that delegating decisions over the fee to a private entity is unconstitutional and exceeds statutory authority.

Representatives from the Actuarial Standards Board were not immediately available to comment on the case.

An American Academy of Actuaries representative said the lawsuit is a dispute between several states and the federal government over the operation of a federal program. “The Academy is not involved in the litigation and has no interest in the outcome of the case,” the representative said.

Drafters of PPACA created the health insurer fee, in PPACA Section 9010, partly because they thought the PPACA individual coverage mandate would give health insurers windfall revenue, and partly because they wanted to generate revenue for the federal government.

The full fee amount is supposed to be $8 billion for 2014, $11.3 billion for 2015, $11.3 billion for 2016, $14.3 billion for 2018, and an inflation-adjusted amount based on the 2018 total for 2019 and later years. Congress eliminated the fee bills for 2017 in the Consolidated Appropriations Act, 2016, the law created when President Obama signed H.R. 2029.

See also: Tax deal could block health insurer ‘fee’ in 2017

ASOP 49 does exempt nonprofit insurers that get more than 80 percent of their premium revenue from Medicaid, CHIP and dual-eligible plans from the fee. Some other nonprofit insurers that do have to pay the fee can exclude half of their premium revenue from the health insurer fee calculations.

The states that brought the State of Texas suit say that, in some parts of the country, finding a nonprofit managed care organization that would be exempt from the fee is impossible.

In addition to Texas, the list of plaintiff states includes Kansas, Louisiana, Indiana, Wisconsin and Nebraska.

The list of defendants includes HHS, HHS Secretary Sylvia Burwell, the Internal Revenue Service (IRS), and IRS Commissioner John Koskinen as well as the United States of America.

See also: 

IRS posts instructions for PPACA health insurer tax

Watchdog: 30% of health insurers filed PPACA fee forms late


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