Key question in Arizona Medicaid fight: Is fee a tax?

• Attorneys for the state and lawmakers argue definition of “tax” in court case
• The case revolves around Arizona’s Medicaid expansion from 2013
• A ruling from the Maricopa County Superior Court judge is expected in the next few weeks

When is a fee a tax?

That question is at the heart of a case argued Thursday in Maricopa County Superior Court that will ultimately land before the state Supreme Court and could profoundly influence state policy. Depending on the outcome, it could also put the health coverage of nearly 350,000 Arizonans in peril.

Ultimately it comes down to whether a hospital assessment approved in 2013 to fund state Medicaid expansion is considered a fee as its proponents do, or a tax, as the 36 Republican legislators who opposed it do.

The legal challenge revolves around the bitterly fought legislative vote in 2013 that established a “hospital assessment” to cover the state’s cost of expanding its Medicaid program. Then-Gov. Jan Brewer pushed to expand the program, but ran into stiff resistance from many of her fellow Republicans in the Legislature.

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Brewer got the necessary approval after a dramatic special session, pulling together a coalition of Republicans and Democrats who passed it with a simple majority vote.

Three dozen GOP lawmakers went to court, arguing the assessment is a tax that required a supermajority — or two-thirds — vote of the Legislature.

In an hour-long hearing before Superior Court Judge Douglas Gerlach, Wednesday, attorneys for both sides argued the finer points of what constitutes a tax in light of a voter-approved Constitutional provision that established the supermajority requirement for any tax increase.

Lawmakers’ main argument

Attorney Christina Sandefur of the Goldwater Institute said the assessment, which is used to match federal Medicaid dollars, meets the criteria of tax because it is levied against a broad class and redistributes the money. In this case, it directs the money to pay for medical coverage for more Arizonans. And it took the Legislature out of the picture on setting the size of the assessment.

The law wrongly put the tax-setting power in the hands of the state’s AHCCCS director, Sandefur argued on the lawmakers’ behalf.

PREVIOUSLY: Arizona Appeals Court keeps Medicaid challenge alive

When voters approved Prop. 108 in 1992, she said, they put a check on lawmakers’ power to raise taxes by requiring the two-thirds vote. The Medicaid-expansion vote violated that premise, she said, because Brewer could not muster the needed 40 votes in the House and 20 in the Senate.

“A supermajority is required to authorize limited administrative power, but only a bare majority is required to authorize unlimited power,” Sandefur told the judge. That, she said, interprets Prop. 108 exactly backwards.

State’s rejoinder

Attorney Douglas Northup countered that the assessment doesn’t meet the basic requirements of a tax and therefore doesn’t trigger the supermajority vote. That’s because it is not collected across a broad population, but rather from 97 hospitals, he said.

The fee the hospitals pay goes into a fund separate from the state’s general fund, and is intended to only benefit a select group (hospitals), not the general Arizona population.

Besides, Northup said, state agencies have set more than 40 fees in the last eight years alone, and many more since the 1992 voter initiative, with no one in the Legislature or the public claiming those increases needed a legislative vote.

“I don’t think we would have gone since 1992 without this (a challenge) happening,” he said.

What’s next

Judge Gerlach made no bones about the inevitable final stop for this case: the state Supreme Court. Noting appeals will be filed regardless of how he rules, he asked attorneys for both sides if they wanted a full-length legal opinion or a simple ruling.

The attorneys said they would like some explanation for his eventual ruling, and Gerlach promised to deliver it soon, saying this case is “at the top of my list.”

Not that it matters all that much, he said.

“My decision probably has no more impact than the outcome of a spring-training game,” he said.

Why this matters

The case will determine the future of Medicaid expansion, although it probably won’t be known until the state Supreme Court rules.

The expansion vote restored health coverage to nearly 200,000 Arizonans who had been shut out because of earlier budget cuts and opened up the program to another 30,000 people by expanding the eligibility criteria.

The ultimate ruling also could resolve the debate of what exactly constitutes a tax, which could have implications for fees and other charges set by state agencies.

Reach the reporter at maryjo.pitzl@arizonarepublic.com or at 602-444-8963.