Texas Sues To Stop Corporations Imposing A New ObamaCare Tax

Jessica Rinaldi/Reuters
Jessica Rinaldi/Reuters

The state of Texas has filed a lawsuit in federal court challenging what it calls an “unconstitutional tax” that is being created by ObamaCare’s blend of government and corporate power.

How this new tax is implemented wasn’t decided by congressional legislators or even federal bureaucrats. Rather, it was determined by a private entity, and is being enforced by threats from the federal government.

Left unchecked, this mix of federal and private interests would have the power to compel state governments to collect a new tax or be blocked from much of the federal Medicaid program.

Texas Attorney General Ken Paxton filed the Oct. 23 multi-state suit on behalf of Texas, Kansas and Louisiana.

The ObamaCare law enacted a federal “Health Insurance Providers Fee” on all covered insurance providers. The fee was intended to capture some of the “windfall profits” providers would receive from the increase in business due to the federal mandate that all individuals buy health insurance.

Revenue from this fee, which is expected to rise to roughly $15 billion by 2018, is used by the federal government to offset some of the enormous costs associated with ObamaCare’s offer of service to uninsured Americans.

The Actuary Standards Board is a private organization which sets guidelines for managed-care companies that deliver health-care through Medicaid. In March, the board decided that states should reimburse managed-care companies – the Board’s member companies – for the costs of the new federal fee.

If a state does not reimburse the managed-care companies, the board ruled that its member companies cannot participate in the state’s Medicaid programs.

In Texas, 87 percent of individuals receiving Medicaid get health services through those managed-care companies. So under the guidelines set by the private organization, Texas either has to reimburse the federal fee to the companies or else not use the managed-care companies for Medicaid.

Meanwhile, existing federal law provides that Texas, and all other states, should utilize managed-care companies to provide Medicaid.

So if Texas does not compensate the companies for the federal fee, then Texas will be unable to continue many of its Medicaid programs and will be denied hundreds of millions of Medicaid dollars from the program

It should be noted that these rules, and possible sanctions, apply to the long-standing Medicaid program, not the new Medicaid expansion program authorized by ObamaCare.

“This threat to cut Medicaid funding to Texans unless the state continues to pay hundreds of millions in taxes to Washington amounts to the very ‘gun to the head’ the Supreme Court warned about in earlier rulings on Obamacare,” Attorney General Ken Paxton said in a statement provided to Breitbart News.

“Not only is the federal government threatening the health care needs of millions of Texans, but it is doing so using Texans’ own money, collected from them through taxes,” Paxton added. “This represents yet another huge overstep of authority for this administration, which once again has demonstrated their willingness to circumvent the Constitution in order to achieve their policy goals.”

The particular facts about the suit may seem complicated, but the underlying principle is not.

Congress authorized a new fee, the specifics of which were vague. A private entity, deciding that its members had to pay the fee, declared that the states had to reimburse their members for this fee. The federal government accepted the private entity’s ruling and is now sanctioning the states for not making the reimbursements. The sanctions against the states are also being applied to programs and activities that existed before ObamaCare. 

The state argues that this corporate-and-government scheme is unconstitutional for four main reasons:

•The U.S. Constitution requires that state officials “clearly understand” what conditions the State is agreeing to when accepting federal funds. Yet, the Obamacare legislation is completely silent as to whether state taxpayers must pony up to pay for Obamacare or risk losing necessary Medicaid and CHIP funds. The federal government contrived this new scheme, and the states were recently required to pay.

•The scheme is coercive, which the U.S. Supreme Court already ruled was not allowed. In NFIB v. Sebelius, the Supreme Court held that threatening a percentage of a state’s budget unless it agreed to expand Medicaid was coercion. This same funding is at risk again if states refuse to pay the tax.

•It delegated the duties of Congress to a private entity, which violates the delegation doctrine prohibiting private entities from exercising legislative authority.

•The new regulation represents a tax on the states, so it violates the constitutional doctrine prohibiting the taxation of a sovereign state.

The landmark Supreme Court ruling on the fundamental issue of the personal insurance mandate, for many observers, settled the legal questions over ObamaCare. But that decision began a long process that will wind its way through the courts for years to come.

Even careful, deliberate action will spark consequences never foreseen by legislative drafters. It is already problematic that Congress defers so much implementation of any law to the federal bureaucracy.

This suit, however, reveals an even more disturbing trend. States are currently being forced to implement sweeping changes to their Medicaid programs, not because of an act of Congress or even the regulatory musings of federal bureaucrats.

States, and their taxpayers, are being held hostage by the decisions of an obscure organization completely unaffiliated with the federal government. It represents an entirely new expansion of the increasingly arbitrary and capricious federal government.