Judge rules that Obamacare tax was illegal

Six states were recently awarded money in a settlement that sought to address a controversial part of the Affordable Care Act (ACA), also known as Obamacare. The lawsuit challenged the constitutionality of a fee that was levied on each state’s Medicaid program by the Obama Administration. 6 states were part of the lawsuit that awarded $839 million in total and each will be repaid based on how much each state paid in fees. Texas stands to be repaid $304,730,608, Indiana will get $94,801,483, Kansas will get $142,121,776, Louisiana will get $172,493,095, Wisconsin will get $88,938,850, and Nebraska will get $36,238,918.

The ACA included a “health insurance provider fee” (HIPF) on medical providers which was supposed to help fund the bill but explicitly exempted the states from paying this fee. The Obama administration did not meet their initial revenue goals with respect to the HIPF. To compensate, the administration imposed a “certification rule” that allowed for the federal government to make up for lost revenue in their payments to states’ managed care organizations (MCO) that administer Medicaid programs. This effectively imposed a new tax on states that was prohibited by the ACA.

This settlement is a huge win for states that are fighting against the burden that the ACA placed on state budgets and Medicaid programs. Congressional Republicans have tried to repeal and replace the ACA following the election of President Trump and were largely unsuccessful.

The most important part of this story is the lack of attention it’s getting. Several google searches with keywords from the case returned nothing but press releases from the plaintiffs. It seems as if most of the media is not concerned with the federal government illegally taxing states hundreds of millions of dollars.

This case was settled at a time when the ACA faces challenges from many different directions. In a separate case challenging the ACA, several state’s attorneys are joining in a lawsuit that is being filed in Texas federal court. Opening arguments will begin next week concerning the constitutionality of the individual mandate and other similar parts of the federal law.

Jordan Roberts / Health Policy Analyst

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. He analyzes state and national health policy issues with an eye toward removing governm...

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