In what Governor Walker characterized as a challenge to an “unconstitutional and coercive tax”, Wisconsin joined five other states, including Texas, Kansas, Louisiana, Indiana and Nebraska, suing the federal government over a provision in the Affordable Care Act. The states filed a complaint in the U.S. District Court for the Northern District of Texas on February 24. Texas is the lead plaintiff.

The lawsuit surrounds an obscure part of the Affordable Care Act, the “Health Insurance Providers Fee” which is imposed on all health insurance providers. The fee, which began in 2014, has collected over $8 billion, and is expected to collect over $14 billion by 2018. This fee does not become a legal issue until it intersects with another provision of federal law, which requires that negotiated capitation rates (payment arrangements for health care service providers) be actuarially sound. In the context of Medicaid the state government would, in part, pay the capitation rate to health care providers. Under federal regulation to be deemed “actuarially sound” a rate must be certified by an actuary under the standards established by the American Academy of Actuaries (Academy), a private organization.

In March of 2015 the Academy adopted a new Actuarial Standard of Practice (regulation for its members) called Actuarial Standard of Practice No. 49. Practice No. 49 requires that capitation rates, to be considered actuarially sound, must recover all taxes and fees through those rates including the Health Insurance Providers Fee. Note that these fees are substantial. In 2014-2015 Wisconsin spent $23 million in Health Insurance Providers Fees. If these rates are not found actuarially sound, then the health care provider will not be able to receive federal Medicaid funds. On the ground this means if states do not reimburse these fees to health care providers the providers will not be able to see Medicaid patients. In Wisconsin, the federally funded portion of the Medicaid budget in $10.3 billion comprising 14% of the biennial budget. If the federal government withdrew their funds it is unlikely Wisconsin could make up the revenue necessary to effectively carry out the Medicaid program. The plaintiffs contend this is an unlawful, unconstitutional and coercive tax on the states.

The complaint includes ten counts against the federal government (to read them all follow the link below). One of the more consequential ones is a Constitutional challenge to the fee. The plaintiffs argue that under the Spending Clause the federal government must provide enough information for a state official to “clearly understand”, from the language of the law, what conditions the State agrees to when accepting federal funds. TThey claim the federal government violates the Spending Clause because neither the Affordable Care Act, nor any other federal law, mandates that states must (indirectly) pay the federal government the Health Insurance Providers Fee to receive federal Medicaid funds. Ultimately the plaintiffs want to enjoin federal officials from collecting the Health Insurance Providers fee, or, alternatively, ask the court to provide a declaratory judgment finding that the law creating the Health Insurance Providers Fee is unconstitutional as applied to the states.

A copy of the complaint can be found here.