Three States Sue Federal Government Over ‘Unconstitutional’ Obamacare Tax

By Barbara Hollingsworth | October 22, 2015 | 3:46pm EDT

( – Attorneys general for Texas, Kansas and Louisiana filed a joint lawsuit Thursday against the federal government in U.S. District Court for the Northern District of Texas over what they claim is an “unconstitutional” Obamacare tax that will cost the 50 states more than $14 billion over the next decade.

In March, states were first notified by the Centers for Medicare and Medicaid Services (CMS) that they would be assessed a Health Insurance Providers Fee - “a lump sum on all covered health insurance providers collectively, starting at $8 billion total in 2014 and increasing to $14.3 billion by 2018” - according to the lawsuit.

“The purpose of the fee was to generate revenue from a windfall Congress expected insurers to receive by increasing enrollment” under Obamacare to help pay for the law’s subsidies.

The White House has been forced to downgrade its Obamacare enrollment projections to just 10 million people by 2016 – less than half of the 21 million enrollees previously estimated by the Congressional Budget Office.

However, the federal government is threatening to cut off Medicaid and Children’s Health Insurance Program (CHIP) funding to states that refuse to pay the fee. More than 72 million people were enrolled in Medicaid and CHIP as of July, according to CMS.

“By functionally requiring that the Plaintiff States reimburse managed care organizations for payment of tax liabilities, the United States has imposed those taxes on the States,” representing “an unconstitutional delegation of Congress’ legislative power,” the lawsuit contends.

The federal government has also failed to provide the states “clear notice on the conditions of accepting federal funding,” in violation of a Supreme Court ruling that states that “the principles of federalism require conditions on Congressional funds given to States must enable a state official to ‘clearly understand’ from the language of the law itself what conditions the State is agreeing to when accepting federal funds.”

The 2010 Affordable Care Act “is completely silent as to whether States must pay the Health Insurance Providers Fee to the federal government through their Medicaid and CHIP managed care organizations or risk loss of their federal Medicaid and CHIP funds for managed care,” the lawsuit points out.

The three states also want the federal government to refund the money they have already paid for costs associated with the fee: $84.6 million for Texas, $31.3 million for Louisiana, and $32.8 million for Kansas.

“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,” Texas Attorney General Ken Paxton said in a statement.

“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.

"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,” he added.

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