Arizona Supreme Court allows lawsuit against Brewer Medicaid expansion

The Arizona Supreme Court on Wednesday allowed a lawsuit challenging Gov. Jan Brewer's Medicaid expansion plan to move forward, a decision that deals a major blow to the outgoing governor's signature achievement.

The high court agreed that 36 Republican lawmakers can sue Brewer over the legality of a hospital assessment that funds the expansion plan.

The ruling means the outgoing governor's plan to insure about 300,000 poor Arizonans using a key part of President Obama's health care overhaul could eventually be crippled as she hands over the governor's office to fellow Republican Doug Ducey. The Goldwater Institute, which sued on behalf of lawmakers, plans to ask a judge to halt the funding for the expansion immediately.

The case now returns to a trial court which will be charged with deciding whether the hospital assessment is a tax that requires a two-thirds majority. Only a bare majority passed the legislation.

Without the assessment, Arizona won't have the matching funds needed to pay its share of the expansion that is now covering about 255,000 low-income Arizonans.

Brewer put together a coalition of Democrats and some Republicans who supported the expansion, and after a monthslong battle with conservatives of her own party pushed it through the Legislature in a June 2013 special session. She was one of only a handful of Republican governors who embraced Medicaid expansion. In all, 27 states are moving ahead with the expansion, while 21 states have turned it down. Two states are weighing options.

Republicans who opposed the expansion joined forces with the Goldwater Institute to sue Brewer.  The key question of the legal fight is whether the hospital money -- assessed on impatient discharges -- is a tax.

The GOP lawmakers say it is a tax, meaning the Medicaid expansion violated the state Constitution because any tax increase in Arizona requires a two-thirds vote in the Legislature. The expansion passed with a simple majority. Brewer's lawyers argued that the assessment wasn't a tax and that the Legislature itself voted not to require the supermajority vote.

A Maricopa County Superior Court judge first threw out the lawmakers' lawsuit, followed by an appeals court decision that allowed the lawsuit challenging the hospital assessment.

The Supreme Court on Wednesday agreed with the appeals court. The case will now proceed to a full trial.

"Regardless of how the case ultimately comes out, today's decision means that lawmakers can't vote to ignore the Constitution," said Christina Sandefur, the Goldwater Institute attorney who argued the case. "More than 20 years ago, Arizona voters enacted Proposition 108 to curb taxes and government growth. Thanks to today's decision, the dozens of lawmakers who voted against dramatically transforming Arizona's Medicaid program, putting the state on the hook for billions of dollars, and ceding the legislature's taxing power to an unaccountable administrator, will get to defend this important legacy."

The hospital assessment is expected to collect $256 million in the state's 2015 budget year to pay the state's share of expanding Medicaid. The beneficiaries of the expansion include people earning between 100 percent and 138 percent of the federal poverty level and childless adults making less than that who lost optional coverage provided by Arizona during a state budget crisis.

The federal government pays for most of the expansion costs, but restoring optional coverage that Arizona voters have twice approved required the assessment. Hospitals strongly backed the assessment because they expect to see a much bigger reduction in the cost of treating uninsured patients.

Brewer, who attended the November Supreme Court hearing, said then that allowing the lawsuit to proceed "could be fatal, it could be a catastrophe."

"Let's be perfectly clear: Preventing Medicaid restoration would threaten our safety-net hospitals and decimate our state budget, including funding for our (Department of Child Safety) and education and public safety," Brewer told The Associated Press. "There's a lot at stake here."