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Kansas leads coalition asking full appeals court to review unlawful tax on states

Release Date: Apr 05, 2017

TOPEKA – (April 5, 2017) – Kansas and 15 other states have asked the U.S. Court of Appeals for the 6th Circuit for a rehearing en banc of an earlier panel decision that upheld the federal government’s effort to tax states to pay for certain healthcare reforms mandated under the ACA, Kansas Attorney General Derek Schmidt announced today.

The 16 states – led by Kansas – today filed a legal brief in support of the State of Ohio’s petition for rehearing en banc.  A panel of the 6th Circuit earlier upheld the ACA’s transitional reinsurance tax as not being subject to intergovernmental tax immunity.

Last April, Kansas led a 13-state coalition urging rejection of the federal government’s effort to tax states to pay for expensive healthcare reforms mandated under the Affordable Care Act (ACA). To offset the cost of the unprecedented and expensive federal reforms during three transitional years (calendar years 2015-2017; benefit years 2014-2016), the ACA included a “transitional reinsurance program” designed to raise $25 billion over the three year period by taxing certain health insurance issuers and group health plans for each enrollee in benefit years 2014-2016. Of that amount, $20 billion goes to “individual market” insurance companies that may incur large claims during the transition to ACA health insurance mandates and exchanges. The other $5 billion goes to the Treasury’s “general fund” as the federal government’s cut of the tax. The Obama administration applied this tax to state governmental health plans like that of Kansas. Kansas, like Ohio, paid this tax under protest.

In the brief the states challenge the scope of the federal government’s authority to tax the states and urge protection of the balance between federal and state governments. The states…”have a substantial interest in protecting that balance by ensuring that any decision by the federal government to tax the states directly is made by Congress, expressed unequivocally in the plain language it adopts, and does not undermine the states’ well-established intergovernmental tax immunity.”

In February, Schmidt sent a letter to the Kansas congressional delegation asking for help to repeal two taxes unlawfully imposed on the State of Kansas by the ACA and to obtain a refund of the state’s payments made to date. One of those two taxes relates to the “transitional reinsurance program” and is being challenged in this lawsuit. To date, Kansas has paid – under protest − $9,130,700.14 in transitional reinsurance taxes. The next state payment of the transitional reinsurance tax is due November 17, 2017.

In addition to leading the multi-state effort in Ohio, Kansas is a plaintiff in a Texas-led lawsuit directly challenging the federal government’s legal authority to assess a Health Insurance Providers Fee against the states in a similar manner. That case, which was filed last October and is pending in federal district court in Texas, is State of Texas, et al. v. United States of America, et al., in the U.S. District Court for the Northern District of Texas, Case No. 15-cv-151-O.

A copy of the brief filed today in State of Ohio, et al. v. United States of America, et al is available at http://bit.ly/2nLsuye.  

 

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