Oklahoma court halts 1% health plan tax

The ruling comes after the state's insurance chief said she will not enforce the levy because the Legislature failed to follow two basic requirements.

By Doug Trapp — Posted Sept. 7, 2010

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Oklahoma did not collect a 1% tax from health plans on Aug. 27, a $50 million levy that lawmakers planned to use to pay for Medicaid services. The state Supreme Court stopped the tax less than a week before it was to take effect, ruling that the Legislature violated the state constitution when it approved the tax.

First, the court said, the Legislature approved the health plan tax four days before the legislative session ended -- not five, as the constitution requires.

Second, lawmakers approved the tax with a two-thirds majority in each chamber. However, a three-fourths majority is required under a 1992 constitutional amendment, the court said.

The ruling comes after Oklahoma Insurance Commissioner Kim Holland filed a lawsuit, saying she would not enforce the tax adopted in late May because the Legislature did not follow the two requirements for approval of new taxes.

"Obviously, from a long-term budgeting perspective, it will be disruptive to lose this revenue source at a time when the state is pulling itself out of a historic budget crisis," Oklahoma Gov. Brad Henry said after the ruling.

The 1% health plan tax would have raised $185 million in fiscal 2011 for the state's Medicaid program. Of that total, $50 million would have come from the tax and $135 million would have come from federal matching funds, said Oklahoma Insurance Dept. spokeswoman Karina Henderson.

However, Henry said no cuts or revenues are needed to cover the gap the court's decision created. Oklahoma's share of the $16 billion in supplemental Medicaid funding Congress approved in August will cover the hole through June 2011, the end of the fiscal year.

Oklahoma Rep. Doug Cox, MD, sponsor of the House bill, said he plans to introduce a bill next year to tax hospital revenues instead of health plans. He said hospitals would benefit directly from additional Medicaid funding, but he acknowledged the difficulty of getting supermajorities to agree on any legislation.

"It's hard to get a bill for motherhood and apple pie to get [supermajorities]," said Dr. Cox, an emergency and family physician.

The Legislature reconvenes in February 2011 and ends its annual session in May 2011.

Dr. Cox is concerned that the Legislature in the next few years will reverse Medicaid improvements adopted as part of 2004 reforms. The state's Medicaid program has paid physicians nearly 100% of Medicare rates -- one of the highest rates in the nation -- under the reforms.

"That really allowed increased access to specialty care," he said. But that pay rate could be reduced if the state fails to approve new program funding.

The Oklahoma State Medical Assn. did not take a position on the health plan tax but is concerned about the Medicaid program, said OSMA executive director Kent King.

King said state term limits mean voters will choose a new governor, attorney general, treasurer and House and Senate leadership in November, which could bring a new political climate. "We're pretty much starting with a whole new group of individuals who we're going to have to work with next session."

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