How Arizona's Medicaid Expansion Damaged the Rule of Law

by Christina Sandefur
August 14, 2018

Last week we released a paper warning states of the failed promises of Arizona’s Medicaid expansion. But the lessons from Arizona show that the costs are more than just financial – expansion also caused untold damage to the rule of law.

To protect themselves against one of the most easily abused government powers – the power to tax – and to “restrain growth in state government,”^[1] Arizona voters in 1992 voted by over 71% to enact a constitutional provision that requires a two-thirds supermajority of both houses of the legislature to approve any “act that provides for a net increase in state revenues,” including new taxes and fees.^[2]

To fund the state’s obligations incurred under Medicaid expansion, Arizona Governor Jan Brewer’s plan called for a mandatory levy on hospitals, which would presumably require a supermajority legislative vote. But expansion met considerable legislative opposition, making a supermajority impossible, so Governor Brewer and her supporters devised a way to evade the constitutional requirement.

Instead, supporters of expansion drafted a bill that would cede to the state’s Medicaid director the power to levy the Medicaid tax, giving the director full discretion to set the amount of the tax and to choose who must pay and who will be exempt. Supporters hoped that by renaming the tax an “administrative assessment” and assigning control to an appointed official, they could escape the constitutional supermajority requirement. Although the bill received only the votes of an ordinary majority, supporters in the legislature deemed it “passed” and Governor Brewer signed the bill into law.

Sidestepping taxpayer protections by stripping the legislature of its taxing authority yields the exact outcome that state constitutional checks and balances are designed to prevent: the consolidation of power in a single unaccountable bureaucrat who is free to play favorites by exempting politically powerful hospitals from paying the tax. Indeed, the Medicaid director immediately exempted hospitals from that obligation, even though they realized immediate financial benefits from the program.^[3] Meanwhile, hospitals like Green Valley (and future hospitals) who are in the political minority, are harmed by the tax or did not even exist when the tax was imposed. They cannot rely on vocal majorities or unelected administrators to protect their rights. When faced with the question of whether the expansion tax was legal even though it did not receive a legislative supermajority, the Arizona Supreme Court upheld it, because the government argued the money raised is not a tax to provide healthcare to Arizonans but instead an “assessment” to provide additional funding for hospitals.^[4] In Arizona, evading constitutional limits on government powers ensured that the true beneficiaries of Medicaid expansion were not the people, but the politically connected hospitals that lobbied for the Medicaid expansion program’s sizable federal subsidies.

Steadfast adherence to the rule of law is critical precisely because policy preferences differ and political leaders change. Enabling lawmakers to skirt the rules whenever doing so appears politically popular empowers them to do the same when a law is detrimental.

As Chief Justice John Marshall asked more than 200 years ago, “To what purpose are powers limited, and to what purpose is that limitation committed to writing, if these limits may, at any time, be passed by those intended to be restrained?” Sadly, the perceived urgency of Medicaid expansion has encouraged the government to ignore these protections. The damage sets a precedent that resonates far deeper than Medicaid expansion, delivering a lasting blow to the rule of law.

Christina Sandefur is Executive Vice President of the Goldwater Institute

[1] Arizona General Election Publicity Pamphlet, November 3, 1992, p. 46.

[2] Ariz. Const. Art. IX §§ 22(A)–(B).

[3] AHCCCS, Provider Assessment Summary (Sept. 20, 2013), https://www.azahcccs.gov/AHCCCS/Downloads/HospitalAssesment/AZAssessmentModel_9-20-2013.pdf.
[4] Biggs v. Betlach, 404 P.3d 1243, 1247-8 (Ariz. 2017).