Arizona: Lawsuit challenges state's Medicaid eligibility cut; Lawsuit alleges new eligibility rules violate state constitution

By Paul Davenport

Associated Press

PHOENIX (AP) -- Opponents filed a lawsuit Monday to block Arizona's plan to help close a budget shortfall by using signup freezes to implement new eligibility restrictions for the state's Medicaid program.

The lawsuit filed with the Arizona Supreme Court alleges that the plan violates a state constitutional protection for a voter-approved law that broadened eligibility for the program to exceed federal Medicaid minimums.

Three public-interest law firms filed the long-expected lawsuit against Gov. Jan Brewer and the state's Medicaid director on behalf of a health care advocate, a community health program and four Medicaid patients.

Unlike an earlier plan that would have terminated coverage outright for several eligibility categories not mandated by the federal government, Arizona's current plan is based on gradual savings from reducing enrollment through freezes to prohibit new signups by people within those categories starting July 1 and Oct. 1.

The Supreme Court late Monday issued an order scheduling consideration of the case on Sept. 20, which would mean that the July 1 freeze preventing new enrollments by childless adults would take effect before the court rules.

However, plaintiffs' attorney Tim Hogan said there could be developments that accelerate the court's handling of the case.

State officials have estimated that the freezes will reduce the Arizona Health Care Containment System's enrollment by approximately 135,000 people in the first year. The program's total enrollment now is 1.3 million.

If successful, the lawsuit could pose a significant challenge to legislators who counted on savings in the Medicaid program to help close a projected $1.1 billion shortfall.

The freezes are projected to save the state approximately $200 million, or about two-fifths of the $500 million of the Medicaid program's savings anticipated in the new $8.3 billion budget for the fiscal year starting July 1.

The balance of the savings come from reducing payments to providers and making other changes not challenged in the lawsuit.

The lawsuit is based on two voter-approved Arizona laws that were put on successive general-election ballots through initiative petitions more than a decade ago.

A constitutional amendment approved in 1998 generally forbids Arizona lawmakers from repealing or changing voter-approved laws. A 2000 law mandates that AHCCCS exceed federal minimums by providing health care coverage for all people with incomes up to 100 percent of the federal poverty level.

The coverage mandate was intentional, clear and binding, requiring the Legislature to add dollars to supplement money from a lawsuit settlement from tobacco companies to pay for the eligibility expansion, the lawsuit stated.

"The voters intended for the state to cover all eligible individuals and, if the tobacco settlement funds were not sufficient, then it was up to the state to find another source of funding, including an appropriation by the Legislature," it said.

Brewer and Republican legislators have said the planned eligibility reduction is legal because the 2000 law only required that the state use "available" funding from the general fund to augment money from a lawsuit settlement with tobacco companies.

"In an atmosphere in which we have cut billions (of dollars) of spending in the last several years, it seems clear to the governor that other money is simply not available," Brewer spokesman Matthew Benson said.

The alternative would be to cut spending on public safety, education and other services, he said.

A health policy analyst said Arizona's move to reduce its Medicaid enrollment is made possible by the fact that its program's basic federal authorization expires Sept. 30.

That enables Arizona to reset non-federally mandated aspects of the program, including optional eligibility levels, said Judith Solomon, vice president for health policy for the Center for Budgeting and Policy Priorities.

States generally don't have leeway to significantly reduce their Medicaid eligibility because the federal health care overhaul imposed "maintenance of effort" requirements through the 2014 start of the overhaul's Medicaid expansion, Solomon said. "As long as there's the MOE, I don't think they can do all that much."

Published: Wed, May 25, 2011