Ohio county sues HHS over ACA fee

Warren County, Ohio has sued the U.S. Department of Health and Human Services, arguing that an Affordable Care Act fee is an illegal tax on state and local governments.

The suit, filed Jan. 26 in U.S. District Court, was jointly filed with the state of Ohio, the Ohio Department of Administrative Services and four public universities.

The plaintiffs hope to suspend part of the fees and recoup money they believe to be wrongfully taken.

Read the lawsuit

"I'm surprised nobody else has noticed this," said David Young, president of the County Commission. "This is something that could affect local and state governments everywhere, to the tune of hundreds of millions of dollars. It blurs the line on one of the most important things we do in government tax the people. This blurs the line as to who is doing it."

At issue is whether the fee, contributions collected by the transitional reinsurance program, which subsidizes the health insurance exchange marketplaces through 2017, is a tax. Those fees are collected from insurance companies, private self-insured plans and state and local governments that provide self-insured plans for employees. Warren County asserts that its self-insured group health care plan is not taxable under the Transitional Reinsurance Program statute, particularly because individuals participating in those plans are already assessed a fee for that purpose.

Proceeds from the fee are split between funding the administrative costs for the reinsurance program, and the U.S. Treasury for the 2014, 2015 and 2016 benefit years.

The portion that goes to the treasury is about 17 percent of the total fee, according to Warren County Prosecuting Attorney David Fornshell, with the county's total for 2014 coming to $113,652, including $18,942 for the U.S. general fund.

It was Young who noticed a line item on the county budget which led to him realizing what the fee meant for the county. It's where the plaintiffs see their opening that the federal government is using the fees to fund unrelated programs.

The suit argues that such taxation would radically alter the balance of authority between the federal government and the states, and would violate the Tenth Amendment, the anti-commandeering doctrine and the doctrine of intergovernmental tax immunity.

"It undermines the whole system of federalism in our country," Young said. "When you start saying one governmental entity can tax another, the question of taxation without representation becomes a legitimate question."

Fornshell said inquiries to the Health and Human Services Department for clarification were never answered completely, but any ambiguity regarding whether local governments would be included in the fee disappeared when the federal government took the money set aside for the fees.

"We paid the $94,000 and that account cleared, so the federal government intended to collect it," Fornshell said. "If the statute was ambiguous but they didn't mean it that way, they wouldn't have taken the money, so the intent was clear."

Despite the confusion, Warren County paid, due in large part to the penalty for nonpayment $100 per employee per day.

"That totaled about $180,000 a day," Fornshell said. "To say that's punitive would be an understatement, and noncompliance would bankrupt the county in a short amount of time, so we paid and turned around and filed this suit."

The federal government has 60 days to respond to the suit.

"We don't anticipate it would be heavy on discovery, there won't be a lot of contested issues," Fornshell said. "Hopefully we can get the answers we need and the money back."

Young said if the federal government needs the 20 percent of the transitional reinsurance program payments, it should clearly establish the tax for that purpose.

"If they need the money, stand up and tax us as individuals, like our congressman would," he said. "Don't come after the tax dollars that are intended to pave our streets, pay our deputies and do all the things we do in local government."