Texas and five other states are suing the federal governmentover how the government applied the Patient Protection and Affordable Care Act (PPACA)health insurer fee to some of the carriers that runthe states' managed Medicaid and managed Children's HealthInsurance Program (CHIP) plans.

The states bringing the suit, State of Texas et al. vs. UnitedStates of America et al., say, in a complaint filed in the U.S.District Court for the Northern District of Texas (Civil Action Number7:15-CV-001510O), that the court should exempt managedMedicaid and managed CHIP plans fromthe fee.

The fee is really a tax that the federal government is imposing onstate governments, and that kind of intergovernmental tax isunconstitutional, the states say.

The states also object to the process the Obamaadministration used to decide the scope of the insurer fee.

The states say the administration let the Actuarial Standards Board — aprivate, nonprofit entity formed by the American Academy ofActuaries and other actuarial groups — set the scope ofthe fee in Actuarial Standard of Practice (ASOP) Number 49, adocument published in March 2015.

Letting the Actuarial Standards Board determine whether managedMedicaid and managed CHIP plan administrators should pay the tax"constitutes an unconstitutional delegation of Congress'slegislative power to a private entity in contravention of theUnited States Constitution," the states say.

That kind of delegation is arbitrary and capricious, the statessay.

The states want the court to declare that delegating decisionsover the fee to a private entity is unconstitutional and exceedsstatutory authority.

Representatives from the Actuarial Standards Board were notimmediately available to comment on the case.

An American Academy of Actuaries representative said the lawsuitis a dispute between several states and the federal government overthe operation of a federal program. "The Academy is not involved inthe litigation and has no interest in the outcome of the case," therepresentative said.

Drafters of PPACA created the health insurer fee, in PPACASection 9010, partly because they thought the PPACA individualcoverage mandate would give health insurers windfall revenue, andpartly because they wanted to generate revenue for the federalgovernment.

The full fee amount is supposed to be $8 billion for 2014, $11.3billion for 2015, $11.3 billion for 2016, $14.3 billion for 2018,and an inflation-adjusted amount based on the 2018 total for 2019and later years. Congress eliminated the fee bills for 2017 in theConsolidated Appropriations Act, 2016, the law created whenPresident Obama signed H.R. 2029.

ASOP 49 does exempt nonprofit insurers that get more than 80percent of their premium revenue from Medicaid, CHIP anddual-eligible plans from the fee. Some other nonprofitinsurers that do have to pay the fee can exclude half of theirpremium revenue from the health insurer fee calculations.

The states that brought the State of Texas suit say that, insome parts of the country, finding a nonprofit managed careorganization that would be exempt from the fee is impossible.

In addition to Texas, the list of plaintiff states includesKansas, Louisiana, Indiana, Wisconsin, and Nebraska.

The list of defendants includes HHS, HHS Secretary SylviaBurwell, the Internal Revenue Service (IRS), and IRS CommissionerJohn Koskinen as well as the United States of America.