United States District Court, N.D. Texas, Wichita Falls Division
MEMORANDUM OPINION AND ORDER
O'CONNOR, UNITED STATES DISTRICT JUDGE.
case is about the lawfulness of a tax in the Patient
Protection and Affordable Care Act (“ACA”) and of
a regulation that the United States Department of Health and
Human Services (“HHS”) uses to implement it. The
ACA imposed a tax on medical providers but exempted the
states from paying it. Notwithstanding Congress's
direction in the ACA, the HHS regulation effectively requires
the states to pay this tax. Plaintiffs now challenge both the
tax and the regulation. Because Plaintiffs have standing to
challenge both, the Court must decide the legality of each.
Court concludes that the challenged ACA tax is lawful,
offending neither the structure nor substance of the
Constitution. But the HHS regulation violates the
non-delegation doctrine, delegating to a private entity the
authority to decide who must pay this tax. Pursuant to that
unlawful delegation, the private entity decreed that the
states must pay this tax, contrary to Congress's express
directive. HHS's unlawful delegation enabled a private
entity to effectively rewrite the ACA, wrongfully forcing
Plaintiffs to pay this tax. It is therefore the
regulation-not the tax-that harms Plaintiffs. For the reasons
that follow, the Court will GRANT in part
Plaintiffs' claims challenging the regulation and declare
the offending regulation “contrary to constitutional
right, power, privilege, or immunity, ” and “in
excess of statutory jurisdiction, authority, or limitations,
or short of statutory right . . . .” 5 U.S.C. §
706(2)(B)-(C). The Court will DENY
Plaintiffs' claims challenging the tax.
having considered the motions, related briefing, and
applicable law, the Court finds that Plaintiffs' Motion
for Summary Judgment (ECF No. 53) should be and is hereby
GRANTED in part and DENIED in part; and
Defendants' Motion for Summary Judgment (ECF No. 62)
should be and is hereby GRANTED in part and DENIED in
(alternatively, “Plaintiff States”) are the
States of Texas, Indiana, Kansas, Louisiana, Nebraska, and
Wisconsin. Am. Compl. 1, ECF No. 19. Defendants are the
United States of America (the “Government”); the
United States Department of Health and Human Services; Alex
Azar, in his official capacity as Secretary of
the United States Internal Revenue Service (the
“IRS”); and David Kautter, in his official
capacity as Acting Commissioner of the IRS. Id. at
1-2. Plaintiffs allege that Defendants, in violation of the
ACA, the Administrative Procedure Act (the
“APA”), and the United States Constitution,
require them to pay the ACA's Health Insurance Providers
Fee (the “HIPF”) to the managed care
organizations (the “MCOs”) who contract with them
to service their Medicaid recipients. Id. at 3-19.
ACA, Congress expressly exempted states from paying the HIPF.
ACA § 9010(c)(2)(B) (2010); see 26 C.F.R.
§ 57.2(b)(2)(ii)(B). This effectively changed in March
of 2015, when the Actuarial Standards Board (the
“ASB”)-a private organization that sets practice
standards for private actuaries certified by the American
Academy of Actuaries (the “AAA”)- enacted
Actuarial Standard of Practice Number 49 (“ASOP
49”). ASOP 49 forbids AAA actuaries from
certifying any Medicaid contract between a state and an MCO
unless the contract requires the state to
pay the HIPF to the MCO. See ASOP 49 §
3.2.12(d). Without this AAA certification, the
Centers for Medicare & Medicaid Services
(“CMS”)-a component of HHS-will not approve the
MCO contract. See 42 C.F.R. §
438.6(c)(1)(i)(A)-(C) (2002) [hereinafter “the
Certification Rule”]. If CMS does not approve the
contract, the state becomes ineligible for Medicaid funding.
See 42 U.S.C. § 1396b(m)(2)(iii). The end
result is that by delegating this certification power to the
ASB, HHS effectively requires states to pay the HIPF-even
though Congress exempted them from doing so-or risk losing
ACA, the HIPF, and the Certification Rule interact with
several public health programs. The first of these programs
actually began in 1965, when Congress enacted, and President
Lyndon Johnson signed into law, the Medicaid program.
See Social Security Amendments Act of 1965, Pub. L.
89-97, 79 Stat. 286 (1965). Medicaid subsidizes states to
provide healthcare to low-income families; children; related
caretakers of dependent children; pregnant women; people aged
65 years and older; and adults and children with
disabilities. See 42 U.S.C. §§ 1396-1396w.
To receive Medicaid subsidies, states must provide coverage
to a federally mandated category of individuals according to
a federally approved state plan. See 42 U.S.C.
§ 1396a; 42 C.F.R. §§ 430.10-430.12.
Plaintiffs participate in the program, providing Medicaid
services and receiving Medicaid subsidies. See 79
Fed. Reg. 3385. Plaintiffs provide these services at
substantial cost. See, e.g., Pls.' App. 1168-74,
ECF No. 54-1. For example, in 2015 Texas spent 28.6% of its
budget on Medicaid, serving 4.06 million Texans-around one in
seven members of its population. The other Plaintiff States
likewise provide Medicaid to millions of their citizens at
the cost of a considerable portion of their annual budgets.
See Pls.' Br. Supp. Summ. J. 8 n.23-29, ECF No.
54 (citing data) [hereinafter “Pls.'
Plaintiffs first began implementing the Medicaid program,
they primarily relied on fee-for-service providers
(“FFSPs”) to deliver Medicaid services.
See Pls.' App. 120, 133, 291, 485, 1008,
1162-63, ECF No. 54-1. Over time, however, Plaintiffs
discovered that managed care organizations were more
efficient and less expensive. See, e.g.,
id. at 120. In a managed care arrangement, the state
enters into a contract with an MCO, wherein the MCO agrees to
deliver healthcare services to citizens of the state, and in
exchange, the state pays the MCO a fixed monthly fee per
covered individual, known as a “capitation rate.”
Id. at 1168.
order to realize the benefits and savings of managed care,
Plaintiffs began a long-term transition from FFSPs to MCOs.
See Id. at 120, 133, 291, 485, 1008, 1162-63. Texas
began this transition in 1993. Id. at 1006. By the
end of 2005, 40% of Texas's Medicaid beneficiaries
received services through MCOs, and by 2012, that percentage
reached 80%. Id. at 1007. When Plaintiffs filed this
suit in 2015, Texas MCOs served around 87% of Texas's
Medicaid population. Id. Texas anticipates that this
year MCOs will serve 93% of its Medicaid population.
Id. at 1007-08. Each Plaintiff now provides a
substantial portion of their Medicaid services through MCOs.
See Id. at 120, 133, 291, 485, 1008,
1162-63. Plaintiffs have saved hundreds of
millions of dollars by transitioning to MCOs. See
Id. at 121, 133-34, 291-92, 493-94, 1010, 1163. In
January 2015, HHS announced in a press release-titled
“Better Care. Smarter Spending. Healthier People: Why
It Matters”-that it too would transition to MCOs.
Id. at 13-14.
1981, Congress passed, and President Ronald Reagan signed
into law, legislation requiring MCO capitation rates to be
“actuarially sound.” Omnibus Budget
Reconciliation Act of 1981, Pub. L. No. 97-35, 95 Stat. 357,
814 (1981) (codified at 42 U.S.C. § 1396b(m)(2)(A)
(1981)). HHS did not interpret the meaning of
“actuarially sound” until 2002, when it
promulgated the Certification Rule. This rule defined
“actuarially sound” in the following way:
(i) Actuarially sound capitation rates means
capitation rates that-
(A) Have been developed in accordance with generally accepted
actuarial principles and practices;
(B) Are appropriate for the populations to be covered, and
the services to be furnished under the contract; and
(C) Have been certified, as meeting the requirements of this
paragraph (c), by actuaries who meet the qualification
standards established by the American Academy of Actuaries
and follow the practice standards established by the
Actuarial Standards Board.
See 42 C.F.R. § 438.6(c)(i)(A)-(C) (2002)
(emphasis in original). Thus, under the Certification Rule,
“actuarially sound capitation rates” are
capitation rates certified by an AAA actuary who, following
the ASB's practice standards, determines that the rate
has “been developed in accordance with generally
accepted actuarial principles and practices.”
is a private, membership-based professional organization that
exists to set qualification, practice, and professional
standards for credentialed actuaries. The AAA sets
these standards through the ASB, another independent, private
organization. The ASB establishes and improves
standards of actuarial practice by enacting Actuarial
Standards of Practice (“ASOPs”) to identify what
AAA actuaries should consider, document, and disclose when
performing an actuarial assignment. In 2005, the AAA defined
“actuarially sound” capitation rates as including
inter alia state taxes-but not federal
taxes. In 2013, the ASB enacted ASOP 1,
explaining that “the phrase ‘actuarial
soundness' has different meanings in different contexts .
. . .”
2010, Congress passed, and President Barack Obama signed into
law, the ACA. The Patient Protection and Affordable Care Act,
Pub. L. 111-148, 124 Stat. 119-1025 (2010). The ACA requires
health insurance providers who are “covered
entities” to pay the HIPF to the IRS. See ACA
§ 9010. A covered entity must pay a portion of the HIPF
proportionate to the provider's share of net premiums for
the previous year. See Id. The first HIPF payments
came due on September 30, 2014. Pls.' App. 96, ECF No.
54-1. The total amount of the fee for all covered entities
combined was $8 billion in 2014 and increased to $14.3
billion in 2018. See 26 C.F.R. § 57.4(a)(3).
Advocates for enacting the HIPF argued that the ACA would
increase enrollment for MCOs, that this increase would
significantly raise profits, and that the MCOs would pay the
HIPF out of their increased profits. See Pls.'
App. 19, ECF No. 54-1.
explicitly excludes states from the definition of
“covered entities, ” thereby exempting them from
paying the HIPF. ACA § 9010(c)(2)(B). Because the ACA
protects states from paying the HIPF, Plaintiffs did not
initially pay the HIPF in their capitation rates when the IRS
first began collecting the HIPF from MCOs in 2014.
See Pls.' App. 1168-70, ECF No. 54-1 (“For
fiscal year 2014, Texas did not include [the HIPF] in its
appropriations . . . Texas did not reimburse MCOs for the
2014 HIPF until fiscal year 2015.”). In 2014, private
actuaries-following the AAA's 2005 definition of
“actuarially sound” and the ASB's 2013
definition in ASOP 1- certified those MCO contracts, and HHS
approved them. In October of 2014, HHS issued a guidance
document stating its belief that the states should include
the HIPF in their MCO capitation rates. But HHS did
not say that the Certification Rule required states to pay
the HIPF. See 2014 MCO Guide (explaining that states
have “flexibility” to pay the HIPF through
retroactive adjustments to their capitation rates, provided
the initial and subsequent capitation rates are
March 2015, the ASB enacted ASOP 49, which stated:
The actuary should include an adjustment for any taxes,
assessments, or fees that the MCOs are required to payout
[sic] of the capitation rates. If the tax, assessment, or fee
is not deductible as an expense for corporate tax purposes,
the actuary should apply an adjustment to reflect the costs
of the tax.
ASOP 49 § 3.2.12(d). Since the HIPF is a non-deductible
tax,  ASOP 49 effectively required states to
pay MCOs the full amount of the HIPF in their capitation
rates, because an AAA actuary could no longer certify the
capitation rate as actuarially sound unless it did so. In
September 2015, HHS issued a guidance document embracing ASOP
49 and declaring that the Certification Rule required AAA
actuaries to certify that state capitation rates met ASOP
the ASB enacted ASOP 49, the states capitulated, included the
HIPF in their capitation rates, and budgeted for the HIPF.
See Pls.' App. 137, 1164, 1170, ECF No. 54-1. In
2015, Texas appropriated $79, 685, 024.00 to pay the HIPF for
fiscal year 2014, $16, 906, 502.00 for fiscal year 2015, and
$244, 219, 902.00 for fiscal years 2016 and 2017.
Id. at 1170-72. Over the next decade, the federal
government will collect between $13 and $14.9 billion in HIPF
revenue from the combined payments of all fifty
October 22, 2015, Plaintiffs filed suit, attacking the
lawfulness of the HIPF itself, as well as the Certification
Rule that enabled the ASB to impose the HIPF on the states
through ASOP 49. Compl, ECF No. 1. Plaintiffs seek various
injunctive and declaratory remedies to relieve them from the
burden of paying the HIPF. See Am. Compl. 27-29, ECF
Federal Rule of Civil Procedure 56(a)
Court may grant summary judgment where the pleadings and
evidence show “that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a
matter of law.” Fed.R.Civ.P. 56(a). “[T]he
substantive law will identify which facts are
material.” Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). A genuine dispute as to any
material fact exists “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving
party.” Id. The movant must inform the Court
of the basis of its motion and demonstrate from the record
that no genuine dispute as to any material fact exists.
See Celotex Corp. v. Catrett, 477 U.S. 317, 323
reviewing the evidence on a motion for summary judgment, the
Court must decide all reasonable doubts and inferences in the
light most favorable to the non-movant. See Walker v.
Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir.
1988). The court cannot make a credibility determination in
light of conflicting evidence or competing inferences.
Anderson, 477 U.S. at 255. If there appears to be
some support for disputed allegations, such that
“reasonable minds could differ as to the import of the
evidence, ” the Court must deny the motion.
Id. at 250.
move for summary judgment, claiming that: (1) the statutory
provision enacting the HIPF violates Article I's Spending
Clause and the Tenth Amendment [the “HIPF
claims”]; and (2) the Certification Rule violates
Article I's Vesting Clause, the APA, and the ACA [the
“Certification Rule claims”]. See
Pls.' Br. 21-42, ECF No. 54. Defendants also move for
summary judgment on all counts, claiming that: (1) Plaintiffs
lacks Article III standing; (2) sovereign immunity bars
Plaintiffs' Certification Rule claims; (3) the
Anti-Injunction Act (the “AIA”) bars
Plaintiffs' HIPF claims; (4) the HIPF is valid under
Article I's Taxing Clause; and (5) the Certification Rule
is valid under Chevron. See Defs.' Br.
Supp. Mot. Summ. J. 9-50, ECF No. 63 [hereinafter
“Defs.' Br.”]. The Court will address each of
these arguments in turn, beginning with the preliminary
question whether there is subject matter jurisdiction to
consider any of Plaintiffs' claims.
Subject Matter Jurisdiction
III confines the federal judicial power to
“cases” and “controversies.” U.S.
Const. art. III, § 2. The case or controversy
requirement ensures that the federal judiciary respects
“the proper-and properly limited-role of the courts in
a democratic society.” DaimlerChrysler Corp. v.
Cuno, 547 U.S. 332, 341 (2006) (quotation marks
omitted). The Court must first assess jurisdiction, for
“without proper jurisdiction, a court cannot proceed at
all . . . .” Steel Co. v. Citizens for a Better
Env't, 523 U.S. 83, 84 (1998). The party invoking
federal jurisdiction must demonstrate that a constitutional
case or controversy exists as to each claim asserted. See
Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992).
argue that: (1) there is no Article III case or controversy
here because Plaintiffs either have no injury, manufactured
the injury, or request remedies that will not redress the
injury; (2) the AIA bars Plaintiffs' HIPF claims because
their requested remedies would enjoin the collection of
federal taxes; and (3) sovereign immunity bars
Plaintiffs' Certification Rule claims because Plaintiffs
brought them outside the APA's six-year statute of
limitations. Defs.' Br. 9-21, ECF No. 63.
Article III Standing
Court will first consider whether Plaintiffs have Article III
standing. To establish Article III standing, a plaintiff must
show: (1) an injury in fact that is (2) fairly traceable to
the defendant's challenged conduct, and that (3) a
favorable judicial decision will likely redress the injury.
Lujan, 504 U.S. at 560-61. A plaintiff must support
each standing element “with the manner and degree of
evidence required at the successive stages of the
litigation.” Id. at 561. “[T]he presence
of one party with standing is sufficient to satisfy Article
III's case-or-controversy requirement.”
Rumsfeld v. Forum for Acad. & Institutional Rights,
Inc., 547 U.S. 47, 53 n.2 (2006). To determine whether
Plaintiffs have standing here, the Court will evaluate the
State of Texas and its claims.
Injury in Fact
plaintiff must show that it has suffered an “injury in
fact, ” which is “an invasion of a legally
protected interest” that is “concrete and
particularized” and “actual or imminent, not
conjectural or hypothetical.” Spokeo, Inc. v.
Robbins, 136 S.Ct. 1540, 1548 (2016) (quoting
Lujan, 504 U.S. at 560). For an injury to be
“concrete” it must “actually exist, ”
meaning it is “real” and “not
abstract.” Spokeo, 136 S.Ct. at 1548. For an
injury to be “particularized” it must
“affect the plaintiff in a personal and individual
way.” Spokeo, 136 S.Ct. at 1548. Defendants
argue that the Certification Rule did not injure Plaintiffs
because it imposed no monetary cost and preserved an
economically sustainable MCO market. See Defs.'
Br. 14-16, ECF No. 63. Plaintiffs argue that the
Certification Rule-in conjunction with ASOP 49-injured them
by requiring them to pay the HIPF in violation of the ACA.
See Pls.' Br. 12-14, ECF No. 54.
requires Texas to pay the HIPF in its MCO capitation rates in
order to obtain a private actuarial certification, ASOP 49
§ 3.2.12(d), and the Certification Rule prevents CMS
from approving any MCO contract without this certification.
See 42 C.F.R. § 438.6(c)(1)(i)(A)-(C) (2002);
see also Defs.' App. 155, ECF No. 63-1
(“[T]he state actuary must certify the rates
or rate ranges . . . After ensuring . . . that
it contains the rate certification . . . the [CMS
Regional Office] forwards the contract package to
[CMS].” (emphasis added)). The Certification Rule
therefore gives Texas two choices: include the HIPF in its
capitation rates or lose Medicaid funds. See 42
U.S.C. § 1396b(m)(2)(iii). In response to this
Hobson's choice, Texas appropriated millions of dollars
to pay the HIPF. See Pls.' App. 1170-72, ECF No.
54-1 This injury is real and affects Texas as an individual
state. Texas has shown an injury-in-fact.
injury is shown, no attempt is made to ask whether the injury
is outweighed by benefits the plaintiff has enjoyed
from” the injurious action. Texas v. United
States, 809 F.3d 134, 155-56 (5th Cir. 2015), as
revised (Nov. 25, 2015), aff'd by an equally
divided court, 136 S.Ct. 2271 (2016) (per curiam)
(quotation marks omitted). The benefits of an injury only
negate standing in unique circumstances where “[t]he
costs and benefits [arise] out of the same
transaction.” Id. at 156 (citing Henderson
v. Stalder, 287 F.3d 374, 379-81 (5th Cir. 2002)
(holding that taxpayers could not demonstrate a monetary
injury-in-fact where the state produced a pro-life license
plate and required users of the license plate pay an
additional fee that covered its costs)). Without this
“tight[ ] nexus, ” the Court will not consider
whether the benefits resulting from an injury negate
standing. See Id. (citing Henderson, 287
F.3d at 379-81).
argue that unless Texas includes the HIPF in its MCO
capitation rates, its MCO contracts will be-in an objective
sense-actuarially unsound and financially unsustainable.
See Defs.' Br. 15, ECF No. 63. Even if this
were true, the potential benefit of contracting with MCOs at
some distant point in the future-because the MCOs did not
bear the burden of the HIPF and consequently did not go out
of business-does not arise “out of the same
transaction” as Texas's 2015 HIPF payments. Cf.
Texas, 809 F.3d at 156; Henderson, 287 F.3d at
379-81. The Court finds that any future benefit to paying the
HIPF does not negate Texas's injury-in-fact.
Fairly Traceable to Defendants' Challenged Conduct
plaintiff's injury must also be “fairly
traceable” to the challenged action. Lujan,
504 U.S. at 561. Plaintiffs here challenge the Certification
Rule (42 C.F.R. § 438.6(c)(1)(i)(A)-(C) (2002)) and the
HIPF (ACA § 9010(f)). Defendants argue that
Plaintiffs' claimed injury is not fairly traceable to the
HIPF because Plaintiffs can avoid the HIPF entirely by
transitioning back to FFSPs, HIPF-exempt non-profit MCOs, or
some combination of the two. Defs.' Br. 9-14, ECF No. 63.
Plaintiffs contend that HIPF-exempt MCOs alone cannot provide
adequate Medicaid coverage to everyone in the state, and that
transitioning back to FFSPs would be costly and harmful to
them and their Medicaid recipients. Pls.' Br. 12-19, ECF
possibility that a plaintiff could avoid injury by incurring
other costs does not negate standing.” Texas,
809 F.3d at 156-57. In Texas, the plaintiff states
challenged the federal government's DAPA program that
gave lawful presence to 4.3 million illegal aliens.
Id. at 148. Because DAPA would have required the
plaintiff states to incur significant costs by issuing
driver's licenses to DAPA beneficiaries, the Fifth
Circuit held that the plaintiff states suffered an
injury-in-fact. Id. at 155. The Government argued
that these costs were not “fairly traceable” to
DAPA because “the state[s] could avoid injury by not
issuing licenses to illegal aliens or by not subsidizing its
licenses.” Id. at 156. The Fifth Circuit
emphatically rejected this argument. It noted that while
Texas could avoid financial loss by requiring applicants to
pay the full cost of the licenses, “it could not avoid
injury altogether.” Id. The threat of paying
the cost of the licenses would coerce the Texas into changing
its laws-which is itself a harm. See Id. Holding
that Article III does not require a state government to
change its laws to avoid an injury, the Fifth Circuit
Indeed, treating the availability of changing state law as a
bar to standing would deprive states of judicial recourse for
many bona fide harms. For instance, under that
theory, federal preemption of state law could never be an
injury, because a state could always change its law to avoid
preemption. But courts have often held that states have
standing based on preemption. And states could offset almost
any financial loss by raising taxes or fees. The existence of
that alternative does not mean they lack standing.
Id. at 156-57 (footnotes omitted).
employ the same impermissible argument here. They contend
that Plaintiffs could avoid the HIPF entirely by
transitioning to FFSPs and HIPF-exempt MCOs. Defs.' Br.
9- 14, ECF No. 63. But such a transition would require Texas
to alter its Medicaid contracts, restructure its Medicaid
appropriations, and reshape its Medicaid policies.
Texas holds that Article III's case or
controversy requirement does not oblige a plaintiff state to
make such changes. Cf. 809 F.3d at 156-57.
also claim that Plaintiffs have manufactured their injury
because every year after Congress passed the ACA, Plaintiffs
increasingly moved away from FFSPs toward MCOs. Defs.'
Br. 11-13, ECF No. 63. While it is true that Texas is
increasing its reliance on MCOs, it is doing so as part of a
long-term transition that predates the ACA and the 2002
Certification Rule. In 1993, in order to realize the superior
benefits of managed care, Texas began to transition from
FFSPs to MCOs. See Pls.' App. 1006-08, ECF No.
54-1. Now Texas provides somewhere between 80% and 93% of its
Medicaid services through MCOs. See Id. at
1007-08. Defendants have not shown that Texas
transitioned to MCOs to manufacture an injury.
also argue-erroneously-that under Texas, “an
injury is self-inflicted and insufficient to confer standing
where, as here, a federal policy leaves the option to
‘achieve[ ] their policy goal in myriad
ways.'” Defs.' Br. 13 n.8, ECF No. 63 (quoting
Texas, 809 F.3d at 159). Defendants reach this
conclusion by quoting a portion of the Texas opinion
comparing the harm caused by DAPA to the manufactured harm in
Pennsylvania v. New Jersey, 426 U.S. 660 (1976).
See Id. In Pennsylvania, the plaintiff
states challenged the defendant states' laws increasing
taxes on nonresident income. 426 U.S. at 661-64. Because the
plaintiffs gave their residents credits for taxes paid to
other states, the defendants' tax increases also
increased the plaintiffs' tax credits, causing the
plaintiffs to lose revenue. Id. The Supreme Court
held that this injury was self-inflicted because the
plaintiff states established their tax credits knowing that
the credits could fluctuate based on the tax decisions of
other states. See Id. at 664. “[T]he plaintiff
states in Pennsylvania v. New Jersey could have
achieved their policy goal in myriad ways, such as basing
their tax credits on residents' out-of-state incomes
instead of on taxes actually paid to other states.”
Texas, 809 F.3d at 159. In other words, “the
pressure that Pennsylvania faced to change its laws was
self-inflicted.” Id. at 157 n.63.
Texas did not hold that plaintiff states, who have
done nothing to inflict harm on themselves, must change their
laws to avoid a harm if there are “myriad ways”
to do so.
only does Texas not require a state to change its
laws to avoid a harm, Plaintiffs have shown that they are
unable to do so here. First, Texas cannot rely exclusively on
HIPF-exempt non-profit MCOs because Texas already contracts
with all of the HIPF-exempt MCOs in the state and those MCOs
are incapable of servicing the entire state alone.
See Pls.' App. 1043-44, ECF No. 54-1
(“[U]ltimately non-profit coverage of every
county's population is not feasible.”). And even if
it were possible for Texas to rely entirely on the few
HIPF-exempt MCOs operating in Texas, doing so would be risky.
Because the healthcare market is in a state of flux,
see Pls.' App. 122, ECF No. 54-1, there is a
danger that some of those MCOs might leave the market, which
would cause many people to lose Medicaid services entirely.
Texas avoid their injury by transitioning back to FFPSs.
Plaintiffs have saved hundreds of millions of dollars by
moving to MCOs. See Pls.' App. 121, 133-34,
291-92, 493- 94, 1010, 1163, ECF No. 54-1. Texas reduced its
healthcare costs by six percent in the year 2013 alone.
See Id. at 1010. Returning to FFPSs would therefore
substantially increase healthcare and administrative costs
for Texas. See Id. It would injure Texas's
citizens, as managed care now provides better healthcare
services to its Medicaid recipients. See Id. And it
would take time. As Plaintiffs' counsel observed at the
summary judgment hearing, it took Texas more than two decades
to switch to MCOs, and switching back to rely exclusively on
FFSPs would take years. See October 25, 2017
Hr'g Tr. 10:14-22, ECF No. 85. During this transition,
the Certification Rule-in conjunction with ASOP 49-would
still require Texas to pay the HIPF.
these facts in mind, Texas has even bleaker options here than
it did in the Texas case. In Texas, the
Government claimed that the plaintiff states could avoid an
injury by changing their laws to stop subsidizing
driver's licenses. Texas, 809 F.3d at 156. Here,
the Government claims that Plaintiff States could avoid
paying millions of dollars to cover the HIPF by changing
their laws to pay millions of dollars to transition over many
years back to an outdated healthcare model. Texas will
pay a significant monetary price no matter what choice it
these reasons, Defendants' citation to Clapper v.
Amnesty Int'l USA, 568 U.S. 398 (2013) is
inapposite. In Clapper, respondents asserted that
they suffered ongoing injuries fairly traceable to a
surveillance statute because the threat of surveillance
required them to take “costly and burdensome measures
to protect the confidentiality of their
communications.” 568 U.S. at 415. The Supreme Court
rejected this argument and held that a plaintiff
“cannot manufacture standing merely by inflicting harm
on themselves based on their fears of hypothetical future
harm that is not certainly impending.” Id. at
416. As the analysis above demonstrates, this case is readily
distinguishable. Here, the harm of paying the HIPF is neither
future nor hypothetical; it is certain and has already
happened. And Plaintiff States have not inflicted the harm on
Defendants argue that Plaintiffs' theory of standing has
no principled limit because it would allow states to sue the
federal government for any tax that resulted in a downstream
increase in the cost of Medicaid. Defs.' Br. 10, ECF No.
63. The Court is unpersuaded by this argument, as the Fifth
Circuit considered and rejected an almost identical argument
in Texas. 809 F.3d at 161-62 (“The United
States submits that Texas's theory of standing is flawed
because it has no principled limit. In the government's
view, if Texas can challenge DAPA, it could also sue to block
. . . any federal policy that adversely affects the state . .
. .”). The Court's finding of standing in this case
announces no new interpretations of, or exceptions to, the
Supreme Court's standing doctrines, and as such, it does
not undermine Article III's case or controversy
requirement in any way.
is therefore no genuine dispute of material fact that the
HIPF-as imposed on the states through the Certification Rule
and ASOP 49-injures the Plaintiffs, and that to avoid this
injury Plaintiffs would have to change their laws and incur
additional costs-both of which constitute additional,
independent injuries. Because the Court finds that
Plaintiffs' injury is not manufactured, Plaintiffs'
injury is fairly traceable to Defendants' challenged
conduct: the HIPF and the Certification Rule.
Redressable by Favorable Judicial Decision
must show that a favorable judicial decision will likely
redress their injury. Lujan, 504 U.S. at 561. To
redress an injury, the judicial remedy must “personally
. . . benefit [the plaintiff] in a tangible way . . .
.” Warth v. Seldin, 422 U.S. 490, 508 (1975).
Defendants have injured Plaintiffs by legally coercing them
into paying the HIPF-a tax from which Plaintiffs are
statutorily exempt. See supra Part III.A.1.a-b. To
redress this injury, Plaintiffs ask the Court to invalidate
the HIPF and the Certification Rule. Am. Compl. 27-29, ECF
No. 19. The Court will next consider whether these requested
remedies, if granted, will likely redress Plaintiffs'
if the Court invalidates the HIPF, the Government will no
longer be able to collect the HIPF from MCOs. Plaintiffs
would then be free to stop accounting for the HIPF in their
MCO capitation rates, and private actuaries could certify
those rates excluding the HIPF as actuarially sound under
ASOP 49. See ASOP 49 § 3.2.12(d) (requiring
capitation rates to include all non-deductible taxes).
Private actuaries may ultimately withhold their
certification, and CMS its final approval, for reasons
unrelated to the HIPF. But the Certification Rule would no
longer require Plaintiffs to pay the HIPF-as the ACA
envisions-in order for Plaintiffs to obtain Medicaid funds.
The Court finds that this remedy would redress
if the Court invalidates 42 C.F.R. §
438.6(c)(1)(i)(A)-(C) (2002)-the Certification Rule's
interpretation of “actuarially sound” capitation
rates-the law would no longer require Plaintiffs to pay the
HIPF in their capitation rates in order to obtain CMS
approval. This remedy, like the one before it,
would relieve Plaintiffs' legal obligation to pay the
HIPF in order to receive Medicaid funds. This would also
redress Plaintiffs' injury. Defendants argue that, even
without the Certification Rule, the statutory mandate that
capitation rates be “actuarially sound” would
still require Plaintiff States to include the HIPF in their
rates. See Defs.' Br. 26, ECF No. 63. But the
HIPF did not exist when Congress enacted the
“actuarially sound” requirement in 1981, and when
it enacted the ACA in 2010, Congress-presumably aware of the
“actuarially sound” requirement-plainly exempted
the states from paying this tax. See 42 U.S.C.
if the Court only invalidates 42 C.F.R. §
438.6(c)(1)(i)(C) (2002)-the portion of the Certification
Rule requiring a private actuarial certification of MCO
capitation rates-the law would give Plaintiffs freedom to
negotiate to exclude the HIPF from their rates and give CMS
freedom to approve those rates. Like the other remedies, the
Court finds that this too would redress Plaintiffs'
might be objected that if the Court only invalidates 42
C.F.R. § 438.6(c)(1)(i)(C) (2002), there remains a
possibility that CMS will conclude, on a case-by-case basis,
that capitation rates excluding the HIPF have not “been
developed in accordance with generally accepted actuarial
principles and practices, ” as required by 42 C.F.R.
§ 438.6(c)(1)(i)(A) (2002). Indeed, HHS has stated in
multiple guidance letters that it prefers for states to
include the HIPF in their capitation rates. First, in 2014,
HHS issued a guidance letter encouraging states to do so.
See 2014 MCO Guide; supra note 19. Then in
2015, HHS issued another guidance letter, referencing its
2014 letter and reiterating its view that states should pay
the HIPF. See 2015 MCO Guide; supra note
21. Moreover, CMS now uses ASOP 49 to make internal
determinations on whether MCO capitation rates are
actuarially sound. See Defs.' App. 156, ECF No.
63-1. If HHS prefers for states to pay the HIPF in their
capitation rates, and CMS uses ASOP 49 to evaluate capitation
rates, it is possible that CMS will ultimately disapprove
future capitation rates that do not include the HIPF.
this possibility, the Court nonetheless finds that
invalidating 42 C.F.R. § 438.6(c)(1)(i)(C) (2002) would
redress Plaintiffs' injury. The law explicitly exempts
states from paying the HIPF, ACA § 9010(c)(2)(B) (2010),
and the Court must “presume that agencies will follow
the law.” Pit River Tribe v. U.S. Forest
Serv., 615 F.3d 1069, 1082 (9th Cir. 2010). The Court
presumes, therefore, that CMS will not-in defiance of
Congressional intention-condition Medicaid funds on whether
Plaintiffs include the HIPF in their capitation
rates. CMS may continue to use ASOP 49 to make
internal decisions whether capitation rates are
“actuarially sound, ” but it cannot-and
presumably will not-use ASOP 49 to ignore the ACA's
statutory exemption and require Plaintiffs to pay the HIPF.
Whether CMS will in due course approve every capitation rate
excluding the HIPF is unclear from the facts before the
Court-that it may do so in some or all cases is enough to
also fall within the “procedural right” exception
to the redressability requirement. Under this exception,
“The person who has been accorded a procedural right to
protect his concrete interests can assert that right without
meeting all the normal standards for redressability and
immediacy.” Lujan, 504 U.S. at 572 n.7 (1992).
For example, a person “living adjacent to the site for
proposed construction of a federally licensed dam has
standing to challenge the licensing agency's failure to
prepare an environmental impact statement, even though he
cannot establish with any certainty that the statement will
cause the license to be withheld . . . .” Id.
Similarly here, if the Court only invalidates 42 C.F.R.
§ 438.6(c)(1)(i)(C) (2002), Plaintiffs cannot establish
with certainty that CMS will ultimately approve their
capitation rates excluding the HIPF. But Plaintiffs assert a
procedural right: their statutory exemption from paying the
HIPF. ACA § 9010(c)(2)(B) (2010); see 26 C.F.R.
§ 57.2(b)(2)(ii)(B). By challenging the Certification
Rule's certification requirement, “plaintiffs are
seeking to enforce a procedural requirement”-their HIPF
exemption-“the disregard of which could impair a
separate concrete interest of theirs”-namely, their
interest in not paying the HIPF, changing their laws to
budget for the HIPF, or raising taxes to fund the HIPF.
Cf. Lujan, 504 U.S. at 572. Accordingly, even if the
Court's invalidation of 42 C.F.R. §
438.6(c)(1)(i)(C) (2002) would not satisfy “normal
standards for redressability, ” it would redress
Plaintiffs' injury under Lujan.
is therefore no genuine dispute of material fact that a
favorable judicial decision invalidating either the HIPF or
the Certification Rule would redress Plaintiffs' injury.
The Court finds that Plaintiffs have shown redressability.
Court also considers sua sponte whether Plaintiffs
have satisfied prudential standing. The Supreme Court
“interpreted § 10(a) of the APA to impose a
prudential standing requirement in addition to the
requirement, imposed by Article III of the Constitution, that
a plaintiff has suffered an injury in fact.”
Nat'l Credit Union Admin. v. First Nat'l Bank
& Trust Co., 522 U.S. 479, 488 (1998). “For a
plaintiff to have prudential standing under the APA,
‘the interest sought to be protected by the complainant
[must be] arguably within the zone of interests to be
protected or regulated by the statute . . . in
question.” Id. (quoting Ass'n of Data
Processing Serv. Orgs., Inc. v. Camp, 397 U.S. 150, 152
(1970)) (alterations in original). The “zone of
interests” test applies “[i]n cases where the
plaintiff is not itself the subject of the contested
regulatory action, ” and it only “denies a right
of review if the plaintiff's interests are . . .
marginally related to or inconsistent with the purposes
implicit in the statute . . . .” Clarke v. Secs.
Indus. Ass'n, 479 U.S. 388, 399 (1987). This test is
“not meant to be especially demanding” and the
Court applies it in keeping with Congress's intent that
agency action is presumptively reviewable. Texas,
809 F.3d at 162 (quoting Clarke, 479 U.S. at 399).
bring several APA claims challenging the Certification
Rule's interpretation of “actuarially sound,
” which enabled the ASB to impose the HIPF on
Plaintiffs. Am. Compl. 19-27, ECF No. 19. Plaintiffs are the
subject of this contested regulatory action. Cf.
Clarke, 479 U.S. at 399. And Plaintiffs' asserted
interest-exemption from paying the HIPF-is within the zone of
interests Congress meant to protect or regulate by enacting
the HIPF, because the ACA expressly exempts states from
paying the HIPF, and the Certification Rule allowed the ASB
to nullify that exemption. Cf. Nat'l Credit Union
Admin., 522 U.S. at 488. Accordingly, the Court finds
that there is no genuine dispute of material fact that
Plaintiffs have prudential standing under the APA.
Plaintiffs have shown Article III and prudential standing,
the Court DENIES Defendants' Motion for
Summary Judgment (ECF No. 62) as to standing.
Court will next consider whether the AIA bars Plaintiffs
claims. Defendants argue that the AIA deprives the Court of
jurisdiction because Plaintiffs seek to prevent collection of
a tax. Defs.' Br. 16-22, ECF No. 63. The AIA states,
“[N]o suit for the purpose of restraining the
assessment or collection of any tax shall be maintained in
any court by any person, whether or not such person is the
person against whom such tax was assessed.” 26 U.S.C.
§ 7421(a). The AIA divests the court of jurisdiction
over any claim-including constitutional claims-brought by any
person that would affect the IRS's ability to assess and
collect anyone's taxes. See Alexander v. Americans
United Inc., 416 U.S. 752, 759 (1974). Regardless of the
HIPF's label as a “fee, ” because the ACA
treats the HIPF as a tax for purposes of the Internal Revenue
Code (the “IRC”), ACA § 9010(f)(1), the AIA
applies to Plaintiffs' claims. See Nat'l
Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519,
544-45 (2012) [hereinafter NFIB] (concluding that
the AIA applies to an exaction that the enacting statute
treats as a tax for purposes of the IRC). Because
Plaintiffs' HIPF claims would restrain the assessment and
collection of a tax, the Court must determine whether its
jurisdictional bar extends to Plaintiffs' HIPF claims.
claim that the AIA is inapplicable because states are not
“person[s]” under the statute. Pls.' Reply
13, ECF No. 66. To determine whether Congress intended states
to be “person[s]” under the AIA, the Court must
begin with the text of the statute and ascertain its plain
meaning by considering its language and design as a whole.
See K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291
(1988). The Court first considers whether the statute defines
its terms. Cf. United States v. Santos, 553 U.S.
507, 511 (2008) (considering first the statutory
definitions). The AIA itself does not define
“person.” See 26 U.S.C. § 7421.
However, the AIA is codified in the IRC, and the IRC's
general definitional provision states, “The term
‘person' shall be construed to mean and
include an individual, a trust, estate, partnership,
association, company or corporation.” 26 U.S.C. §
7701(a)(1) (emphasis added). When a statutory definition
“includes” enumerated examples, those examples
are illustrative, not exhaustive. Christopher v.
SmithKline Beecham Corp., 567 U.S. 142, 162 (2012).
Because the list of entities in § 7701(a)(1) is
illustrative, the IRC's definition section could include
states as “person[s]” under the AIA.
a term is undefined, we give it its ordinary meaning.”
Santos, 553 U.S. at 511. A legal
“person” is typically an entity “recognized
by law as having the rights and duties of human
beings.” Black's Law Dictionary 1178 (9th ed.
2004); see also Webster's Third New
International Dictionary 1686 (1971) (defining
“person” as “a human being, a body of
persons, or a corporation, partnership, or other legal entity
that is recognized by law as the subject of rights and
duties.”). Because the law often recognizes states as
having the rights and duties of human beings, the Court finds
that “person[s]” under the AIA include states.
See, e.g., Estate of Wycoff v. Comm'r,
506 F.2d 1144, 1151 (10th Cir. 1974) (holding that the term
“person” in § 7701(a)(1) includes the
states); see generally South Carolina v. Regan, 465
U.S. 367 (1984) (assuming that states are persons under the
IRC for purposes of the AIA). It also harmonizes with Supreme
Court decisions holding that states are “persons”
under other IRC provisions that do not explicitly define
“person” to include states. See Sims v.
United States, 359 U.S. 108, 112 (1959) (holding that 26
U.S.C. § 6332(b)'s definition of
“person” applied to the State ...