Kim Holland’s challenge sinks health claim tax hike

By Patrick B. McGuigan

Published: 24-Aug-2010

The Oklahoma state Supreme Court today (Tuesday, August 24) struck down House Bill 2437, a levy on health claims enacted in this year’s legislative session. Six justices declared the bill was “enacted in violation of” the Oklahoma Constitution, article 5, section 33. The justices directed the tax, scheduled to go into effect this week, “is not to be enforced.”

The result is dramatic legal victory for Commissioner of Insurance Kim Holland, who opposed the measure as it moved toward enactment in the final days of the session. She then directed her legal staff to prepare a constitutional challenge to the law.

Questions before the court included whether or not the justices could exercise original jurisdiction (considering the case before it passed through a district court trial), whether or not the new levy was a tax, and whether or not it violated legal requirements for new taxes.

In a brief exposition rendering its ruling, six members of the court agreed with Commissioner Holland on every particular.

Governor Brad Henry signed the law into effect and supported it along with legislative leaders Glenn Coffee of the Senate and Chris Benge of the House. Demise of the measure is likely to create budget challenges as state officials grapple with the revenue loss resulting from the decision.

Gov. Henry’s communications director, Paul Sund, sent to CapitolBeatOK the following statement:

“In the days to come, we will be reviewing the court decision’s short-term and long-term budgetary implications with legislative leaders.

“Obviously, from a long-term budgeting perspective, it will be disruptive to lose this revenue source at a time when the state is pulling itself out of a historic budget crisis.  Fortunately, the U.S. Congress recently approved new federal funds for state health care needs, and those dollars should help Oklahoma move forward without many disruptions in health care programs in the current fiscal year.  

“However, because those federal funds are one-time dollars that must be replaced by the state next fiscal year, Oklahoma will face significant funding challenges in health care and other important programs when the Legislature returns in 2011.” 

House Bill 2437 created a 1 percent levy on insurance payments, bringing in some $78 million a year. Holland’s legal analysis contended the levy was a tax that violated requirements for three-fourths support in the House and Senate, or a statewide vote of the people.  She also contended the law passed within the last five days of the session (another violation) without the required supermajority.

Cheering the court decision was state Rep. Dan Sulllivan of Tulsa. He was among a vocal minority that opposed the levy as it advanced in those hectic final hours of the session.

In a statement sent to CapitolBeatOK within minutes of the decision’s promulgation, Sullivan said: “I argued against this measure when it reached the House floor because I believed it was an unnecessary tax on business and I agree with the court’s decision.”

Sullivan had attacked flaws in the bill as he debated against its passage May 24. Making in essence the same points as Holland’s staff later elaborated in hefty briefs to the state Supreme Court, Sullivan predicted the law would, if passed, be struck down.

Further, Rep. Sullivan was among those who insisted the tax would have applied to self-insured employers, not only insurance companies. Sullivan contended, “This is not the time to be raising taxes on businesses that are already struggling in a national recession. We need to find other ways to fund our Medicaid program than to rely on job-killing taxes.”

In today’s statement, Sullivan said incoming House leaders plan to create revenue necessary for Medicaid funding without a tax hike.

“As chair of the House Economic Development and Financial Services Committee, I have worked hard to hold the line on potential increases to healthcare costs and premiums,” Sullivan said. “We already have too many people in Oklahoma who cannot afford health insurance. A tax that increases the cost of health care does nothing to help the uninsured and would actually force more people to drop coverage.”

At the state High Court, voting to slap down the tax increase were Chief Justice James Edmondson, Vice Chief Justice Steven W. Taylor, and Justices Yvonne Kauger, Joseph Watt, James Winchester and Tom Colbert. Justice John F. Reif dissented in part. Although he agreed the court had jurisdiction in the case, he asserted the claims levy “is a constitutionally permissible fee related to the provision and regulation of health insurance” in Oklahoma.

Justices Marian Opala and Rudolph Hargrave dissented in the case, saying the court did not have original jurisdiction, and should have sent Holland to district court to challenge the law. They contended facts presented to the court “do not show conclusively that the levy imposed by the enactment sought to be condemned was in fact a true tax.”

On the other hand, the dissenting pair of jurists argued a district court proceeding “might readily disclose from nonfacial proof the attacked enactment’s status as a pure revenue measure subject to judicial condemnation.” They concluded the Supreme Court should not have assumed original jurisdiction, without prejudging the merits of a district court test of the law.

The State Chamber, Oklahoma’s association of commerce and industry, vigorously opposed H.B. 2437 as an unwise new tax on state businesses, and strongly supported Holland’s intervention. The group sought to join the case, but was rebuffed by the Supreme Court in an earlier ruling.