FILE - In a March 12, 2014 file photo, Arizona Gov. Jan Brewer holds a copy of the Medicaid Restoration Plan draft bill at the Capitol in Phoenix. The Arizona Supreme Court on Wednesday, Dec. 31, 2014, allowed a lawsuit challenging Brewer's Medicaid expansion plan to move forward, a decision that deals a major blow to the outgoing governor's signature achievement. The high court agreed that 36 Republican lawmakers can sue Brewer over the legality of a hospital assessment that funds the expansion plan. (AP Photo/Matt York, File)
PHOENIX — The Arizona Supreme Court on Wednesday allowed a lawsuit challenging Gov. Jan Brewer's Medicaid expansion plan to move forward, a decision that deals a major blow to the governor's signature achievement just days before she leaves office.
The high court agreed that 36 Republican lawmakers can sue Brewer over the legality of a hospital assessment that funds the expansion plan.
The ruling means Brewer's plan to insure about 300,000 poor Arizonans using a key part of President Barack Obama's health care overhaul could eventually be crippled as she hands the governor's office to fellow Republican Doug Ducey.
Brewer, who leaves office Jan. 5, said in a statement that she was "naturally disappointed" in the ruling but hopeful she will eventually prevail.
"I am abundantly confident that Arizona will ultimately prevail, and that the state will be able to focus on implementing one of the most meaningful and critical health care policies in years - the restoration of crucial, cost-effective care to thousands of Arizonans," Brewer said.
However, Ducey must decide whether the state continues to fight the lawsuit.
Ducey, who opposed the expansion but has said he didn't intend to push for its immediate repeal, would not say Wednesday if he would drop the battle and let the program end. He has said that he thought Brewer's embrace of a straight expansion was a mistake.
"What was really lost here was the opportunity for some of the reforms around health care savings accounts and pricing transparency and things that will really drive the cost curve," Ducey said after he won the Republican primary in August. "But those are things that we'll be able to deal with in a first term."
The case now returns to a trial court which will be decide whether the hospital assessment is a tax that requires a two-thirds majority vote. Only a bare majority passed the legislation. The Goldwater Institute, which sued on behalf of lawmakers, plans to ask a judge to halt the funding for the expansion immediately.
Without the assessment, Arizona won't have the matching funds to pay its share of the expansion that is covering about 255,000 low-income Arizonans. The state is also using excess federal cash from the assessment to plug holes in current and future budgets. A looming shortfall in the coming budget year could be made worse if Ducey allows the expansion to end.
Brewer put together a coalition of Democrats and some Republicans who supported the expansion, and after a battle with conservatives pushed it through the Legislature in a June 2013 special session. She was one of only a handful of Republican governors who embraced Medicaid expansion.
In all, 27 states and the District of Columbia are moving ahead with expansion, mostly governed by Democrats. Sixteen states have rejected expansion, and seven others are weighing options, according to the latest tracking by the Kaiser Family Foundation.
A few GOP-led states looked for compromises, embracing other options to cover low-income residents.
Newly elected Republicans in Arkansas, which agreed to expand Medicaid using a so-called private option by buying insurance for low-income residents, are pushing for the state to change or end the expansion. But hospitals in Arkansas are opposed, saying they're seeing much lower rates of uninsured who can't pay for their care.
Arizona hospitals support expansion for the same reason. They are seeing much lower levels of uncompensated care and, like Brewer, are touting the $1 billion in new federal healthcare spending the expansion brings.
"Today's ruling places all of this at risk - threatening life-saving health coverage for Arizona families and potentially blowing an even larger hole in our State budget," Greg Vigdor, CEO of the Arizona Hospital and Healthcare Association, said in a statement. "On behalf of Arizona hospitals, AzHHA asks Gov.-elect Ducey to continue a strong defense of the Medicaid Restoration."
The key question in the lawsuit brought by Republican opponents and the Goldwater Institute is whether the hospital money — assessed on inpatient discharges — is a tax.
The lawmakers say it is a tax, meaning the Medicaid expansion violated the state Constitution because any tax increase in Arizona requires a two-thirds vote in the Legislature. The expansion passed with a simple majority. Brewer's lawyers argued that the assessment wasn't a tax and that the Legislature itself voted not to require a supermajority.
A Maricopa County Superior Court judge first threw out the lawmakers' lawsuit, but the state appeals court reversed that decision and allowed the lawsuit challenging the hospital assessment.
The Supreme Court on Wednesday agreed with the appeals court, noting it was not deciding whether the assessment was a tax.
"Regardless of how the case ultimately comes out, today's decision means that lawmakers can't vote to ignore the Constitution," said Christina Sandefur, a Goldwater Institute attorney.
The hospital assessment is expected to collect $256 million in the state's 2015 budget year to pay Arizona's share of expanding Medicaid. The expansion benefits people earning between 100 percent and 138 percent of the federal poverty level and childless adults making less than that who lost optional coverage provided by Arizona during a state budget crisis — people Brewer once fought to push off the program.
The federal government pays for most of the expansion costs, but restoring optional coverage that Arizona voters have twice approved required the assessment.