OKLAHOMA CITY (Legal Newsline) - The Oklahoma Supreme Court has overturned a controversial health claims fee, ruling it unconstitutional on Tuesday.

Last month, state Insurance Commissioner Kim Holland filed a lawsuit that asked the court to decide whether a 1 percent fee on health insurance plans was a tax.

A revenue-generating measure must have three-fourths of the Legislature's vote to pass. House Bill 2437, which created the fee, did not get approval by three-fourths of all lawmakers.

The fee was passed in the waning days of Oklahoma's legislative session and was expected to generate $78 million a year. The money would have helped fund the state's Medicaid program.

The fee would have been charged to employers who fund health insurance plans for their employees. Employers would have paid 1 percent of their total amount of claims paid. The fee was to take effect on Friday.

Now, additional federal stimulus dollars allocated to the state this summer will offset the loss of money expected to be generated by the fee, according to The Oklahoman.

Lawmakers also will have to figure out to how to pay for the state's portion of the Medicaid program when crafting the budget for the 2012 fiscal year.

"We do not see a reason to panic at this point," Mike Fogarty, chief executive officer of the Oklahoma Health Care Authority, told the Oklahoman. "Since the Oklahoma Legislature adjourned in May, the federal government has made additional funds available to states."

The extension of federal dollars is expected to make an additional $140 million to $150 million available to help fund the state's Medicaid program, which provides health care to low-income people, The Oklahoman reported.

State Treasurer Scott Meacham told the newspaper the federal dollars are easing the effect of the Supreme Court's decision.

"The stimulus is kind of saving us on this deal," Meacham said. "Where it hurts us is the long run, down the line in maintaining the program there."

Most of the funds were originally set aside for the state's Insure Oklahoma program, which helps small business owners purchase health insurance for employees.

"That means we're not going to be able to take in as many uninsured people into the program and provide them with health insurance," Meacham told The Oklahoman.

Six of the nine justices ruled that the legislation created a new tax and violated provisions of the state constitution that require a revenue generating bill to receive three-fourths support from the House and Senate. State law also prohibits revenue bills from being passed in the last five days of session.

All nine justices heard oral arguments and quizzed attorneys in the case on Monday.

Earlier this month, the high court denied a request from the state's Chamber of Commerce to join in the lawsuit protesting the 1 percent fee.

The court, in its order, denied a request by the state Chamber to submit an amicus brief. The Chamber had argued that the 1,282 businesses it represents would be directly impacted.

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.