Fate of health care provider tax up for debate late in session

The fate of the Health Care Provider Tax is one of the key issues in play as the 2019 Minnesota Legislature enters its final days. The 2 percent tax, which is to sunset at year’s end, provides a $700 million revenue stream each year. Those dollars cover an array of health care costs for people with disabilities, the elderly, children and low-income Minnesotans.

Gov. Tim Walz has made it clear he wants to extend the tax, appearing at capitol rallies in support. House members also want to retain the tax, as do state commissioners on health and human services. But the Republican-controlled Senate is critical of the tax, with some describing it as a “sick tax.”

Republican leadership fought to keep the provider tax extension out of the Senate health and human services bill, while the repeal of its subset is included in the House version. Senate leadership argues that if the programs are important, money can be founded elsewhere. They also say that not having the tax in place already would provide a health care cost reduction.

Tax advocates contend that it would be foolish to cut so much out of the state’s roughly $7 billion health and human services spending.

More than 100 varied interest groups want the tax to continue. Nonprofits,
medical groups, insurance companies, counties and disability rights activists are in the fight. The This is Medicaid coalition has been a high-profile player in the ongoing debate.

Department of Human Services (DHS) Commissioner Tony Lourey has defended the tax’s continuation. Minnesota’s human services spending needs to hit specific levels so that federal funds can come to the state. Not having the funding would trigger federal program compliance issues.

On top of that, it’s likely that DHS would see a reduction in related central office operations and face a $40 million cut over the biennium. That would force staff cuts and affect delivery of services.

Another commissioner who has spoken out in support of keeping the tax is Health Commissioner Jan Malcolm. Her department also relies on the tax for some of its funding. She has pointed out increased Health Department work outlined in the omnibus health and human services finance bill, including the launch of a proposed licensing system for assisted living facilities.

Concerns about assisted living facilities have sparked the call for more state oversight and licensing.

Walz has repeatedly said that he will not put the health of Minnesotans at risk and has said the tax is “not negotiable.” House Minority Leader Kurt Daudt (R-Crown) has countered by noting that Minnesota cannot decrease health care costs by increasing health care costs.

The provider tax was signed into law by then-Gov. Arne Carlson, with a 2 percent tax on providers and a 1 percent tax on health maintenance organizations. It was originally intended to fund the Health Care Access Fund and MinnesotaCare, the public insurance program many of the state’s working poor rely upon. MinnesotaCare drew on the tax when it began in 1992.

Over the years more of the MinnesotaCare costs shifted to the federal government through Medicaid waivers. Passage of the Affordable Care Act freed up the tax dollars for other purposes in 2014. MinnesotaCare covers about 90,000 people today.

The Health Care Access Fund now covers other programs including Medical Assistance, as well as operations in the Department of Human Services and the Department of Health, as well as a provider training program at the University of Minnesota.

In recent years tax proceeds covered approximately 25 percent of Minnesotan children, and half of nursing home residents and people with disabilities. About 35 percent of Medical Assistance spending paid for long-term care, and 45 percent paid for managed care.

If the provider tax only paid for MinnesotaCare then Minnesota could sunset the 2 percent provider tax without consequence. But sunsetting the tax could have profound and serious implications for thousands of Minnesotans, with major disruption of care and putting health care at risk for many starting as soon as 2022.