Gov. Tim Walz and the Republicans who control the Minnesota Senate are hurtling toward a big dollar showdown over dueling health care proposals to reshape the state’s insurance markets and check the rising cost of prescription drugs.

For Walz and House Democrats, the most pressing issue is a 2 percent tax on health care providers that expires at the end of the year, leading to the potential loss of hundreds of millions of dollars for health programs, including Medical Assistance for low income and disabled people and MinnesotaCare for the working poor.

Republicans, on the other hand, are focused on re-upping an important subsidy for health insurance companies that has driven down premiums for the 160,000 Minnesotans who buy their insurance on the open market.

The debate is further complicated by President Donald Trump’s renewed push to kill the Affordable Care Act, which guarantees consumers can buy health insurance even if they have pre-existing conditions. Minnesota health programs would be further jeopardized if the law is overturned.

“Having an unreliable federal partner puts the responsibility back on the government of Minnesota,” Walz said during a health care roundtable last week. “My first responsibility is to the protection of the health of the citizens of Minnesota.”

As lawmakers face off, Minnesotans have flocked to the State Capitol to share personal stories about teetering on the brink of financial and physical ruin, either for lack of reliable insurance, rising drug costs, or both.

The stakes are high for Walz and the new Democratic majority in the Minnesota House, who ran on protecting access to quality care and curbing out-of-pocket costs. Republicans in the Minnesota Senate also are nervously looking ahead to 2020, when several senators will face difficult re-election campaigns after a 2018 election where Democrats used health care to deliver an electoral drubbing to the GOP.

“Health care costs have been identified over and over again as the big issue” for voters, said state Sen. Scott Jensen, R-Chaska, a physician active in the health policy debate. “I think both the House and the Senate are following up on that.”

But the two chambers — the only divided Legislature in the nation — have sharply different visions for how to proceed, with the current debate presaging a larger one about the role of government in health care. Walz and House Democrats are seeking to protect and even expand a government health insurance option, while Republicans want to bolster the private health insurance industry.

Bridging the wide philosophical chasm will require deft negotiating between Walz and Republicans. While the two sides have different goals, they are intertwined and could be the source of an eventual compromise.

‘Radical’ increases

Sen. Michelle Benson, R-Ham Lake, who chairs a key health care committee, said the 160,000 Minnesotans who buy their insurance as individuals are facing “radical rate increases” if lawmakers fail to extend reinsurance, a subsidy program enacted in 2017 that pays off the most expensive health claims of Minnesotans who buy their insurance on the individual market. Rates dropped 20 percent on average from what they otherwise would have been without reinsurance, though roughly 39,000 consumers ended up paying more out of pocket, according to state agencies.

Walz has countered with a proposal to give a 20 percent rebate directly to Minnesotans who buy their insurance on the individual market and do not qualify for federal tax credits. The plan would cost the state $255 million over the next two years. But the administration says the state would recoup $167 million of that from the federal government. And federal tax credits would be larger for consumers who qualify.

Republicans oppose Walz’s plan and want to see the Legislature act before this spring’s deadline for health plans to submit their proposed 2020 rates to the state. “Minnesotans who are worried about their insurance rates skyrocketing this fall do not have any certainty,” Benson said. “We are running out of time.”

Extending reinsurance won’t cost the state any additional money. That’s because the full $542 million lawmakers approved and budgeted for the two-year program hasn’t been spent. Republicans say that the remaining money in the reinsurance pot, which includes additional federal funding, should cover costs for the next three years. Walz wants to put that money back into health care programs instead.

If the Trump administration succeeds in killing the Affordable Care Act, federal money for reinsurance would be at risk. It would hardly matter, though: Insurance companies would again be allowed to deny coverage to high cost customers with pre-existing conditions.

Provider tax

While GOP lawmakers try to save an important subsidy for health insurance companies, Democrats worry that a 2 percent tax on health care providers is set to expire at the end of the year, draining a major source of funding for health care programs. Democrats say that loss of state tax money would hurt the programs that currently serve nearly 1.2 million Minnesotans.

When Senate Republicans released their budget plan last week, they did not include an extension of the 2 percent provider tax, arguing that the tax’s scheduled end would help stem the rising cost of health care.

Tony Lourey, the commissioner of the Department of Human Services in the Walz administration, said the newly uninsured would allow medical conditions to fester and then seek expensive emergency room care.

Within hours of Republicans releasing their budget, Walz warned them about the effects — both human and political — of dropping people from their insurance: “There are massive known and unknown repercussions,” he said. “The catastrophic destruction would come, and the sole blame would [be on] one clear, identifiable place,” he added, referring to the GOP.

A clear compromise could emerge: Republicans get reinsurance, but agree to extend the provider tax.

At the moment, both sides are standing firm and balking at a trade.

“It feels like that’s the deal they’re trying to set up,” said state Sen. Paul Gazelka, R-Nisswa, the majority leader of the upper chamber. “Reinsurance should be done regardless.”

Walz said he’s certain Republicans will agree to extend the provider tax and are merely trying to extract concessions. But he said he would not negotiate around Minnesotans’ health coverage.

The looming battle over health care has brought dozens of lobbyists rushing to the Capitol on behalf of health care and drug companies, doctors, nurses and home health care workers.

Also in the mix are drug costs, with lawmakers in both parties taking aim at the opaque market for prescription medications. Democrats are pushing a price control proposal that Republicans oppose. A competing plan, pushed by state Sen. Julie Rosen, R-Vernon Center, would force drug companies to publicly post proposed cost hikes before they take effect.

Amid the jousting on policy, the health care debate has stirred strong emotions at the State Capitol.

At Walz’s recent health care forum he heard Minnesotans speak — often tearfully — of the stress of living on the windy ledge of the insurance system while trying to live with conditions like type 1 diabetes.

Sarah Piepenburg, who owns two olive and vinegar stores, said she has gone without insurance despite living with asthma.

“I think the thing that’s hard in having this conversation is there’s shame,” she said through tears. “I’m college educated. My husband’s college educated. We’re the American dream. We have a small business. But we’re not making it.”