A thoughtful proposal from Minnesota doctors offers a welcome starting point in what’s expected to be a contentious 2019 debate at the State Capitol: what to do about the state’s expiring 2 percent tax on medical provider revenue.
Since the early 1990s, the provider tax has been a critical funding source for the state’s health care access programs, such as MinnesotaCare for working families, Medical Assistance for the poor and disabled and, more recently, the reinsurance program that provides cost relief to those who buy private health insurance on their own. But the tax sunsets next Dec. 31, drying up a revenue stream projected at $692 million this year.
In offering up a new alternative, the Minnesota Medical Association has indirectly made a crucial point that legislators ought to heed. It is not a matter of whether another dedicated funding stream is needed. It’s a matter of how best to continue the flow of dedicated dollars to these vital programs.
That the idea comes from the Minnesota Medical Association (MMA) begs notice at the Capitol. The MMA represents over 10,000 doctors in the state. The organization has long advocated to end the provider tax, with its lobbying likely influencing the ill-advised deal in 2011 between Republican legislators and former Gov. Mark Dayton to turn it off at the end of the decade. Among the reasons for the opposition: It’s a tax, it’s burdensome for providers to administer and it gets passed along to consumers.
The expiration date in that deal was so far down the road that legislators could continue spending these dollars while ignoring the big problem they created — a gaping funding gap after the tax ends. But the day of reckoning has arrived.
Gov. Tim Walz supported extending the provider tax during his campaign. And while there’s likely support for doing so in the state House, which is now controlled by the DFL, opposition remains in the Senate, where Republicans have a slim majority. A key argument from past and present GOP legislative leaders is that dedicated dollars are no longer necessary and that the funds should instead should come from the general fund.
The problem with that, as the Editorial Board has long argued, is that the provider tax raises a very large sum. It simply isn’t that easy to fill that gap from the general fund, especially with so many competing interests for these dollars. Budget surpluses, as Minnesota has this year, also don’t dependably happen. Pointing to the current surplus as a reason to end the provider tax is disingenuous.
Having the MMA make clear that replacement funding is necessary is helpful, especially early in the session. But to be clear, the organization is not calling to extend the provider tax. It is proposing a different way of raising substantial revenue for state health care programs. Its proposed mechanism is called a “claims expenditure assessment.” It would not apply to providers’ revenue, but would essentially act as a tax on nonfederal medical claims payments processed by health plans for Minnesota residents. The assessment could range from 1.67 percent to 1.99 percent.
One potential benefit is that it would be more efficient to administer because insurers would handle this responsibility vs. thousands of providers. Another advantage is that it would not apply to patients’ out-of-pocket spending or noncovered services, making it less regressive than the provider tax.
An additional plus cited by the MMA could turn out to be a minus: The proposal would raise about $100 million less a year than the provider tax. The MMA touts this as a “tax cut” and says the amount raised would be enough to meet future needs, but that claim merits further scrutiny. Other caveats: The program could face a legal challenge and might also require federal approval to implement. That’s not a given under the Trump administration, which has lent less-than-ideal support to Minnesota’s reinsurance program and other health care innovations pioneered here.
The MMA nevertheless merits praise for putting forth a serious proposal and acknowledging the important reality that the provider tax revenue must be replaced. While extending the provider tax still appears to be preferable, discussion of the MMA’s proposed alternative will elevate the debate at the Legislature.