Continued: Jay Kiedrowski: State shouldn't hit nonprofits' reserves

Imagine that the Minnesota Legislature said to the contractor working on the I-35W bridge reconstruction, "Sorry, we've decided to pay you less than we contracted in order to balance the state's budget. You can cover the loss out of your own pocket. And we still expect you to build the bridge on time and according to the specs."

Farfetched? Not at this time of year. Faced with a large deficit and tough decisions about where to cut state spending, the Legislature has proposed to treat the reserve bank accounts of nonprofit health-care providers as the state's private ATM.

The state of Minnesota contracts with private nonprofit health plans to deliver medical services needed by people enrolled in General Assistance Medical Care (GAMC) -- a state-funded health-care program for low-income Minnesotans. The state deliberately sets the contracted rates at levels below the program's costs, guaranteeing that the health plans will lose money on GAMC -- which they have done consistently from 2000 to 2007.

Paying contractors less than their costs sends a bad signal to organizations that do business with Minnesota. However, the Legislature now has it sights on a bigger target -- the reserves that health plans set aside to pay future medical claims. Using a formula based on a percentage of the money the health plans have in the bank, combined with a further reduction in GAMC rates, the Legislature hopes to "find" up to $50 million.

In effect, the Legislature is telling the health plans, "You can cover our losses out of your pockets. And by the way, you will still be expected to deliver the GAMC services on time and according to the specs."

Reserves are critical to a health plan's ability to withstand hard times due to medical expenses and other factors. Private health-plan reserves are not a rainy-day fund to be tapped any time the state can't balance its checkbook.

If the state can take money from health plans to pay for other priorities, what other organizations that conduct work for the state will be next?

Minnesota's nonprofit health plans negotiated with the state in good faith and expect to be paid based on agreed-upon rates. Reneging on those promises makes the state a bad-faith negotiator. And that's bad for all parties involved in Minnesota's private-public partnerships.

I serve on a panel that is developing proposals to reduce volatility in the state's finances. We will deliver our report to the Legislature and the governor by January. That report should provide solid recommendations for the state on how best to deal with economic times like these, when we face a budget deficit. Using nonprofit reserves won't be part of our report.

The Legislature should resist the temptation to take short-sighted actions that have long-term implications for how we serve our low-income residents. It is a matter of simple fairness.

Jay Kiedrowski is a senior fellow in the Public and Nonprofit Leadership Center at the University of Minnesota's Humphrey Institute and a former state finance commissioner. He also serves on the board of UCare, a nonprofit health plan serving 140,000 Minnesotans.

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