– The millions of dollars that Minnesota wants to spend to limit rate hikes in the individual health insurance market could cost the state millions more in federal funding for low-income health care.

That news came as a nasty shock to the state officials who have waited months for the federal government to sign off on Minnesota’s reinsurance plan, and to Gov. Mark Dayton, who fired off a testy letter to Health and Human Services Secretary Tom Price on Tuesday.

Earlier this year, Minnesota lawmakers approved a “reinsurance” program with a goal of stabilizing the individual market, which is mainly geared to people without employer-provided insurance. The Legislature’s plan called for spending $542 million over two years, but is contingent on federal approval.

In his letter to Price, Dayton said state officials have learned that Minnesota’s request for a waiver “will soon be approved.” However, Dayton wrote, they also learned that Minnesota is in line for a corresponding reduction in federal funds for MinnesotaCare, which serves a group considered the “working poor.”

“This is a very damaging reversal of federal responsibility to Minnesota,” Dayton wrote. While Minnesota stands to get $208 million in federal funding to cushion against 2018 premium hikes, it would also stand to lose $369 million in federal funding for MinnesotaCare.

“[Y]ou are creating an untenable situation in which the state would essentially lose $161 million more in MinnesotaCare funding than we would gain” from the reinsurance waiver, Dayton wrote. He characterized the federal move as a “complete turnaround and contrary to all previous direction from your agency.”

The White House, HHS and the federal Centers for Medicare and Medicaid Services declined immediate comment on Dayton’s letter.

The Trump administration had encouraged states to come up with innovative ways to drive down skyrocketing premiums on the individual insurance market. The Republican-led Legislature crafted the reinsurance plan this spring, but it required that HHS sign off with what’s known as a 1332 waiver.

“I reached out to Secretary Price today to urge him to reverse this last-minute obstacle to our state’s bipartisan effort to bring down health care costs,” Sen. Amy Klobuchar, D-Minn., said in a statement. Minnesota’s entire congressional delegation previously weighed in with support for the waiver.

Insurance companies are waiting for confirmation of the funding before they lock in their 2018 rates at the end of September.

Applying for the federal waiver for reinsurance, Dayton wrote, “has been nightmarish.”

“This is a very damaging reversals of federal responsibility to Minnesota,” Dayton wrote. The state was initially told the waiver would be granted in August, Dayton wrote.

Only last week, Dayton wrote, did staff at the federal Centers for Medicare and Medicaid and the Treasury Department point out that while the waiver would soon be approved, it would trigger sharp cuts elsewhere in Minnesota’s health care budget.

With the reinsurance program, Minnesota would be using public money to help offset the cost of the plans sold through MNsure, the state’s insurance exchange, and the broader individual market. Without the federal waiver, much of the savings would simply go to the federal government, since lower premiums would simply result in smaller federal tax credits that MNsure consumers receive under the federal Affordable Care Act (ACA).

Minnesota’s waiver application sought to “hold harmless” not only funding for consumers buying individual health insurance policies, but also for the state’s MinnesotaCare program.

Under the ACA, Minnesota has been funding the program in part by tapping the value of tax credits that MinnesotaCare enrollees would receive if they bought through MNsure.

“Essentially, we are being penalized for doing exactly what the president and you have been encouraging us to do: take new reform initiatives,” Dayton wrote. “I ask that you officially approve Minnesota’s 1332 Waiver Application and reverse this very destructive financial penalty.”

State Sen. Michelle Benson, R-Ham Lake, who chairs the Senate Health and Human Services Finance Committee, said Tuesday that she’s still trying to sort out the facts of the situation.

She noted that HHS Secretary Price had not yet issued a public ruling on the state’s application for the reinsurance program.

Benson, who backed the reinsurance bill when it was passed by the Legislature, said the state’s application specifically requested that funding for MinnesotaCare wouldn’t be cut as part of the plan.

State Sen. Tony Lourey, DFL-Kerrick, said that if federal support for reinsurance in the individual market means a larger cut for MinnesotaCare funding, then the Dayton administration would have latitude to reject the current reinsurance model.

Instead, Lourey said, the state could move to use the reinsurance money for a premium rebate program like the one that’s subsidizing many people this year in the individual market.

“It probably works out better for consumers, truthfully,” Lourey said.