Health executives float huge Medicaid cuts, sin tax hikes

The leaders of seven large Minnesota health plans and hospital groups are floating a plan that would cut hundreds of millions of dollars from the state's Medicaid benefits, while boosting health care revenues from additional taxes on alcohol, tobacco and providers.

The organizations say their idea could eliminate nearly a third of the state's $6.2 billion budget shortfall.

The proposal, called Minnesota's Healthcare Imperative, is already drawing fire from groups who would be affected by the suggested cuts and increased taxes.

The groups behind the proposal say they had an obligation to come up with a responsible way to save money on health care. Subsidized health programs account for a third of Minnesota's spending. So it's inevitable, they say, that some programs will have to be cut in order to balance the state's budget.

The seven health plans and hospital groups propose that Minnesota scale back some of the state's more generous Medicaid benefits, such as adult dental care. They also propose moving people with disabilities from a fee-for-service Medicaid program that pays for each individual doctor's visit to a managed care system that coordinates their care.

The also suggest cutting some of the services that help elderly and disabled people stay in their homes rather than a nursing home. Added together, they estimate these changes and some administrative improvements could save up to $1.8 billion dollars.

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"Minnesota stands out as a state that is benefit rich."

Patrick Geraghty, president and CEO of Blue Cross Blue Shield of Minnesota, said all of these suggestions represent difficult choices. But he said to put the situation in perspective, it's important to know that Minnesota spends 49 percent more on its Medicaid program than the national average.

"Minnesota stands out as a state that is benefit rich," he said. "So the question we all need to ask ourselves is are we getting outcomes that are relative to the benefit we're offering?"

In addition to suggesting program cuts, the health plans and hospital groups also propose raising $280 million in new revenue by increasing taxes on tobacco and alcohol. Geraghty said the added advantage of these types of so-called "sin taxes" is that they also have the potential to improve the health of the population.

"We believe as the health care plans and health care providers, that if you're going to go to the revenue space, here's a great place to go where you can generate some revenue, but more importantly impact health status," Geraghty said.

The group also suggests raising the current tax on providers by 1 percent and the hospital surcharge by nearly .5 percent. Dr. Patricia Lindholm, president of the Minnesota Medical Association, said those increases are a terrible idea. She said the provider tax is an unfair tax.

"We have always felt it's been a regressive tax and not fair to people in Minnesota who use medical care," she said. "It only falls on the sick to pay for this."

Likewise the idea of cutting programs that help elderly and disabled people stay in their homes doesn't sit well with Aging Services of Minnesota. Gayle Kvenvold, president and CEO of that organization, said no one from any of the seven health plans or provider groups contacted her organization to discuss cuts to long-term care.

"I would hope that anytime we're talking about reform on this massive a scale, that everyone who has a stake in this future is at the table," she said.

"It only falls on the sick to pay for this."

Some of the organizations affected by the proposal are also skeptical of the motives of the health plans in particular.

Dick Diercks, executive director of the Minnesota Dental Association, thinks the proposal is an attempt by managed care organizations to get more of the state's business.

"I think there is evidence ... that the health plans do make money on the public programs, the state-sponsored programs," he said. "They shouldn't be making money off of the taxpayer dollar." Geraghty with Blue Cross Blue Shield of Minnesota disputes that claim. He said good years in the managed care market are often offset by years when the plans lose money.

He also says that the health plans and hospital groups don't see this as the final word on what to cut and what to spare in the state's health budget, but rather as a discussion starter that is based on a thorough review of how the state is currently spending its money.