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5 things to know about Minnesota's medical provider tax

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Dr. Robert Aby describes the prescription to patient.
Dr. Robert Aby describes a prescription to patient Nate Abbe in September 2013 in Minneapolis. Minnesota lawmakers have agreed to continue the medical provider tax at 1.8 percent instead of 2 percent.
Amanda Snyder | MPR News 2013

Most of us will continue to pay a tax every time we visit the doctor, a clinic and other health care providers in Minnesota. A major accomplishment of the legislative session was a bipartisan agreement to extend a tax on health care providers but at a lower rate, after it had been set to disappear at the end of the year.

Here are some things to know about the tax and why it has been so controversial over the years.

1) The health care provider tax has been in place for 27 years.

State lawmakers originally came up with the tax to help pay for health care for people who cannot afford market-rate coverage. In 2011 as part of the deal to end a state government shutdown, leaders agreed to do away with the tax, but it will live on under the new deal, with the rate dropping from 2 percent to 1.8 percent.

2) Even though hospitals and clinics pay the tax, they don't want it to go away.

About 1 million people in the state get their health care through Minnesota's Medical Assistance and MinnesotaCare programs. They are an important source of revenue for health care providers.

"If you look at this for the next biennium without the provider tax, there would have been a $1.5 billion hole in the health and human services budget and that would ultimately have resulted in deep cuts across multiple programs," said Mary Krinkie, vice president of government relations for the Minnesota Hospital Association.

Providers feared that without the tax, some people could have lost coverage and moved from paying customers to charity care cases, Krinkie said.

That's why the health care providers defended the tax.

"It's very interesting that the hospitals and the CEOs came to the table and supported the tax because they understand how important coverage is and they also see it in their bottom line," said Lynn Blewett, a health policy professor at the University of Minnesota.

3) Some Republicans say the best medicine for the state budget would be for the tax to end.

Sen. Michelle Benson, R-Ham Lake, chair of the Senate health and human services committee, said as long as public health programs enjoy dedicated funding lawmakers will put off necessary changes that will save taxpayers money.

"Minnesota needs to be more innovative in the way we manage cost in our health care programs. We generally have richer benefits than other states," Benson said.

The head of the Minnesota Medical Association says the doctors' organization is pleased that lawmakers maintained funding for low income health programs, but CEO Janet Silversmith said the group wanted a different kind of tax — a tax on insurance claims, which she said would not hit consumers as hard as the provider tax.

"Because it's accessed on out-of-pocket payments, not just claims paid by insurers, patients are paying those directly. So, in that respect it's regressive, meaning that the more you use the more than you may be paying out of pocket."

4) Not all Democrats are big fans of the tax either.

Sen. John Marty, DFL-Roseville, doesn't like the provider tax either, but for a different reason. Marty wants universal health care instead of the patchwork of public and private programs that pay for health care now.

However, Marty said without guaranteed health care for everyone, the provider tax raises critical funding to help Minnesotans who can't afford coverage on their own.

"The provider tax is part of the way we've been paying for it and saying we're going to take away the money and we won't need it, that would be wishful thinking," he said.

5) Many challenges remain in funding health care programs.

Lynn Blewett said the Legislature made the right choice to extend the tax. And she said the slight reduction in the rate does not threaten current recipients' benefits because collections have been outpacing spending from the health care access fund.

"There's enough money in the fund balance for a couple of years and so I think they'll have time to sort of set their priorities and really tighten up that budget."

But tightening up the health and human services budget has proved difficult for the Legislature. It makes up about 30 percent of the general fund budget and has been growing faster than other areas. 

State taxpayers will spend more than $14.5 billion on it over the next two years. When federal dollars are factored in, health and human services is the largest portion of the budget, topping $39 billion.