Budget shortfalls loom in Minnesota's health care fund

Minnesota faces a shortfall of $900 million by 2023 in the fund that supports MinnesotaCare — a key insurance program for the working poor — in the wake of recent federal funding cuts and the approaching sunset of a state health care tax.

Last Friday, the Trump administration announced changes to a funding formula that is expected to trim $24 million in federal subsidies to Minnesota over the next two years. If enacted, it would be the third cut that federal officials have made since 2017.

Altogether, federal support for MinnesotaCare has fallen by more than $350 million for the years 2018 through 2021.

In addition, Minnesota's "provider tax," a 2 percent tax on medical bills, is set to expire at the end of this year, leaving state officials little maneuvering room to fill the federal funding gap.

Lawmakers are grappling with that question in the current legislative session, but no consensus solution has emerged. Gov. Tim Walz and many DFLers in the Legislature favor renewing the provider tax. Senate Republicans announced their opposition early in the session.

Without new revenue, the state fund that pays for MinnesotaCare, and a handful of other health programs, will begin showing major shortfalls by 2022, with a $416 million projected deficit, according to the state's most recent budget forecast. That shortfall would balloon to $900 million by 2023.

"We need some way to address the shortfall," Sen. Jim Abeler, R-Anoka, said Monday. Abeler is the chief author of a bill that would raise new revenue through an assessment on insurance claims. The bill has bipartisan support, but it has not yet received a committee hearing.

State Human Services Commissioner Tony Lourey said the federal government's actions "jeopardize the care" of the 85,000 people now covered by MinnesotaCare.

"This substantial threat comes at a time when the largest state revenue source for MinnesotaCare is at risk if the Legislature does not extend the provider tax," he said.

Under the 2010 Affordable Care Act, the federal government provided nearly 90 percent of funding for MinnesotaCare, which provides low-premium insurance to people who earn too much to qualify for Medical Assistance but too little to afford good private coverage.

The federal support replaced MinnesotaCare's reliance on the provider tax, which had been its primary funding source since it was first established in 1992.

Some MinnesotaCare recipients pay monthly premiums, which are capped at $80 a month.

Minnesota is one of only two states that receive federal funding for what is known under the Affordable Care Act as a basic health plan. New York's plan covers 770,000 residents.

"There was enthusiasm for the feds to take on the financing of MinnesotaCare and alleviate the pressure on the state," said Lynn Blewett, a professor at the University of Minnesota School of Public Health. "The program is very strong and provides needed services to a core group."

But problems began two years ago when Minnesota passed a reinsurance law that helped insurance companies reduce premiums paid by those in the individual market. The state needed permission from the federal government for the program, but was surprised when federal regulators gave approval but cut $168 million from MinnesotaCare as a result.

Another federal funding cut shortly after that was challenged in court by both Minnesota and New York. The lawsuit was eventually settled and some funds were restored, but Minnesota still lost $161 million. Minnesota Attorney General Keith Ellison, who would take the lead on any new legal challenge, said he is reviewing the latest federal notice.

"The rules keep changing," said Blewett. "They are using their regulatory authority to pick at these programs that they don't particularly like, and the basic health program is one of those."

The federal government's eroding support for MinnesotaCare sends a cautionary note about relying on the federal government to fund state programs, Abeler said.

"Part of the exercise here has been to capture every dollar that you can," he said. "It is simply not free and it certainly is not inexhaustible."

Abeler, a chiropractor, said the state should move away from the provider tax.

"The provider tax was never a very good tax," he said. "It was always a tax on sick people and very hard to administer and it was particularly hard on people paying cash."

Under his proposal, the state would collect an assessment against health care claims processed by health insurers and third-party administrators. Abeler said he is "cautiously optimistic" for its passage.

The idea has the support of Sen. Matt Klein, DFL-Mendota Heights, who also advocates renewal of the provider tax.

"At the end of the day I am going to support whatever I need to support to continue funding for MinnesotaCare," said Klein. "I just don't know how you fill that gap out of the general fund."

Klein, a physician, said the recent election showed that voters want access to affordable health care.

"MinnesotaCare is a responsible way for low-income people who are working to get health care coverage," he said.

Glenn Howatt • 612-673-7192 Twitter @GlennHowatt