Minnesota Attorney General Lori Swanson has sued the Trump administration to stop a recent decision to terminate $130 million in annual payments that fund subsidized health insurance for working Minnesotans.

The cut, which has not been widely reported, is the second hit to the federal funding streams for MinnesotaCare, which serves 87,000 low-income residents.

MinnesotaCare enrollees will not be affected in the short run, but the cuts could create a long-term funding shortfall with the potential to threaten the future of the program.

"Minnesota may be forced, in the future, to reduce benefits or increase out-of-pocket costs for its enrollees," according to the federal lawsuit, which was filed Friday in partnership with the state of New York.

But any changes would need to be approved by the federal government and the Minnesota Legislature, which could take up the issue this session because of the federal cutbacks.

The state Department of Human Services projects that the combined federal cutbacks would cost Minnesota $742 million in state fiscal years 2018 through 2021 — or roughly one-third of the program's projected expenses for that period, $2.2 billion.

Before the cuts, federal funding supplied 90 percent of MinnesotaCare funding, with the rest coming from enrollee premiums and state money, which would have been just $87 million between 2018 and 2021.

Minnesota and New York are the only two states operating what are known as Basic Health Plans, authorized by the 2010 Affordable Care Act, that provide subsidized health insurance to people who don't qualify for Medicaid but cannot easily afford even subsidized private health insurance offered on an insurance exchange like MNsure.

MinnesotaCare is popular among farmers, freelancers, part-time workers and the self-employed. Enrollment is guaranteed regardless of medical condition to citizens who meet the income guidelines and lack access to employer insurance. A family of four would qualify if they make between $32,718 and $49,200 per year. Enrollees pay monthly premiums that are based on income and capped at $80 per month.

"The larger concern is the ability of Minnesota to continue to fund MinnesotaCare and other safety net programs," said Lynn Blewett, a public health professor at the University of Minnesota. "It is clear that this administration is going to continue to whittle away at these key programs like Medicaid and MinnesotaCare."

This is Swanson's second lawsuit over the federal government's decision to end so-called cost-sharing reductions, federal payments to insurance companies to lower the copays, coinsurance and deductibles paid by individual policyholders. In October she joined with several other states to challenge that decision. The case is pending.

The lawsuit filed Friday seeks to reverse a December action that cut off payments to Minnesota and New York, which received $1 billion annually. Under a funding formula designed to address the unique position of the two states, the federal government paid them 95 percent of what it would have paid in cost-sharing reduction payments to insurers if Basic Health Plan enrollees had bought plans on the exchange.

In September, federal regulators denied a Minnesota request to preserve funding levels for a second and larger federal funding source for MinnesotaCare, based on premium tax credit payments. That decision will cost the state $258 million over two years.

Glenn Howatt • 612-673-7192