State faces a steep health care funding cliff

July 1, 2018

Theres good news for those who buy health insurance on their own. State insurers are proposing lower prices next year for the 162,000 Minnesotans who shop on the individual market. Consumers could see rates dropping by 7 to 12 percent.

Minnesota lawmakers ought to pat themselves on the back for their role in this, but only for a moment. A two-year program subsidizing state health insurers with public dollars the reinsurance program passed in 2017 by Republican legislative majorities played a lead role in keeping rates down.

But those inclined to rest on these laurels during the 2018 campaign season shouldnt. A different and far more daunting health care challenge looms: a towering state funding cliff that could weaken Minnesotas health-care-driven economy and undermine coverage for 982,000 Minnesotans relying on public programs.

To prevent disruption on all fronts, the search for solutions must begin now. Political leaders lacked the will during the past legislative session to fix this. The states business and academic communities must fill that leadership vacuum. Theyll have to step up to address the massive funding shortfalls that lie ahead due to federal funding uncertainties and the 2019 sunset of the states medical provider tax. A new gubernatorial administration and a Legislature with many new faces needs ready-to-go remedies with stakeholder support. Theres no time for them to start from scratch.

The provider tax switch-off is a key driver and would put an end to nearly three decades of dedicated health care funding. It was passed in 1992 under Republican Gov. Arne Carlson to pay for the MinnesotaCare program, which aids people who make too much to qualify for state Medical Assistance but too little to comfortably afford private insurance. Proceeds from a 2 percent tax on the gross revenue of health care providers, hospitals, surgical centers and wholesale drug distributors goes into the states Health Care Access Fund (HCAF), generating $635 million in revenue in 2017. A 1 percent gross health insurance premium tax also funds HCAF, contributing $94 million in 2017.

In 2011, end-of-session bargaining resulted in an agreement to let the provider portion of the tax sunset on Dec. 31, 2019. That decision was driven largely by anti-tax fervor and was ill-advised. Dedicated dollars are still needed even though the federal government now picks up much of MinnesotaCares costs. Legislators tap HCAF to help pay for the medical assistance program, with 47 percent of HCAF dollars expected to go toward that in 2018-19. They also siphon the fund for other uses such as the expiring reinsurance program that is now keeping private insurance rates low.

What happens when HCAFs biggest funding stream goes away? The February 2018 forecast document spells it out: Following the sunset, the HCAF will have a structural deficit of more than $500 million per year. Remaining revenue will not be sufficient to support existing expenditure levels beyond FY2021.

Adding to concerns about this fund drying up: the federal commitment to shoulder the cost of MinnesotaCare (the feds will pay $818 million in fiscal years 2018-19) is uncertain at best because the Trump administration sees cutting it as a way to undermine the Affordable Care Act. Minnesota may have to reassume a much greater share of the programs costs. And if state leaders want to extend Minnesotas reinsurance program, where will they turn for the dollars to pay for it? Around $400 million in HCAF dollars was transferred to this program.

A dedicated funding stream is critical to delivering care at the levels Minnesotans expect. Its also important for the states economy. Medical providers bottom lines will suffer if funding cuts affect payment rates for patients in public programs.

Nearly 30 years have passed since the provider taxs passage. It has served the state well. But if theres an alternative way to sustain these programs, or if the tax rate could be reduced without cutting service, lets discuss it. Business leaders, lets get going.