Minnesota Medical Association Offers Option to Break Gridlock on Provider Tax Debate in St. Paul

May 13, 2019

With only a week to finalize a state budget for the next two-year budget cycle, the Democratic-led House and the Republican-led Senate are many millions of dollars apart on their health and human services proposals, and are at loggerheads in terms of the future of the 2 percent provider tax. The Minnesota Medical Association (MMA) is proposing a compromise that modernizes the tax and preserves the needed funding for public health programs such as MinnesotaCare and Medical Assistance.

The provider tax, which generates nearly $700 million per year, is scheduled to sunset at the end of 2019. The House wants to preserve the provider tax in its current form; the Senate wants to stick to the repeal without proposing any replacement funds, resulting in proposed cuts to the services covered by public health programs.

To date, the options have been framed as a binary choice – either keep the provider tax or let it sunset.  
The MMA believes there is a different option to end the gridlock. In anticipation of the scheduled sunset of the provider tax, and determined to preserve MinnesotaCare and Medical Assistance coverage, the MMA has crafted an alternative proposal– a claims expenditure assessment (CEA) that would be collected and processed by insurers and based on paid health care claims. Despite court rulings upholding this assessment and independent analysis finding that it could generate sufficient revenue, some have worried that a wholesale shift from the provider tax to the CEA could jeopardize the stability of current safety net programs. 

Most other states that rely on provider taxes apply them only to institutions like hospitals and nursing homes. Minnesota, however, stands alone as the only state that extends its provider tax to outpatient health care services (e.g., dental and orthodontia services, optometry services, physician clinic services). This unique design is responsible for the greatest problems with the current provider tax – complex administrative processes due to the thousands of taxpayers collecting and paying the tax. This design is also responsible for the tax’s greatest impact on patients – it is assessed on patients’ out-of-pocket spending, which occurs primarily in outpatient settings. 

“Fortunately, a real compromise is within reach for legislators,” says MMA President Doug Wood, MD. “They should preserve the provider tax where it is supported and works best – on hospital services but replace it with a paid claims-based assessment on outpatient services. With this straightforward approach, the Legislature can preserve Minnesota’s health care safety net, mitigate perceived risks, simplify tax collection, and reduce the tax burden on Minnesota patients.”