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Why are Minnesota lawmakers fighting over a 27-year-old health care tax?

Michael Brun / Forum News Service

ST. PAUL — A nearly 30-year-old tax on medical providers is at the center of increasingly tense negotiations between Democrats and Republicans for the next state budget.

The 2% provider tax will sunset at the end of the year if lawmakers do nothing. It currently raises about $700 million for a Health Care Access Fund that is spent on a variety of programs to keep health care accessible and affordable.

Republicans call it a "sick tax" and say letting it expire should bring down health care costs. Democrats argue the provider tax is a key source of revenue for programs like medical assistance, MinnesotaCare and other efforts to help the most vulnerable residents receive care.

Why do we have it?

The provider tax was created in 1992 to fund MinnesotaCare, the public health insurance program for the working poor. Over the years, the federal government has picked up more and more of the cost of MinnesotaCare and pays for the majority of it since the Affordable Care Act became law.

The provider tax also helps cover part of the state’s portion of Medicaid — the insurance for people with disabilities and those with low-incomes and their children.

The current budget also tapped the Health Care Access Fund to pay some of the cost of a reinsurance program that helps insurance companies pay for their most expensive patients and keeps premiums down.

Finally, money from the provider tax goes into the state’s general fund and to the departments of health and human services.

What happens if it sunsets?

Republicans say medical programs and other services paid for with the provider tax should be funded through the state’s general fund. Their budget proposal spends down the access fund balance and they want cuts in social programs to balance the health and human services budget.

They said it was a victory when former Gov. Mark Dayton agreed in 2011 to eventually sunset the tax to secure a budget deal and end a government shutdown.

Democrats say losing the tax would be devastating. They worry federal funding the state now receives for MinnesotaCare and Medicaid will dry up and people will be pushed off their insurance.

Democrats say medical professionals are on their side. More than 170 have signed a letter to lawmakers urging them to keep the provider tax.

What comes next?

It’s difficult to predict how lawmakers can come to an agreement on the next budget without finding some common ground on the future of the provider tax and the programs it funds. Both Republicans’ and Democrats’ budget plans depend on funding from the tax.

Without it, they have to find a way to fill a $700 million hole in future spending plans. That means either cuts to government services or new revenue.

To finish their work on time, lawmakers have until Monday to pass the next state budget, which will be close to $50 billion. If they don’t come to an agreement, they will need a special session to replace the current budget that expires June 30.