Letter to Physician from the Commissioner of the Minnesota Department of Revenue

(See CCHC Commentary in numbered links)

MINNESOTA Department of Revenue

Commissioner's Office
St. Paul, Minnesota 55146-7100
April 30, 1999
Mary Smith, provider*
ABC Clinic
Minneapolis, MN 55416
Dear Mary:
Governor Ventura has asked me to respond to your letter concerning the MinnesotaCare tax.
Because it eliminates the burden of providing uncompensated care (1), MinnesotaCare actually saves physicians, hospitals and patients money. The MinnesotaCare program, including the tax that supports it, is a nationally recognized success story that all Minnesotans can be proud of.
Before MinnesotaCare, health care providers bore the cost of caring for Minnesotans who could not afford medical insurance, either by absorbing costs themselves, or by charging their insured patients higher fees. This, in turn, affected the premiums paid by insured Minnesotans, as insurers passed on the higher fees to their policyholders.
Since the introduction of MinnesotaCare, 108,000 Minnesotans have been able to purchase insurance at rates they can afford(2), and the need for unreimbursed health-care services has been cut dramatically. As a result, health-care providers no longer have to cover costs for unreimbursed services.(3) Health-care insurance companies have also benefited, since reimbursements now reflect more accurately the actual cost of services provided.
It is true that the 1.5 percent MinnesotaCare tax represents an increased cost for health-care providers, although that cost can be passed along to their patients' insurers. However, passing along the tax to health-care insurance companies does not mean those companies must in turn increase their fees. That cost should be offset by the reductions in reimbursements to health-care providers, whose rates no longer have to cover unreimbursed health-care services. (4)
In fact, with 108,000 fewer non-paying patients, physicians and hospitals might actually be able to reduce their fees (5), and neither health-care providers nor insurers would have to pay additional expense as a result of the MinnesotaCare tax. (6)
As to the question of its regressivity, a 1994 Department of Revenue study concluded that, except for the individual income tax, all Minnesota state and local taxes are regressive than the state's tobacco, liquor, gasoline and gambling taxes.(7) It is also important to note that the study did not take into account MinnesotaCare's contribution to reducing health-care costs for everyone by helping to provide affordable health-care insurance to previously uninsured Minnesotans. (8)
Finally, the MinnesotaCare tax is one of the easiest and most efficient taxes to administer, costing around 80 cents for every $100 collected.
Thank you very much taking the time to write and share your concerns.
Matthew G. Smith
* Name changed at request of recipient
1) "Eliminates" does not accurately portray the effect of the MinnesotaCare program. Care is still uncompensated, even for those enrolled in the MinnesotaCare program.
2) Many recipients cannot afford the Minnesota premium according to testimony at the State Capitol. In addition, this premium covers only $10,000 of hospital care for adults. It's not insurance.
3) Providers complain that the MNCare reimbursements do not cover the cost of care, let alone overhead expenses.
4) Legislators have made clear that the tax should be reimbursed by health plans. Legislation has been attempted--unsuccessfully--to require health plan reimbursement of the tax to providers. The idea that health plans should instead decrease payments to providers is not based on legislative intent.
5) Since the MNCare program does not properly reimburse cost of care or the additional paperwork required, this is faulty reasoning.
6) In other words, providers should keep paying the tax and lower the amount they charge patients and health plans for care, even though the department has just stated that the tax adds to the cost of care for providers. A reminder here: providers rarely have a choice in what they receive as payment. Health plans and the government set the reimbursements.
7) This is an unfair comparison given the difference between pleasure activities and medical care.
8) Since only 36-47% of the tax is used for care, the 53 - 64% not used for care represents an increase, not a reduction in health care costs for Minnesotans.