New tax or dip into savings? Dayton and GOP differ on how to stabilize insurance market

March 24--Minnesota lawmakers are on the verge of approving as much as $300 million per year to try to stabilize the state's 2018 individual health insurance market and lower premiums.

But before the program, known as reinsurance, gets off the ground, lawmakers and the governor first have to settle an important question: where should the money come from?

The idea, which DFL Gov. Mark Dayton supports despite some qualms, is a top priority for lawmakers and some business groups.

"Keeping people in health insurance and trying to keep them healthy, provide them access to a doctor, is a pretty pressing need, compared to other things. It certainly comes ahead of tax cuts," said Mike Hickey, state director of the Minnesota chapter of the National Federation of Independent Business, which is also a vocal advocate of tax cuts.

The House and Senate have both passed reinsurance bills, in which the state would pay for some high-cost medical claims. Insurers could then offer potentially lower premiums -- more than 20 percent lower, a nonpartisan analysis predicts.

It's targeted at the state's individual insurance market, for the 200,000 Minnesotans who don't have employer-sponsored health insurance or a government plan. That market has seen soaring premiums in recent years, driven by a high ratio of sick people to healthy people there.

The Republican-backed bills passed this month take their money from the state's savings, including its budget reserves and a special health care fund. (The House and Senate differ on the specific funds they draw money from.) Dayton, whose signature is needed for reinsurance to become law, wants to raise the money from a new tax.

THE CASE FOR A TAX

Dayton says it's irresponsible to take hundreds of millions of dollars from the state's normal budget and savings for a reinsurance program.

"Those taxpayer dollars should be dedicated to statewide funding priorities like schools, early childhood education, health care for low-income Minnesotans, and other critical needs," Dayton wrote in a Wednesday letter to lawmakers.

Instead, he wants to tax insurance companies to raise the money for the reinsurance program covering some of their costs. A similar mechanism funded the Minnesota Comprehensive Health Association, the state's old high-risk pool for people with pre-existing conditions.

Most or all of this assessment would likely be passed onto consumers in the form of higher premiums, insurers say. An assessment on the individual market would be offset by the lower premiums reinsurance brings, but would be a straight increase if applied to any markets not benefited by the reinsurance program.

How much those premiums rise depends on how broadly the tax is applied. The old MCHA assessment applied to what today is the individual and small-group markets. Rep. Jennifer Schultz, DFL-Duluth, offered another proposal that would try to tax the bigger commercial insurance market. The wider the tax, the lower impact it would have on each particular premium.

"Everyone benefits from more people having insurance," Schultz said. "The fee on claims is a broad-based revenue source that spreads the cost of that benefit out to most people."

THE CASE AGAINST A TAX

Republicans and business interests say taxing insurance companies would be unfair -- particularly if done the way the old MCHA tax was done on a relatively small part of the state's insurance market.

"You're not charging the insurance companies," said Sen. Jim Abeler, R-Anoka, during a Senate debate earlier this month. "The skin in the game in this is going to be the skin off the back of the knuckles of the hardware store owner, of the farmer, of the small business, of the families who are trying to buy their own insurance."

The original Republican reinsurance bills contained an MCHA-style tax, but it was removed after opposition from business interests.

"It was one of the most unfair, inequitable taxes we've seen around here," said Hickey.

The old MCHA tax, Hickey said, raised affected premiums by around 2 percent. "Over a decade you pay 20 percent more than someone who might have something similar in the (employer-sponsored) market," Hickey said. "It has cumulative impact. It's just so unfair."

Since the individual market has shrunk, Hickey argued that a similar assessment today would be higher than 2 percent.

Some supporters of the current Republican plans to take reinsurance money from reserves say it's not their favorite solution -- just the least-bad option.

"Even though I'm not very excited about... the source, the best thing is it's a common source that everyone has chipped into," Abeler said.

WHAT'S NEXT

Members of both the House and Senate are meeting in a conference committee to negotiate a compromise bill that can pass both chambers and get Dayton's signature.

From their starting positions -- all from reserves, and all from a tax on insurers -- the two sides will try to reach a compromise.

One possibility is a broader tax such as the one Schultz offered.

"If they feel they have to raise more taxes, it has to be a more fair funding source," Hickey said.

Another option is to combine the two options. While Dayton wants the whole program to be funded with a tax, he said he's open to just part of it. Taxes "certainly should be more than half," the governor said Wednesday.

All this has to be decided soon. Insurance companies are already drafting their proposed 2018 rates, and say they need to know if reinsurance will exist by April 1 in order to account for it in their premiums.

OTHER ISSUES

Besides funding, the legislators need to decide other details about how a reinsurance program should function, and whether it should include an option for Minnesotans to purchase coverage through the state-run MinnesotaCare program.

Dayton said he's also waiting for insurance companies to promise they'll stay in the market and lower premiums if reinsurance has passed, after rejecting previous assurances from the state's HMOs.

Meanwhile the very idea of reinsurance is facing attacks from both the left and right despite major differences in their preferred alternatives. These critics view reinsurance as corporate welfare -- subsidies to insurance companies instead of an attempt to stabilize the market.

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