What is Minnesota's provider tax and what happens if it's not renewed?

The tax is due to sunset, and Democrats want to keep it, but Republicans don't.
Publish date:

One of the major sticking points in the budget negotiations between DFLers in the governor's office and House and the GOPers in the Senate is the future of the "provider tax."

The provider tax has existed since 1992, created by the Legislature and then Gov. Arne Carlson to provide funding for MinnesotaCare, though it's now also used for other healthcare programs for low-income Minnesotans.

MinnesotaCare offers health coverage for those who either can't afford private insurance or don't get it from their employer, but earn too much to qualify for Medicaid or Medical Assistance.

The tax itself is a 2 percent levy on medical services provided by Minnesota's doctors, hospitals, opticians, psychologists, physical therapists, ambulance services and wholesale drug distributors, and more, with the taxes applied to the bills they charge patients for treatment/hospital stays etc.

MinnPost notes that 1.5 million Minnesotans benefit from the services the provider tax helps to pay for, and says that both Democrats and Republicans in the Legislature want to continue funding these programs.

They do however disagree over using the provider tax – which generates $600 million a year – to fund these programs, with state Republicans wanting to allow the tax to expire as scheduled at the end of 2019.

Democrats however want to renew it, with Gov. Tim Walz having pledged to sign its renewal if such a bill reaches his desk.

So what are the arguments?

Republicans, among them House Minority Leader, Rep. Kurt Daudt, dub the provider tax the "sick tax." They see renewing the planned sunset as a tax increase on Minnesotans who have private or employer-provided health insurance, who see the 2 percent tax tacked onto their medical bills.

They believe that with Minnesota continuing to produce budget surpluses, there is space within existing state coffers to cover the cost of the programs the provider tax pays for.

Republicans have suggested an alternative: taxing insurance claims paid by health plans and third-party administrators, so the tax would be levied on insurers rather than coming direct from Minnesotans' medical bills.

But if the tax does expire, there are no guarantees that the 2 percent tax reduction would be reflected in the prices charged by medical service providers.

Democrats, on the other hand, argue that renewing the tax isn't a tax increase given that it's been in place for 27 years, and that failing to renew it would leave a huge hole in Minnesota's finances in a few years' time.

"If this fund was to go away, we know that by the end of 2022 we would be in deficit," said Rep. Tina Liebling, the chair of the House health and human services finance committee, per MPR. "The problem there is that big expenses that are now being paid for would then have to be paid for by the general fund."

MPR also notes that Gov. Walz and Democrats see the loss of the provider tax as a potential blow for their hopes of offering a MinnesotaCare buy-in, which would see MinnesotaCare compete with other health insurers by offering a "public option" health plan.

Both the provider tax renewal and the proposed 20-cent gas tax hike are proving to be the major sticking points at least on the Republican side as both parties try to reach an accord before the end of the legislative session on Monday.

If no deal is reached by then, a special session would have to be called to figure out the next budget.

Next Up


High school softball coach accused of stealing booster funds

The 65-year-old is a coach at Lakeville South High School.

police lights

Suspect leads police on 26-mile pursuit in Meeker County

When the suspect stopped, he tried to get out of his car with a shotgun in hand.

Screen Shot 2020-11-30 at 7.41.02 AM

Human remains found at Albert Lea building where 3 people where shot

Authorities say the human remains are not related to the shooting.


DirecTV subscribers could lose KARE 11 on Tuesday

A new contract needs to be agreed upon by 6 p.m. Tuesday.

prison, Rush City cell block

Inmate from Rush City prison dies after COVID-19 diagnosis

The man is the fifth incarcerated person in Minnesota to die from COVID-19.


Belle Plaine man dies after duck boat capsizes on lake

One man was found sitting on the overturned boat while another man was in the water.

Screen Shot 2020-11-29 at 4.59.51 PM

Watch: Adam Thielen watches end of Vikings/Panthers just like all of us

The Vikings receiver looked like a true fan on Sunday afternoon.

Chad Beebe

Chad Beebe's roller-coaster fourth-quarter keeps Vikings playoff hopes alive

A muffed punt and a game-winning touchdown helped defeat the Panthers on Sunday afternoon.


West-central MN cops warn kids to stay off ice, or 'Santa won't come'

This comes amid repeated ice warnings across the state.

covid-19, coronavirus, PPE

Nov. 29 COVID-19 update: 57 deaths, nearly 9,000 more cases

Nearly 100,000 tests were included in Sunday's report.


What happens if a missile is heading toward Minnesota?

How you'd be warned, and what you should do afterward.

What happened at the Minnesota Capitol last night?

The legislative session came to an end – here's how things stand.

Screen Shot 2019-03-29 at 10.54.48 AM

What's in the Minnesota Senate GOP's budget proposal?

The GOPers have proposed a smaller budget than Gov. Tim Walz and the House DFL.

Screen Shot 2019-02-14 at 10.51.28 AM

New report reveals what went wrong with MNLARS

The state's licensing and vehicle registration system has been beset by problems.

What happened to Minnesota's $500M infrastructure bill?

There wasn't enough time to get a bonding bill over the line, amid pushback from Republicans.

Republicans propose alternative to Gov. Walz's gas tax plan

They want to cut the tax, and make additional taxation optional.

What's in the tax reform bill just passed by the House?

Also, find out how your Minnesota representative voted on it.