Claims Expenditure Assessment: A Proposal to Replace the Provider Tax
Issue
The provider tax, a controversial source of funding
for Medical Assistance (MA), MinnesotaCare and
several other long-standing health access programs
since 1992, is scheduled to sunset December 31,
2019. Although the Health Care Access Fund
(HCAF), the fund into which the provider tax is
deposited, is solvent through FY 2021, replacement
funding is needed to maintain health care coverage
for low-income Minnesotans.
Approach
Given the scheduled provider tax sunset, the MMA
recognized the need to identify potential
alternative sources of revenue. To guide its review
of potential alternatives, the MMA established
three guiding principles:
• Preserve Coverage: Any alternatives must
provide ongoing funding for current
MinnesotaCare and MA coverage and
historic HCAF programs.
• Modernized: Any alternatives must
generate revenue that reflects current
spending needs and recognizes post-ACA
federal and state financing dynamics.
• Sustainable: Any alternatives must be
sufficient to meet future spending needs
and qualify for appropriate Medicaid
matching funds.
The MMA engaged experts to assist it in its
work – Harbage Consulting, a national health
policy and communications consulting firm;
and, the State Health Access Data Assistance
Center (SHADAC), a health policy research
center affiliated with the University of
Minnesota School of Public Health.
After examining more than a dozen different
options, a claims expenditure assessment was
identified.
Claims Expenditure Assessment Mechanics
A claims expenditure assessment would be applied
to all non-federal adjudicated health care claims for
a Minnesota resident processed by a health plan,
insurer, or third-party administrator (TPA). Unlike
the provider tax, it would not apply to patient out-
of-pocket spending, including co-pays, deductibles,
cosmetic, or non-covered services.
Assessment Rate
Financial modeling conducted by SHADAC
estimated that a claims expenditure assessment of
1.67% to 1.99% would generate sufficient revenue
(see Methodology section, below, for additional detail).
Advantages
A claims expenditure assessment preserves MA
and MinnesotaCare coverage and will generate
sufficient revenue to support other ongoing HCAF
spending.
A claims expenditure assessment is based on health
care spending, which will allow revenue to keep
pace with health care inflation. A claims
expenditure assessment also meets Centers for
Medicare and Medical Services requirements for
federal matching funds.
A claims expenditure assessment is broad based, as
it would be applied to all non-federal claims for
health care services provided to Minnesota
residents. The assessment is also permissible under
ERISA and supported by federal case law.
A claims expenditure assessment reflects current
spending needs and recognizes federal and state
financing dynamics enacted since the Affordable
Care Act.
A claims expenditure assessment is less regressive
than the provider tax, because it is not applied to
patient out-of-pocket spending, non-covered
services, or charity care.
A claims expenditure assessment, unlike the
provider tax, does not put Minnesota border
community health care facilities or national centers
of excellence at a competitive disadvantage.
A claims expenditure assessment results in a $100
million tax cut compared to the current provider
tax.
A claims expenditure assessment is more efficient
than the provider tax as fewer entities will collect
and pay it compared to the number of providers
paying the provider tax. It will also reduce
administrative expenses for all health care
providers.
A claims expenditure assessment will not increase
health care costs as insurers and employers already
account for the cost of the provider tax via the tax
pass-through.
A claims expenditure assessment allows legislators
to maintain their 2011 commitment to the provider
tax repeal.
Potential Disadvantages
A claims expenditure assessment is new and would
require new Department of Revenue processes.
Despite support from federal case law, a claims
expenditure assessment may nevertheless be
challenged in court on the question of ERISA
preemption.
Methodology
SHADAC was engaged to estimate the assessment
rate that would be necessary to generate the
following 2020 revenue targetsi:
• Low Target: $501 million
o Enough to cover all existing projected
Health Care Access Fund expenditures
and transfers [$628 million]
▪ Minus projected existing
ongoing Health Care Access
Fund revenue (i.e., 1% gross
premium tax and MinnesotaCare
enrollee premiums) [$127
million]
• High Target: $596 million
o Enough to cover all existing projected
Health Care Access Fund expenditures
[$628 million]
▪ Minus projected MinnesotaCare
enrollee premiums [$32 million]
• This assumes the 1%
gross premium tax is
either repealed or
rededicated.
To complete these estimates SHADAC built an
Excel spreadsheet model based primarily on 2016
data, which was projected to 2020 and used to
calculate what assessment rates would be needed
to hit both the low and high revenue targets.
Additional detail about the SHADAC data sources
and key assumptions are as follows:
Claims for the Fully-Insured Market
• Claims for the fully-insured market are
based on net-incurred claims after
reinsurance (excluding pharmaceutical
rebates).
• Primary Data Source: 2016 National
Association of Insurance Commissioners
(NAIC) Supplemental Health Care Exhibit
Report Volume I.ii
• We adjusted the 2016 fully-insured claims
expenditure totals to:
 o Exclude TRICARE expenditures Claims for MinnesotaCare and Medical
(assumes 1% of the Minnesota Assistance
population is enrolled in • Claims data for MinnesotaCare and Medical
TRICARE).iii,iv,v Assistance are based on DHS forecast data
o Exclude Federal Employee Health for 2020.xii
Benefit Plan expenditures (assumes
the FEHBP per member claims Results (in 000s)
profile is the same as the fully 2016 Actual (Adjusted) and 2020 Projected Claims
insured large group market).vi
Claims 2016 2020
o Adjust the final total claims
expenditure upwards by 6% in order
to account for the inclusion of
Minnesota
standalone dental claims, which are
Commercial
not included in the NAIC data.vii $4,840,000 $5,150,000
Business - Fully
• To project 2016 claims to 2020 for the large
Insured
and small group market, we applied the
National Health Expenditure Trend
Projection growth rate calculated by the
Minnesota
Office of the Actuary in the Centers for
Commercial $8,320,000 $9,980,000
Medicare & Medicaid Services.viii
Business - Self
• To project 2016 claims to 2020 for the
Insured
individual market, claims were adjusted to
reflect the 40% decline in claims between MinnesotaCare n/a $490,000
2016 and 2017ix and the National Health
Expenditure Trend projection was used to Medical Assistance n/a $14,350,000
predict growth between 2017 and 2020.viii
Total Claims n/a $29,980,000
Claims for the Self-Insured Market
• The most significant data gap for
SHADAC’s analysis is related to the self- Based on a total projected claims expenditure of
insured market. $29.9 billion in 2020:
• To estimate the size of this market, we used • In order to raise $501 million in revenue, a
2016 data from the Minnesota Department health care claims assessment rate would
of Health’s Health Economics Program.x,iv need to be: 1.672%
• To estimate 2016 claims expenditures of the • In order to raise $596 million in revenue, a
self-insured market we assumed claims health care claims assessment rate would
experience would be the same as with the need to be: 1.989%
fully-insured market (see above) and that
95% of enrollees in this market were in large
firms.xi
• As with fully-insured claims, we applied
the National Health Expenditure Trend
Projection growth rate to project 2016 claims
December 2018
to 2020.
i Minnesota Department of Management and Budget (MMB). xi Estimate based on SHADAC analysis of the Medical
(2018, February 28). Health Care Access Fund: February 2018 Expenditure Panel Survey - Insurance Component.
Forecast Update. Retrieved from xii Minnesota Department of Human Services, Reports and

https://mn.gov/mmb/assets/feb18fcst-hcaf_tcm1059-327960.pdf Forecasts Division. (2018). Background Data Tables for February

ii National Association of Insurance Commissioners (NAIC). 2018 Forecast [Excel Table Spreadsheet]. from
(2017). 2016 Supplemental Health Care Exhibit Report Volume I. https://mn.gov/dhs/general-public/publications-forms-
Retrieved from resources/reports/financial-reports-and-forecasts.jsp
https://www.naic.org/documents/prod_serv_statistical_hcs_zb.
pdf
iii Minnesota Department of Health (MDH). (2018). Chartbook

Section 2: Trends and Variation in Health Insurance Coverage.

Retrieved from
http://www.health.state.mn.us/divs/hpsc/hep/chartbook/sectio
n2.pdf
iv U.S. Census Bureau, Population Division. (2018). Annual

estimates of the resident population: April 1, 2010 to July 1, 2016.

[Table. Release Date: December 2016]. Retrieved from
https://factfinder.censusd.gov/faces/tableservices/jsf/pages/pro
ductview.xhtml?pid=PEP_2017_PEPANNRES&src=pt
v Defense Health Agency, Decision Support Division. (2016,

February 24). Evaluation of the TRICARE Program: Access, Cost,

and Quality [Fiscal Year 2016 Report to Congress]. Washington,
DC: Office of the Assistant Secretary of Defense. Retrieved
from https://health.mil/Reference-
Center/Reports/2016/05/19/Evaluation-of-the-TRICARE-
Program-Fiscal-Year-2016-Report-to-Congress
vi Governing: The States and Localities. (2018, January 18).

Federal Employees by State. Retrieved from

http://www.governing.com/gov-data/federal-employees-
workforce-numbers-by-state.html
vii Estimate based on SHADAC analysis of the Medical

Expenditure Panel Survey - Insurance Component as well as

National Health Expenditure data and information from the
Minnesota Department of Health, Health Economics Program.
viii Centers for Medicare & Medicaid Services, Office of the

Actuary; U.S. Department of Commerce, Bureau of Economic

Analysis; and U.S. Bureau of the Census. (February 2018). Table
1 National Health Expenditures and Selected Economic Indicators,
Levels and Annual Percent Change: Calendar Years 2010-2026.
Baltimore, MD: CMS. Retrieved from
https://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/Downloads/Proj2017Tabl
es.zip
ix National Association of Insurance Commissioners (NAIC).

(2018). 2017 Supplemental Health Care Exhibit Report Volume I.

Retrieved from https://www.naic.org/prod_serv/HCS-
ZB_2017.pdf
x Minnesota Department of Health (MDH). (2018). Chartbook

Section 2: Trends and Variation in Health Insurance Coverage.

Retrieved from
http://www.health.state.mn.us/divs/hpsc/hep/chartbook/sectio
n2.pdf