Minnesota’s ‘sick tax’ would go up 11% under DFL budget

Minnesota state Senator Melissa Wiklund (D-Bloomington) proposed an 11.1% increase in the state’s sick tax that hits all dental and medical patients. Every service and product paid for by health services, from teeth cleaning to pacemakers, would see an increase. Without hearing testimony on the proposed tax hike, Wiklund tucked it into the Senate Health and Human Services omnibus bill.  According to the updated budget forecast, this would increase the sick tax by $115 million in FY 2026 and $123 million in FY 2027.

After spending every penny of the state’s record $17 billion surplus, legislators need to cut the budget. Now that they are waking up hungover from their recent spending bender, Minnesota democrats have unsurprisingly proposed tax increases rather than sobering up to face the task of spending cuts.

A “Hair of the dog” approach to a spending problem

Senator Wiklund surely would have heard stiff opposition if she had invited testimony for the bill to raise the sick tax by $238 million. The Minnesota Business Partnership, in a joint letter with several other industry groups, put it in simple terms. “Any effort to lower health care costs by raising taxes is at cross purposes with itself — and the result will be increased costs for many Minnesotans.”

The Minnesota sick tax began more than 30 years ago as a way to pay for Minnesota Care. This program was for low-income Minnesotans who did not qualify for Medicaid. In 2011, in his first act as Governor, Mark Dayton expanded Medicaid under Obamacare. Everyone quickly noticed that that the state-only 2% sick tax was creating a huge surplus as the federal Medicaid program now paid for the group previously insured by Minnesota Care. Dayton, a democrat, agreed with a republican legislature to ratchet down the sick tax and eventually eliminate it. Unfortunately, republicans later joined with democrats to revive the tax.

The tempting slush fund

The Health care Access Fund, which is fed by the sick tax has a unique feature that has proven to be irresistible to both republicans and democrats in the legislature. It sits separate from the general fund so that spending from it does not have to conform with the state constitutional mandate to balance expenditures and revenues. There is no restriction whatsoever on the use of the funds, so it has been used to plug holes in the budget for decades. If more money is needed in the general fund, transfers can be made, effectively making it the de facto $2 billion overdraft account for the legislature.

Raising the sick tax just increases the revenues to this slush fund, which was supposed to pay for poor people’s health care. Legislators on the health committees should instead focus on cutting wasteful spending and stopping improper Medicaid payments.