Early analysis shows limited Minnesota revenue impact from health care law

Rep. Erik Paulsen
MinnPost photo by Devin HenryRep. Erik Paulsen

The Supreme Court’s decision to uphold much of the federal health care reform law has continued its rumbling effects through Minnesota.

On Monday, the state House Taxes Committee reviewed how the Affordable Care Act could alter the state’s revenue projections.

For Republicans — such as 3rd District Congressman Erik Paulsen, who testified before the committee, and U.S. Senate candidate Kurt Bills — the hearing presented a political opportunity to hammer against provisions in the health care law, including the $37 billion medical device tax.

Democrats on the committee used the opportunity to highlight the projected increased access to health care supporters say the ACA will provide.

 Nonpartisan House research staff briefed the committee on how the multiple taxes that help pay for the law — including the newly minted individual mandate — would alter revenue projections in Minnesota.

It turns out the law won’t do much at the state level. According to staff analysis, the tax hikes in the ACA will amount to about $42 million in increased state revenue between fiscal year 2010 and fiscal year 2015.

“The income to the state is rather minimal,” said Taxes Committee Chairman Greg Davids. “It’s in the millions, so I got in trouble for saying the other day that $70 million was a rounding error, but that part’s minimal.”

Davids also insisted the hearing wasn’t politically motivated. He said the law became the purview of his committee because of Supreme Court’s ruling that the individual mandate — the backbone of the health care law — constitutes a tax.

“I really tried to keep this to the tax issues,” he added. “I didn’t want the political speeches — there were a few members on both sides that kind of went that way a little bit. We tried to rein them back in — because this is about something that when the dust settles … we’re going to have a lot of issues to deal with.”

Rep. Greg Davids
Rep. Greg Davids

Davids stressed that members need a significant amount of time to examine the complicated law, which will require some 2013 legislative action to make state law conform. 

Minnesota is projected to capture more revenue from an increase in the threshold on itemized deductions for medical expenses, removing reimbursements for over-the-counter medicines and reducing the maximum amount allowed in Flexible Spending Accounts, among other avenues.

The highest tax expenditure from the state comes from allowing adult children to remain on their parents’ insurance until age 26. The state is expected to feel a $21.5 million impact from that exclusion between fiscal year 2011 and fiscal year 2015.

 “This is an issue that it doesn’t matter if there’s an election or not,” Davids said after the hearing, referring to the overall health care law. “This is an issue that needs to be looked at right now and worked through so that we can start taking actions on some of these provisions in January.”

Paulsen focused his testimony before the committee on his efforts to repeal the medical device excise tax. With bipartisan support, in June he passed a bill in the House that would scuttle the tax.

He said Minnesota’s extensive medical device industry, with more than 400 companies and 35,000 jobs, would be seriously hampered by the new tax, which would go into effect in January.

“I believe it is really nothing short of a tax on innovation,” Paulsen told the committee. “I think it’s safe to say that this problem is a cost no one in this room wants to see.”

 The bill faces a tougher sell in the U.S. Senate.

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Comments (2)

  1. Submitted by Richard Molby on 07/23/2012 - 05:35 pm.

    How is a medical device tax going to hamper innovation? People will still be getting pacemakers and drug dispersement depots and Medtronic (and others) will still make them. So, the end user’s cost will be 7-10% higher? And that money will help lower-income people afford these same treatments (and, possibly, make it so they can return to work and stop being lower-income people) which means the device industry will be able to make and sell even more of these.

    Hey, Mr. Paulsen (Corporate Tool), just how does this hurt?

  2. Submitted by Kent Fralish on 07/25/2012 - 04:39 am.

    Nothing for something

    The tax will increase the price of devices for sure. This makes the devices more expensive than offshore competitors devices. Medtronic will still make them. Off shore.

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