sicktax

BILL WOULD REPLACE 'SICK TAX'

LAWMAKERS PROPOSE USING TOBACCO SETTLEMENT FOR MINNESOTACARE INSURANCE PROGRAM

ST. PAUL -- Love the government program, hate the tax.
   That's what the health-care industry has been saying for years about MinnesotaCare -- that the state should keep subsidizing health insurance for the working poor, but stop imposing special taxes on health-care services and insurance premiums to pay for the program.
   How to do both? This year, critics of the taxes believe they have a perfect answer: Tobacco money.
   On Thursday, leading DFLers in the Minnesota House lined up behind Republicans to call for replacing the taxes with the 25-year stream of cash from the state's out-of-court settlement with tobacco companies.
   ''This is a regressive tax,'' state Rep. Tom Huntley, DFL-Duluth, said at a press conference with House Minority Leader Tom Pugh, DFL-St. Paul. ''It's not the wealthy docs that pay that tax. It's the people who pay the premiums. It's paid for by the ladies who are on Social Security. If there ever was a tax we should eliminate when we have a surplus, it's this one.''
   Critics of the so-called ''sick tax'' are only one interest group among many suggesting worthy causes for the $6 billion tobacco windfall. But boosted by Minnesota's influential HMO and hospital industries, they appear to have muscled their way to the head of the pack.
   During a hearing Thursday by the House Tax Committee, the idea received a warm reception from Chairman Ron Abrams, R-Minnetonka, who was pleased by the symmetry of a new revenue stream fully replacing an old one. Abrams noted that his counterpart in the Senate, Sen. Doug Johnson, DFL-Tower, has signed onto a similar plan.
   "We're having kind of a happy confluence," Abrams said.
   Legislators are proposing to mess with success.
   MinnesotaCare taxes have pulled in enough to cover $130 million worth of insurance subsidies per year while piling up a reserve fund that's reached $300 million. That pays for part of the health costs of lower-income Minnesotans who buy health insurance through the state -- 106,617 people at present, more than half of them children.
   The long-term portion of the tobacco payments are hefty -- $115 million a year starting in July, rising to $204 million by 2004. But they would fall short of the projected annual costs of MinnesotaCare, which over the same period start at $186 million and grow to $253 million.
   Haas proposes to use the current reserve to make up the difference. Other Republicans would like to convert the reserve into tax breaks sent to taxpayers as soon as possible.
   Either way, under the reform proposals, the excess costs of MinnesotaCare would eventually start taking a bit out of the state's general fund, which is backed by income taxes and other fees paid by all Minnesotans. Haas says that would happen sometime around 2012 -- six election cycles from now.
   Legislators are more concerned about how the tobacco money should be spent this year. That may become the towering issue of the state budget that legislators will assemble by mid-May.
   Abrams argues that the new Republican majority in the House can embrace some version of the Haas plan because it fits their campaign promises of tax relief and phasing out the sick tax.
   Carolyn Johnson of the Minnesota Chamber of Commerce argued for the Haas plan by pointing to a business organization poll of Minnesotans in which 45 percent wanted the settlement used for "lower health care costs," more than the combined response for smoking programs, medical research or education. Johnson didn't mention that only 3 percent responded "eliminate health care tax," which was listed as a separate option, but she argued later that very few consumers are aware of the sick taxes.
   The American Association of Retired Persons, meanwhile, wants the tobacco windfall spent on prescription drug discounts and pay raises for nursing home workers.