An Outrageous Tax Increase in the 'No New Taxes' Budget
Minnesota Health Plan
Information and Resources
by Senator John Marty
October 9, 2003

If you saw a newspaper headline, "Minnesota Raises Taxes on Nursing Home Residents to Balance State Budget," would you believe it? The headline doesn't seem plausible. After all, Governor Pawlenty said the budget was balanced without tax increases. Besides, who would tax vulnerable people in nursing homes?

Yet such a headline would be a fair description of one provision in the budget -- Minnesota's private-pay nursing home residents are billed for an additional surcharge of about $2000 per year -- not to cover their care, but to help balance the state budget.

In his budget, Governor Pawlenty proposed this $5.56 per day increase in a "medical assistance surcharge" on all nursing home beds. Obviously, people understand an increase might be needed to cover higher nursing home costs due to inflation.

But this surcharge does not go to nursing homes. Nursing homes will, on average, receive slightly less funding this year than last, and certainly no inflationary increase. The surcharge (which is charged on all nursing home beds, including those of people paying for their own care) goes to the state general fund.

For Minnesota seniors who pay this, it certainly seems like a tax. They pay a surcharge for their care, yet the money goes to the state while their nursing homes get less money.

The medical assistance surcharge was implemented a decade ago to maximize federal government reimbursement under the Medicaid program. Back then, the money collected and some of the additional federal reimbursement was given to nursing homes through higher funding.

However this year's surcharge boost was not used to provide more nursing home funding. Nursing home residents pay what is, in effect, a $2000 tax, to help the state balance its books "without raising taxes".

This is a complex scheme, and difficult to understand. That may explain how the state can get away with it! Nursing homes pay the surcharge to the state, which uses the funds to draw additional federal dollars. The federal funds and the surcharge from private pay residents are used to pay other portions of the state budget. Nursing homes receive additional funding to make up for roughly the amount they sent the state through the surcharge. The bottom line is that the average nursing home will actually have less money than last year.

Supporters of this scheme might argue it is not really a tax because, in theory, nursing homes do not have to bill private-pay residents for the surcharge. But that's not reality. Are any nursing homes able to absorb the surcharge without passing it on? They are making painful cuts now and cannot take this additional hit.

Sometimes political rhetoric produces bad public policy. In this case, Governor Pawlenty's "no new taxes" produced predictable, though not pretty results: schools laid off numerous teachers, healthcare and services for the disabled were cut, funding for environment and natural resources were reduced, the University of Minnesota and other higher education institutions faced sharp reductions in state funding, many costs were shifted to local governments (ultimately, to property taxpayers,) and many fees were increased.

People facing increases in government "fees", "surcharges", or local taxes might see it differently, but the Governor still claims that there were no new state taxes.

There is a silly rhetorical game in Minnesota politics about whether certain sources of government revenue are "taxes", which are presumed unacceptable, or "user fees", which are presumed to be acceptable. If the revenue from this surcharge was used to pay nursing home costs, one could call it a "user fee". But this surcharge is not.

Can the Governor or other proponents of the surcharge keep a straight face when saying it is not a tax? It would be enlightening to see someone try to defend its fairness.

Nursing homes are struggling with too little money to provide care for their residents. The state is struggling to meet growing needs in a time of declining revenue. Debate over how to balance the budget is reasonable. But we should not let "no new taxes" rhetoric be used to justify unfair taxes on vulnerable seniors in nursing homes.


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