Minnesota Lawmaker Proposes Using Hospital Tax To Fill Charity Care Gap
Minnesota lawmakers are grappling with how to support the state’s financially struggling hospitals as patients face mounting medical debt.
A Minnesota lawmaker wants to redirect money from an existing health tax to hospitals so they can expand their charity care programs for patients who can’t pay their bills.
The proposal follows a Minnesota Star Tribune-KFF Health News investigation that found hospitals across the state spend far less on charity care than hospitals in many other states and use very different standards to decide who qualifies for free or discounted care.
State Rep. Steve Elkins said it makes sense to help hospitals with their own tax contributions as more Minnesotans lose their health insurance.
“Hospitals provide a fair amount of charity care, but they kind of have an obligation to do something more than what they’re doing,” said Elkins, who introduced the bill May 13, in the final days of the legislative session.
Elkins noted recent reports from the Lown Institute and the Minnesota Legislative Auditor indicating that some hospitals earn more in nonprofit tax benefits than they spend on community benefits, including charity care.
However, simply demanding more from hospitals isn’t necessarily the answer, Elkins said. Newly released financial data shows that 31 Minnesota hospitals meet the state’s definition of financial distress because they lost money operationally in four of the last eight years.
Hennepin County Medical Center in Minneapolis appears poised to benefit from a $205 million state bailout this year to keep the urban trauma center from closing.
HCMC provided the most charity care of any hospital in Minnesota in 2024, at an estimated $88 million, which consumed more than 3% of its operating budget. Elkins said he suspects some charity care patients from other hospitals are being diverted to HCMC, which has a process to automatically screen patients’ financial needs upon admission.
Getting hospitals to be more generous could ease the pressure on HCMC, Elkins said. The state earns about $250 million a year from a 1.56% tax on hospital patient revenue, roughly equivalent to the $241 million hospitals will spend on charity care in 2024, according to estimates from the Minnesota Department of Health.
“You could basically rebuild all the hospitals in Minnesota with all the charity care they provide,” he said.
The lack of state standards allows some hospitals to limit free care to people earning less than $15,000, while others offer care to people living alone and earning up to $47,000. Being stingy with charity care can be counterproductive for hospitals, which end up wasting money on debt collection efforts from patients who couldn’t pay their bills in the first place, said Eli Rushbanks, director of policy advocacy for Dollar For, a nonprofit that helps U.S. patients seek charity care.
“It’s not really about whether they’re doing better than other states. It’s more about whether they’re doing enough” for Minnesota’s patient population, he said. “Minnesota has patients eligible for charity care who do not receive charity care.”
Some state disparities in charity care are beyond the control of hospitals and even report positive trends. Lower rates of chronic disease mean Minnesotans have less need for health care in the first place. Higher levels of insurance coverage mean they don’t need as much charity care to pay for their health care.
Elkins’ idea of taking money from hospitals and returning it with conditions seemed unnecessary to leaders of the Minnesota Hospital Association, who would prefer to see the tax go away.
Joe Schindler, the association’s vice president for financial policy, said one alternative would be to shift the money to the Medicaid health insurance program for low-income or disabled people. He said this would unlock more federal matching dollars to benefit patients and help close the reimbursement gap in that program.
Hospital systems have discretion to decide the income and financial thresholds at which patients can receive financial assistance in the form of free care or partial discounts. Elkins’ proposal would not change that, but other state leaders and advocates have proposed models that standardize how charity care is delivered.
Dollar For recommends policies that at least provide discounts to households with incomes around 400 percent of the federal poverty level, because there are fewer cases of bad debt and lawsuits involving patients with incomes above that level, Rushbanks said. The Star Tribune-KFF Health News analysis of 123 nonprofit or government-run general hospitals in Minnesota showed that 52 of them offer discounts to patients with household incomes of 350% or more, but the rest fall below that level.
After investigating irregularities in charity care at the Mayo Clinic last year, Minnesota Attorney General Keith Ellison recommended that the state set a minimum threshold for charity care eligibility at all hospitals. It also recommended that all hospitals adopt presumptive eligibility systems that assume patients need financial assistance until proven otherwise.
This week’s article “makes clear that there is still work ahead of us, and I will continue to use the power of my office to help Minnesotans get the medical care they need, no matter what’s in their bank accounts,” Ellison said in a statement.
Charity care is just one category of community benefits reported by hospitals for which they do not receive direct payment. Other examples include providing medical education services to train doctors and nurses, and maintaining deficit services such as obstetrics or emergency care in rural and underserved communities.
Whether hospitals save more in nonprofit taxes than they spend on community benefits depends on what is included in the state auditor’s analysis. Hospitals are chronically underpaid for the cost of medical care by Medicaid, and the State Hospital Association reports this as a benefit to the community.
The legislative audit found that only 28 Minnesota hospitals spent less on community benefits than they saved in taxes in 2023, when that underpayment was part of the total. When excluded along with other research and education expenses, 62 hospitals spent less on the remaining community benefits than they earned in tax benefits as nonprofits.
Elkins said his idea of redistributing tax revenue could motivate hospitals to spend more on charity care or other community benefits. The state could also recruit more doctors, he said, if Minnesota hospitals increased residency slots for field training required after medical school.
The idea is an easier sell now, given Minnesota’s budget surplus, he acknowledged, but could create challenges in coming years when lawmakers would have to find ways to replace lost revenue for other state needs. The lawmaker said he intends to bring it up next year if it doesn’t make it into the state health budget this session.
