With a looming $5 billion deficit, the Minnesota state budget is on a sustainable path. Spending reform is essential in the 2025 legislative session. Unfortunately, the numerous proposals to increase HHS spending — especially in Medical Assistance (MA) or Medicaid — make meaningful reform seem unlikely.
A primer in Medical Assistance (MA)
Run by the Department of Human Services (DHS), MA (Minnesota’s Version of Medicaid) is a joint federal-state health insurance program for low-income Minnesotans, including children, adults, the elderly, and people with disabilities. Per the US Census Bureau definition, MA is Minnesota’s biggest welfare program. In the 2024-25 biennium, MA is estimated to cost $14.3 billion — nearly 70 percent of HHS spending.
For children and adults, MA spending mainly pays for health care access through the basic care program. For the elderly and people with disabilities, the majority of MA spending is dedicated toward Long-Term Services and Supports (LTSS), mainly through Home and Community-Based Service (HCBS) waivers, also known as Long-Term Care (LTC) waivers. In addition to HCBS waivers, MA helps pay for Nursing home care for eligible individuals. MA also pays for general medical care or basic care for the elderly and people with disabilities.
Overall, children and families make up over 50 percent of MA enrollees. However, over half of all MA spending goes to elderly and disabled enrollees, with 42 percent going to LTC waivers. In addition to being more costly, LTC waivers are also expected to be the fastest-growing program in MA, partly a direct result of 2023 legislative changes.
In the November 2024 forecast, DHS estimates that spending on LTC waivers per person will be 41 percent higher in 2029 compared to 2019. During the same period, per person basic care spending for families with children will grow by 6 percent. Basic care for the elderly and disabled enrollees as well as spending on LTC facilities will each grow by 30 percent.
MA leads general fund spending growth
Due to the substantial expected growth in LTC waivers, MA is the leading cause of HHS spending growth and, consequently general fund spending growth in the next four years. According to MMB, in the 2026-27 biennium, HHS will increase by nearly $3 billion from the 2024-25 biennium. In this period, MA spending will grow faster than total HHS spending. LTC waivers will account for 60 percent of HHS spending growth.
In the 2028-29 biennium, HHS spending will increase by over $3 billion compared to the 2026-27 biennium. MA spending will account for 93 percent of growth. LTC waivers will grow by $1.44 billion — 47 percent of HHS growth. Overall, HHS spending will surpass E-12 education starting in the 2029 fiscal year to become the biggest state spending category, taking nearly 40 percent of general fund spending.
Table: Per biennium growth, Billion $
HHS spending hike proposals
Suffice it to say, MA spending reform is the key to budget reform in the 2025 session. Unfortunately, while Gov Walz has called for cutting DHS spending, particularly on fast-growing LTC Disability waivers, legislators are moving in the opposite direction. Lawmakers have introduced numerous proposals that will increase spending on MA, including LTC waivers. Here is a look at some of those notable bills.
LTC waivers
SF 402/HF 382: Disability Waiver Rate System (DWRS) wage calculations
In setting payments to providers, the DHS utilizes the Disability Waiver Rate System (DWRS), which sets a uniform standard for all disability-related services. DWRS is structured by Minnesota Statutes, which among other things, require the DHS to use the Department of Labor’s Standard Occupation Classification (SOC) codes when calculating base wages. Statutes also specify when and how these codes should be updated.
If passed, SF 402/HF382 would modify wage calculations for supervisory and direct staff under the DWRS. For supervisory Staff, SF 402 would direct DHS to calculate base staff costs using “ percent of the median wage for community and social services specialist (SOC code 21-1099).” Since Social service specialists, who currently determine 100 percent of the base rate, have a lower wage, the new rule would raise the base rate, increasing payments to providers. The bill also raises the competitive workforce factor — which is used to calculate direct staff cost — to 16.76 percent, from 6.7 percent, raising payments to providers.
Likely impact: In the 2023 session, the DFL-controlled legislature dedicated over $6 billion in new funds to HHS between 2024 and 2027. The majority of permanent spending increases were directed to the MA program, through some adjustments to the DWRS. Minnesota’s current looming budget deficit is to a large extent a direct result of these changes. If passed, SF 402 will raise DWRS spending rates further, and accelerate growth in MA spending.
Other MA spending bills
Other bills that could increase MA spending on LTC waivers and LTC facilities include:
SF 548; HF 664: Raises the MA income eligibility limit for the elderly and people with disabilities from 100 percent of federal poverty to 133 of federal poverty.
SF 855: Proposes a temporary rate increase for nursing home facilities effective January 2025 and expiring June 2026.
SF 1127: Among other things, modifies (upward) “enhanced rates for community first services and supports.” The bill also eliminates “medical assistance asset limits for former recipients of medical assistance for employed persons with disabilities who are 65 and older” as well as “medical assistance premiums for employed persons with disabilities.”
SF 1725: Among other things, the bill directs nursing facilities to adjust wages according to minimum standards created by the Nursing Home WorkForce Standards Board beginning in January 2027. The bill creates, a ‘known cost change factor’, defined as “1.00 plus the average amount of increase in minimum wages for nursing home employees approved by the Nursing Home Workforce Standards Board established … and taking effect within the previous 12 months.” This known cost change factor will be used to adjust reimbursement rates for nursing home facilities under MA.
Other general proposed changes to MA include SF 276/ HF 685. This bill, which was also introduced in the 2024 legislative session, expands MA coverage to include violence prevention services. These are defined as “services provided to promote improved health outcomes and positive behavioral and environmental change, prevent injury and recidivism, and reduce the likelihood that individuals who are victims of community violence will commit or promote violence themselves.”
Other HHS spending bills outside of MA
Other proposals to increase HHS spending outside of MA include:
SF 93: Expands MinnesotaCare to direct support professionals (and their families) with incomes up to 400 percent of federal poverty. The bill was introduced in the 2024 session as well.
SF 1110; HF 1146: Directs the Minnesota Department of Children, Youth, and Families (DCYF) to create the “Minnesota SNAP step up for seniors program to supplement the minimum monthly benefit amount for eligible seniors who receive federal Supplemental Nutrition Assistance Program (SNAP) benefits.” This bill was introduced in the 2024 session as well.
Proposals to (potentially) lower HHS spending
Family Medical Account
SF 1261 would create a Family Medical Account (FMA) for families with children, as well as childless adults under MA. DHS would contribute a yearly payment (payable monthly) to an enrollee’s account to be used for medical services. Any leftover funds at the end of the year are transferred to the enrollee’s FMA investment account. For enrollees who become ineligible for MA, FMA funds would be available up to one year after disenrollment.
Likely impact: To the extent that the proposal lowers the costs of services, encourages preventive care, and reduces unnecessary healthcare consumption, it could lower MA spending for children and adults. However, results would depend on how the varying incentives under the program interact.
For instance, while the program would allow enrollees to negotiate rates, it also calls for raising “service fees for medical assistance provided under the FMA service delivery model to levels equivalent to the federal Medicare service fee rates,” which are generally higher. Moreover, under FMA, enrollees who have fully spent their yearly contribution would switch to receiving MA benefits. At the same time, FMA contributions are restricted to outpatient and emergency services, limiting reform to a small segment of MA spending.
Repealing welfare for illegal immigrants
Several bills have been introduced to repeal welfare for undocumented immigrants, which could lower HHS spending in some areas. These include:
SF 284: Repeals a 2023 law extending eligibility of MinnesotaCare to undocumented immigrants.
HF 10, SF 690: Repeals welfare eligibility for undocumented immigrants. This includes eligibility for free college under the North Star Program, subsidized healthcare insurance under MinnesotaCare, and any other assistance programs or grants.