Ramstad: Health care costs drive state spending higher, but fraud opens door to doubt

Everyone everywhere in America this fall is seeing health care premiums and medical costs increase.

On Thursday, the state government’s budget forecasters said the cost of providing health care and human services to elderly, disabled and other Minnesotans in need is the reason for a shocking 5% jump in expected spending during the two-year budget period that just began in July.

Trouble is, continued revelations of fraud schemes and alleged scams in state-run human services programs are creating room for confusion and doubt about precisely why government spending is rising.

The headline out of the budget announcement was the state can afford the increase in spending; there’s a $2.5 billion surplus for the current 2026-27 biennium. That’s because revenue has also risen faster than expected and some funds carried over from the last budget period.

Down the road, projected spending increases outpace projected revenue gains and carryover funds. Forecasters think there will be a $3 billion deficit for legislators to fix when they write the 2028-29 budget in 2027.

For years, government leaders have been saying health and human services spending would push aside education as the biggest item in Minnesota’s general budget. Thursday’s outlook revealed that day is nearly at hand.

Spending in the 2026-27 period on health and human services is now forecast to be 7.5% more than anticipated when lawmakers finished the budget in June. Education costs are up about 1% since then.

“It’s been pointed out that health care costs have increased, and that actually deserves a serious look to whether that increase is because of fraud,” House Speaker Lisa Demuth, R-Cold Spring, told reporters at the budget outlook event.

Indeed, the breakdown of the budget numbers by Minnesota’s political leaders amounted to a preview of the 2026 election campaign.

Republicans hammered on the fraud that state agencies have experienced from third-party actors, including Somali residents of the state. Democrats focused on the uncertainty and costs created by President Donald Trump’s economic policies.

Gov. Tim Walz used the event to condemn Trump’s racist characterization of Minnesota’s Somali immigrants as “garbage” and the state as a “hellhole,” and Walz encouraged Republicans to do the same.

They did, though without criticizing Trump and instead blaming Walz for allowing the fraud to take place.

Walz and legislative leaders all said they recognized further reductions in the growth of state spending would have to be taken as soon as next year’s legislative session.

No one is talking about reducing spending overall, which has only happened after recession. They’re only talking about slowing the rate of spending growth.

Walz said he would again propose a reduction in the spending growth of the developmental disabilities waiver program, something he did last year that led to an outcry from the recipients of such services and even from Republicans who are usually critical of state spending.

The program is an alternative to institutionalization, serving people with developmental disabilities or related conditions who need an intermediate level of care. The waiver payments were growing automatically each year at a 6% rate. Walz proposed dropping it back to a 2% annual increase, and legislators this spring settled on a 4% annual jump.

“I think you can expect me to come back again asking for those cuts to be made to stabilize this,” Walz said referring to the projected deficit. “Especially in that waiver program.”

That’s another sign there’s plenty of room for some down-in-the-weeds work on health and human services in Minnesota, key to bringing overall state spending to a growth rate that’s reasonable to taxpayers and in line with expected revenue growth.