Minnesota Medicaid spending is accelerating, projected to reach $29B in 2029

Minnesota’s spending on Medicaid is projected to far outpace the state’s growth in tax revenue over the next several years, underscoring the urgent challenge posed by federal cuts to a state budget already strained by rising healthcare costs and a growing elderly population.

The state’s Medicaid program, which insures many low-income, disabled, elderly and pregnant residents, is on track to jump 40% over the next four years to $29 billion while state revenues are expected to increase just 10% over the same period.

Medical Assistance, the name for Minnesota’s Medicaid, cost $20.3 billion in fiscal year 2025, roughly split between state and federal dollars. The cost is projected to jump to $24 billion for the 2026 fiscal year, which ended in June — costing around $4,100 per every Minnesotan and $20,000 for each of Medicaid’s 1.2 million enrollees.

The next governor and state Legislature may be forced to make difficult choices: raise taxes, curb the growth of the program, which could affect patients — especially the elderly — or see Medicaid eat into other key priorities like education or infrastructure.

Even as the sprawling program is getting more expensive, provisions in the One Big Beautiful Bill Act and the Trump administration’s targeting of Minnesota, ostensibly over widespread fraud, are worsening the funding picture. The result is a shift of these higher healthcare costs onto the state, healthcare providers and patients.

Spending on the program is accelerating faster than what budget officials predicted in early 2025. The total receipt for Medicaid spending this past fiscal year has yet to be released, but the most recent projection from February is $2 billion higher than what state officials predicted in 2025.

Seniors are insured through Medicare, but the program doesn’t generally cover long-term care in nursing homes or home care. Instead, Medicaid, which is more widely known as the health insurance program for low-income adults and children, makes up the bulk of public spending on long-term care for seniors and people with disabilities.

In Minnesota, seniors and disabled people make up around a quarter of Medicaid recipients but over 60% of Medicaid spending, which includes long-term care as well as “basic care” like doctor’s visits and medications. This is in line with national trends.

Much of the jump in predicted Medicaid spending comes from higher spending for direct care, according to the state’s budget office.

Around three-quarters of that increase came from people using more services, and the remaining quarter came from services costing more. One “notable exception,” according to bduget officials: The increase in spending on drugs mostly has to do with people using more expensive medication — as opposed to people using more medication in general.

A smaller but still significant portion of the increase came from higher spending on long-term disability services outside of institutions like nursing homes. Those services include basic living assistance and help finding a job. Both the number of people signing up for those services and the costs of long-term care services grew more than expected in 2025, leading to higher future projections.

Several long-term care services for disabled and elderly Minnesotans have been identified as “high risk” for fraud, waste and abuse by the Walz administration. Spending in some of those services more than doubled in the past few years — some of that increase came from intentional efforts to keep people out of institutions.

Those “high-risk” services are now at the center of the ongoing funding fight between the state and the Trump administration, which threatened to cut $2 billion annually in Medicaid funding over program integrity. The Walz administration’s human services department has since scrambled to implement program integrity measures demanded by the Trump administration, at times to the detriment of broad swaths of care providers and their clients.

The Trump administration’s Centers for Medicare and Medicaid Services has also repeatedly  clawed back past Medicaid payments, totaling $549 million over the past three quarters. Last month, the federal agency announced its most recent effort to freeze money for services from January through March. The Trump administration has offered little indication that it intends to stop for future quarters.

The Minnesota Department of Human Services said in a statement that it hasn’t interrupted payments to providers as a result of the $549 million freeze, but that the possible total annual $2.5 billion freeze “is not an amount the state can cover indefinitely without impacting services.”

Federal officials said they would release the $2 billion after the state implements its CMS-approved “corrective action plan,” which could take until March 2027.

John Connolly, the state’s temporary commissioner of human services, said in March that the Medicaid clawbacks would cause significant cash flow issues to the state budget, which “could disrupt payments to providers, strain hospitals and long-term care facilities, jeopardize services for vulnerable populations, and destabilize care.”

Medicaid is still operating as usual, and any changes to eligibility and services would require actions from both the Legislature and the governor.

The February state budget outlook didn’t take into consideration how the recent threats to Medicaid funding will affect the state’s bottom line.

As of November 2025, the budget outlook did begin including a few small fiscal impacts from the 2025 federal budget bill known as the One Big Beautiful Bill Act. An end-of-session budget update includes more of OBBBA’s impact, after the 2026 Legislature brought state law into alignment with federal law.

The impacts of OBBBA-related state legislation don’t make much of a dent though.

New state legislation reduced the state’s share of Medicaid spending by 0.1% for the current two-year budgeting period, and by 2.4% for 2028 and 2029. In other words, not much. And the largest savings come from new billing limits that are not related to OBBBA, according to the state’s budget office.

Although Medicaid is a shared federal-state program, OBBBA’s savings to the federal budget via Medicaid cuts don’t always translate to savings for the state.

Minnesota’s budget outlook improves

For example, the Affordable Care Act, known as Obamacare, expanded Medicaid to cover adults who make between 100% and 138% of the federal poverty line in many states, including Minnesota. The federal government foots the bill for 90% of the care for those adults.

New work requirements in OBBBA make those Medicaid expansion recipients prove that they work or volunteer if they’re able to, starting in 2027. The work requirements are expected to lead to people losing Medicaid, which is the main way OBBBA lowers federal spending on the program.

But new work requirements will also likely cause some of the expansion recipients to switch from being eligible based on income to being eligible based on disability to avoid the administratively burdensome requirements, according to the state’s budget office. Their healthcare would then be funded roughly equally by the state and federal government, meaning the state would pay for more of their care than previously — a win for the federal budget, a loss for Minnesota.