Rural Minnesota economies under threat as feds cut safety net programs

MINNEAPOLIS — When the new hospital in Wadena, Minnesota, opened in March 2023, more than 1,200 people showed up to tour it.

After $80 million and two years of construction, the sleek, modern Astera Health building along Hwy. 10 replaced an aging facility with no space to grow. Within months, the nonprofit health care system announced plans to add a more than $20 million cancer center.

But by the time that cancer center opened last summer, a crucial funding stream had disappeared. Days before, President Donald Trump had signed what he dubbed the “One Big Beautiful Bill Act,” a multitrillion-dollar package of tax breaks and spending cuts that slashed nearly $1 trillion from Medicaid. The program for poor and disabled Americans accounts for more than a fifth of Astera’s payer mix.

Now, Astera officials are scrambling to recalculate already razor-thin margins so the only hospital for miles around — and the biggest employer in town — can stay open. Like states across the country, the reliance on federal dollars is most pronounced in Minnesota’s rural communities, which tend to be older and poorer than metro areas.

“I would definitely identify it as a threat,” Astera CFO Kim Aagard said. “And part of the issue is trying to gauge how deep are the cuts going to go, and how are they going to impact the community?”

Medicaid is essential for a town like Wadena and the more than 1 in 5 people in the three surrounding counties who are enrolled in it.

Over the past 50 years, money from Medicaid and other federal programs such as Medicare, Social Security and the Supplemental Nutrition Assistance Program (SNAP) has become a bigger share of American incomes, according to research from the bipartisan Economic Innovation Group.

Whether through a Social Security check that lands in a personal bank account every month or a Medicaid reimbursement that flows to a local hospital, these dollars keep local economies running.

“They’re not solely going to be that stabilizing force for that household,” said Karen White, president and CEO at the Northwest Minnesota Foundation, “but they’re also then a very important part of our economic infrastructure for our small communities.”

In Minnesota, 18% of total nonfarm income came from these “transfer receipts” in 2023, compared to 11% in 1973, University of Minnesota Extension data showed.

Yet,in 23 of Minnesota’s 87 counties — all outside the seven-county Twin Cities metro — transfer receipts made up 30% or more of nonfarm income in 2023, the most recent year of available Extension data. In Wadena County, about a 2½-hour drive northwest of the Twin Cities, that number was nearly 40%.

The majority of voters in all but one of those 23 counties — Lake County in northeastern Minnesota’s Arrowhead region — voted for Trump in 2016, 2020 and 2024.

Far-reaching consequences

The federal spending bill includes an estimated $911 billion in Medicaid cuts in the next 10 years, which is expected to leave millions of Americans uninsured. That includes about 150,000 people in Minnesota, according to nonpartisan health policy research organization KFF.

Medicaid isn’t the only safety-net program on the chopping block. The bill also cuts spending on SNAP, which millions of Americans use in tandem with Medicaid.

The consequences will stretch beyond the people losing benefits.

Minnesota will lose an estimated 21,400 jobs by 2029 as a result of cuts to Medicaid, SNAP and the 2010 Affordable Care Act under the budget reconciliation package, according to soon-to-be-released estimates from the Milken Institute School of Public Health at George Washington University.

Nationally, the federal cuts will slash an estimated 1.65 million jobs, the equivalent of about a 1% jump in the unemployment rate.

About half the job losses will be in health care and the rest in other sectors, said Leighton Ku, professor and director of the Center for Health Policy Research.

“If we see millions of dollars cut, then [health care providers] have to do things like lay off staff, reduce how much they’re purchasing from other businesses for medications, medical supplies and so on and so forth, and so that has repercussions through the whole economy,” Ku said.

Health care is a key economic driver for Minnesota and most other states and has been a consistent bright spot in an otherwise weakening labor market here and across the country.

The health care sector “has been such a strength for Minnesota, even though we of course take great pride in the diversity of our economy,” said Matt Varilek, commissioner of Minnesota’s Department of Employment and Economic Development.

“Cuts to Medicaid that would impact that network of critical care for all Minnesotans are very concerning,” he said, “and, in fact, they would ripple throughout the state budget.”

‘People are hurting’

In Wadena and neighboring communities, economic opportunity is already limited.

These central Minnesota towns are far from the water, minerals and rich soil that drive local economies in other parts of the state. The percentage of people living in poverty tends to be higher than the state as a whole, and the population also tends to be older.

About 25 miles south of Wadena, the Central Todd County Care Center in Clarissa, Minnesota, is one of the county’s biggest employers, with about 100 staffers serving a 45-bed nursing home and a handful of assisted- and independent-living units.

Long-term care costs $140,000 a year on average, so even residents who arrive with a healthy nest egg tend to end up on Medicaid, said administrator Jason Polovick. While the care center won’t face direct cuts under the budget reconciliation bill, recent state-level reimbursement rate cuts limit spending on things like pay raises.

“It kind of shoots ourselves in the foot when it’s like, here I’m trying to better my staff, that are mostly people in Todd County, which is poor,” Polovick said. “We all know we’re better off if we’re making a better wage and paying more taxes and putting kids in school and all those things that build communities.”

At the food shelf in nearby Browerville, Minnesota, which also serves Clarissa and Eagle Bend, need roughly quadrupled during the COVID-19 pandemic and hasn’t fallen since, said Executive Director Renae Buhl.

The food shelf is open once a week for two two-hour shifts. Before COVID, Buhl said, there were occasionally shifts when no-one would come in for food.

“We don’t have that anymore,” she said. “People are hurting.”

Community members are doing their best to support each other. The Browerville food shelf is entirely volunteer-run, Buhl said. In Eagle Bend, residents banded together to provide free meals at the Hilltop Regional Kitchen in the shuttered high school. Subsidized senior housing is planned in the same building.

Locals are open about the area’s struggles but less so about what they’re facing themselves. Asking family or friends for help isn’t easy; asking the government is harder.

But as it becomes tougher to make ends meet, there’s not much the community can do without state and federal help, said Kevin Hess, a lifelong Eagle Bend resident and the town’s recently retired city administrator.

“Every time the federal government cuts or the state cuts stuff, everybody worries how much it’s going to affect them,” he said. “Because everything’s intertwined so much now that it just trickles right down.”