Local Government Employee Health Care Finance in Minnesota: An Analysis of Large City Employee Health Benefit Spending

Abstract

Employee health care finance is a complex and often misunderstood area of local budgets. Due to a lack of regulation around city budgets in Minnesota, a significant amount of transparency and accountability is lost to taxpayers and legislators when the compensation of city employees is reported as part of overall compensation or human services. This study set out to determine what city employee benefit spending looked like in 2008, and in identifying trends, resulted in an analysis of revenue sources related to employee health care benefit spending. Therefore, this study focuses on the main task of quantifying city health benefit spending and ways to increase efficiency in spending, and in addition, approaches the issue of tax payer burden and equity in relation to various city revenue sources. What this study found is that while voters are expected to “vote with their feet” and thus choose the appropriate mix and tax price of their local government services, the introduction of state aids (Local Government Aid) has further complicated the assessment in the generosity and tax burden related to local government employee health benefits. This study attempts not only to quantify, through multiple lenses and modes of analysis, average city spending on employee health care benefits in large Minnesota cities, but also provides a means of improving efficiency in spending in large cities in Minnesota. In addition, this study identifies the role and effect of the introduction of unrestricted LGA into local budgets, and state aid’s relation to medical benefit spending in cities.