Citing fraud, feds halt nearly $300M in Medicaid money for Minnesota

The Trump administration announced Tuesday, July 21, that it is freezing more than $1 billion in Medicaid payments to California and Minnesota in an effort to crack down on fraud.

Medicaid is the public health insurance for people with low incomes, including some disabled and elderly people, jointly funded by state and federal dollars.

The U.S. Department of Health and Human Services and the Centers for Medicare & Medicaid Services deferred more than $867 million to California and $199 million to Minnesota. The feds say they need more documentation from those states to support some Medicaid claims for services that are at high risk for fraud.

The freeze marks the latest round of withheld payments as the Trump administration continues its crackdown on suspected fraud in publicly funded social service programs, mostly focusing on Democratic-led states. Earlier this year, the Trump administration launched a fraud task force to look into potential waste or abuse in publicly-funded benefits programs, explicitly naming states such as California, Colorado, Illinois, Maine, Minnesota and New York.

The Trump administration has already deferred Medicaid payments in Minnesota twice this year, totaling nearly $400 million. The deferral process, under which the federal government can withhold funding when questioning claims already billed to Medicaid, had never been used to deny funding for entire service areas until a $243 million deferral in February, the Minnesota Attorney General noted.

A letter delivered Tuesday from CMS to the Minnesota Department of Human Services stated that $195 million of the deferred $199 million comes from specific providers that CMS identified as high-risk for fraud or “aberrant billing practices” based on historical billing and analysis. The money comes from services delivered from January through March and has already been paid. States will have to provide documentation backing up the claims or be forced to reduce future billing to the federal government.

The Trump administration has also threatened to withhold $2 billion in annual Medicaid funding to Minnesota in a separate process. The funding fight in Minnesota centers on 14 Medicaid services deemed high-risk to fraud and are largely designed to give long-term care for elderly and disabled people. But state officials have said that funding freezes could deliver a serious blow to the state’s Medicaid program more generally, which cost $18 billion in 2024 and covers other low-income Minnesotans.

John Connolly, temporary commissioner and state Medicaid director for the Minnesota Department of Human Services, said in a statement that Tuesday’s deferral reflects the federal government’s “unprecedented and punitive ways as part of their war on Medicaid and its recipients.”

“CMS touts their new fraud-detection capabilities, yet has not provided data or explanation on how the deferral amount was calculated or what it was based on. I respectfully ask the federal government to partner with us and share any information about their methods to identify potentially fraudulent providers in Minnesota,” Connolly said.

The federal-state fight over Medicaid funding has affected thousands of Medicaid providers in Minnesota, who were abruptly cut off from funding as the state raced to reach a federal deadline to screen all providers in the “high-risk” services. Providers and their advocates said the process was rushed and left legitimate providers unable to get paid for delivering services to vulnerable Minnesotans.

HHS Secretary Robert F. Kennedy Jr. said the Trump administration’s goal is to strengthen the integrity of the Medicaid program and make sure federal funds are spent appropriately.

“States that receive federal Medicaid funding must demonstrate that every dollar meets federal requirements,” Kennedy said in a news release on the deferred funds. “When they cannot, we will not release federal funds until they do.”

California Gov. Gavin Newsom, a Democrat, called the withheld funds a “recycled political stunt” in a post on X, and said his state was being targeted for political reasons.

Minnesota Democratic Gov. Tim Walz rejected the Trump administration’s framing of the situation in a post on X: “This isn’t about fraud — it’s about cutting your healthcare so that Trump can afford the tax cuts he gave to billionaires.”

CMS said it identified unusually high growth in spending on certain in-home care programs in California, triggering the hold on that state’s funds. It has not provided proof of fraud.

Newsom countered in his X post, arguing that California is saving taxpayer money “by keeping seniors and people with disabilities out of far more expensive nursing homes.”

In Minnesota, a CMS review flagged expenditures that raised “potential eligibility or billing concerns.”

“CMS is done trying to chase down stolen and misused funds after they’ve already left the building,” Dr. Mehmet Oz, CMS administrator, said in a news release, adding that the deferred payments are part of a “proactive new approach to program integrity.”

The pauses in funding don’t affect who is eligible for Medicaid, and they’re not permanent cuts.

Alyssa Chen of the Minnesota Reformer contributed to this story. Stateline reporter Anna Claire Vollers can be reached at avollers@stateline.org.

This story was originally produced by Stateline, which is part of States Newsroom, a nonprofit news network which includes Minnesota Reformer, and is supported by grants and a coalition of donors as a 501c(3) public charity.

Minnesota Reformer is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Minnesota Reformer maintains editorial independence. Contact Editor J. Patrick Coolican for questions: info@minnesotareformer.com.