Minnesota filed a federal lawsuit against the Trump administration this week, saying the federal government has "weaponized Medicaid against Minnesota as political punishment."
At issue is approximately $250 million that the state spent on Medicaid last summer. The administration said it is holding off on matching that money amid allegations of fraud.
Medicaid is the public health insurance program for low-income people. It's a state and federal partnership, and for every dollar spent in Medicaid by a state, the federal government matches that money.
Last week, the day after President Trump announced a "war on fraud" headed by Vice President JD Vance, he and administrator of the Centers for Medicare and Medicaid Services Dr. Mehmet Oz addressed Minnesota's Medicaid funds at a press conference.
"We have decided to temporarily halt certain amounts of Medicaid funding that are going to the state of Minnesota in order to ensure that the state of Minnesota takes its obligations seriously to be good stewards of the American people's tax money," Vance explained.
Minnesota's Deputy Health Commissioner John Connolly said he was stunned by that announcement.
"Minnesota has been acting aggressively to combat fraud," he told reporters in a press briefing this week. "The narrative that additional punitive funding deferrals are necessary to ensure that we are serious about this work does not reflect what we have done."
Connolly said that, in fact, the state submitted a corrective action plan to the federal government and have been anxiously awaiting feedback on it for weeks. "We are adhering to the timelines, the milestones, the deliverables and we are on schedule with those," he said.
Last year, federal prosecutors charged several people in Minnesota with Medicaid fraud, and suggested fraudulent charges in Minnesota may have amounted to billions of dollars since 2018, a statement Governor Walz characterized as "speculating," MPR News reported. Connolly said the real number was in the tens of millions.
The complaint, which asks the courts to temporarily block the deferral of funds, points out that in 2025 its Medicaid payment error rate was 2%, far below the national average of 6%. It argues that Minnesota is being politically targeted.
Connolly also noted that the federal government's attempt to cut back on Medicaid funding for the state actually started earlier in the year when the federal government told Minnesota it would withhold $2 billion because the state was "substantially out of compliance with federal requirements" to address fraud, waste, and abuse. The state is in the process of appealing that determination, Connelly said.
"To be clear, this deferral is separate and in addition [to] the previously announced $2 billion withholding," he added. "But to Minnesotans, functionally, it means that federal funding cuts to Medicaid are now here."
Why Minnesota?
Right wing politicians and media have been hammering Minnesota for months, alleging it has fraud-ridden social services. The attacks have led the state to post its own fraud fact check page.
But health policy experts say these actions by the federal government to withhold and defer funding break precedent with how fraud is normally handled.
"Of course there is fraud against the Medicaid program, not just in Minnesota, but in every state, just like there's fraud against the Medicare program, and fraud against commercial insurers," Andy Schneider of the Georgetown Center for Children and Families told reporters this week.
"If you're serious about dealing with it, you have to have a collaboration between the federal government and the state," he said, adding that that's not what's happening in this case.
He said that these actions are "totally unprecedented."
Speaking at the same press event, Jocelyn Guyer of the consulting firm Manatt Health called the withholding of funds "punitive."
A spokesperson for the federal Centers for Medicare and Medicaid Services tells NPR that the agency "does not comment on litigation."
Medicaid beneficiaries fear the consequences
In announcing the funding deferral last week, Vice President Vance suggested that people who rely on Medicaid won't be directly affected by this move.
"The providers on the ground in Minnesota have actually already been paid — the state has paid those providers the money," he said. "What we're doing is we are stopping the federal payments that will go to the state government until the state government takes its obligations seriously to stop the fraud that's being perpetrated against the American taxpayer."
Schneider says the state might be able to cover this unexpected hole in the budget with its own funds for now, but what will happen long term is less clear.
Connolly of the Minnesota Department of Health called the potential impact "catastrophic."
"The state would face significant cash flow pressures that could disrupt payments to providers, strain hospitals and long term care facilities, jeopardize services for vulnerable populations and destabilize care for more than a million Minnesotans, half of whom are children," he said.
Autism Society of Minnesota's executive director Ellie Wilson told Minnesota Public Radio last week that the families who rely on Medicaid are scared by the talk of these sudden funding cuts.
"I need people to understand — the impacts that are happening are extremely real and extremely dangerous," she said. "We have seen cases of deaths. We have seen cases of homelessness caused by services being dropped too quickly."
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