The Trump administration has signaled a willingness to freeze billions of dollars in federal health payments to several states, mirroring moves they made against Minnesota.
The specific target is Medicaid, the public health insurance program that combines state and federal money. Federal officials have announced unprecedented action in Minnesota this year, saying they could withhold more than $2 billion in payments meant for the state and claw back nearly $260 million from last year.
The actions in Minnesota came as part of the administration’s stated crackdown on fraud, but critics likened them to using a pencil instead of a scalpel, potentially harming patients who rely on Medicaid for care but are not responsible for fraud in the program.
“It’s going to hurt a lot of people if they end up dealing with it,” said Sumukha Terakanambi, a 27-year-old who has Duchenne muscular dystrophy and works as a public policy consultant for the Minnesota Council on Disability.
“Of course we support the pursuit of fraud,” Terakanambi said, but “this overly aggressive action misses the point. It doesn’t punish fraudsters. It punishes people.”
Longtime Medicaid watchers also doubt the federal actions will achieve their purported goal.
Jocelyn Guyer, senior managing director at consulting firm Manatt, told reporters recently that such actions by the federal government are unprecedented, in part because punitive measures against states “have really never been an effective way to deal with fraud.”
Meanwhile, fraud prosecutions have stalled in Minnesota as the U.S. attorney’s office faces the departure of nearly half its attorneys and a surge in cases from the Trump administration’s immigration crackdown.
Despite those concerns, Centers for Medicare & Medicaid Services chief Mehmet Oz said the techniques the federal government is using in Minnesota could be applied in other states, and he has launched social media campaigns alleging high-dollar public benefit fraud in California, Florida, Maine and New York. And a February release of incomplete Medicaid data by the Trump administration’s Department of Government Efficiency appears to be part of a campaign to paint the program as riddled with fraud, Guyer said.
Andy Schneider, a research professor at Georgetown University’s Center for Children and Families, said the administration’s campaign seems particularly focused on services designed to keep people with disabilities out of institutions and described the withholding of $2 billion from Minnesota’s Medicaid program as a “nuclear option.”
A “political football”
Scrutiny of Minnesota’s public benefit programs began early in the Biden administration, years before the most recent investigations. The spotlight on the state’s Medicaid system has increased since FBI raids targeting two autism treatment providers in December 2024.
The following May, an investigation by a Minneapolis television station about Medicaid housing stabilization services in Minnesota prompted further scrutiny from federal prosecutors and Gov. Tim Walz.
Under the Democratic governor, the state launched investigations into 85 autism providers, ordered third-party audits of 14 types of Medicaid services deemed “high risk” for fraud and delayed payments for those services by up to 90 days. Many of the services are those that people with disabilities receive at home, which makes monitoring more difficult.
Terakanaby worried that the state’s “heavy-handed approach” would destabilize the entire home care system. Although his own care has not been interrupted — his parents provide the 10 hours of daily personal care he qualifies for through Medicaid — other Minnesotans with disabilities said they suffered interruptions and criticized late payments.
In December, a man was found dead after losing home care services amid the crackdown.
“We lose sight of people who have done nothing wrong, who rely on these supports and services to live in the community,” said Sue Schettle, CEO of ARRM, a Minnesota nonprofit that represents organizations that support people with disabilities. “It’s becoming political football.”
Settle said she took her concerns about the crackdown to state officials, who have since met regularly with her and other supporters. The subsequent federal actions, however, left her “shocked,” she said.
The “nuclear option”
In December, a video posted by a conservative YouTuber, with the help of state Republicans, fueled the issue in Minnesota, citing widespread fraud at child care centers owned by members of the Somali community. A state monitoring investigation of the child care centers featured in the video found that all were “operating as expected.”
On Jan. 6, CMS’ Oz sent Walz a letter alleging that Minnesota’s Medicaid program was not in compliance with federal fraud, waste and abuse rules, setting the stage for the Trump administration’s move to withhold more than $2 billion in federal Medicaid funds from Minnesota this year, about 18 percent of what the state received the previous year.
Minnesota is attractive.
The Republican-aligned Paragon Health Institute, a think tank that recently released a policy brief calling for similar enforcement actions across the country, applauded the federal moves.
“This will push states to take the necessary steps, thereby ensuring that Medicaid funds go to those who are truly eligible,” said Chris Medrano, a legal research analyst who authored the brief.
Georgetown’s Schneider questioned the necessity and effectiveness of withholding the money.
“I don’t see any connection between this and a substantial reduction in fraud against Minnesota’s Medicaid program, given that the state has already taken many steps,” he said.
In late February, Oz went further, announcing that in addition to withholding $2 billion in future payments to Minnesota, the administration also “deferred” about $260 million in federal Medicaid payments to the state.
“We have notified the state that we will give them the money, but we will hold it and release it only after they propose and act on a comprehensive corrective action plan to fix the problem,” Oz said at a Feb. 25 press conference with Vice President JD Vance.
Minnesota is challenging the postponement in court.
“We are awaiting feedback from CMS on our corrective action plan, so we were surprised and confused when Dr. Oz said in a press conference with the vice president last week that we should offer it,” Minnesota Medicaid Director John Connolly said in a March 3 news briefing.
“Another Minnesota”
Oz and Vance both said during the February news conference that they are not targeting specific Democratic-led states. Oz noted that Florida has a “big fraud problem” and in mid-March sent a letter to state officials with a list of questions about the Medicaid program. Until then, the letters and most of Oz’s social media videos were limited to California, Maine and New York, all led by Democrats.
“We may have another Minnesota on our hands,” Oz said in a video released the same day as a letter sent to Maine Gov. Janet Mills, Democrat, seeking information on how the state was handling Medicaid fraud.
“And if we’re not satisfied with their progress, we reserve the right to stop payments entirely,” Oz said in the video.
The video and letter were prompted by a federal audit of autism services in Maine, which found the state had made at least $45.6 million in improper Medicaid payments. Similar audits in Indiana, Wisconsin and Colorado had comparable findings.
In a statement, Mills called Oz’s letter “a sham to send ICE and other armed federal agents into Democratic-led states.”
CMS spokesman Chris Krepich said the agency does not take funding actions lightly. “The focus is on strengthening oversight, improving accountability and ensuring that vulnerable patients receive the services they are entitled to,” Krepich said.
But Terakanambi said it’s not hard to see how federal actions like those in Minnesota could put the agencies at risk. The amount of money Minnesota could lose from CMS actions announced this year is already equivalent to about two-thirds of the state’s rainy day fund.
Many states are trying to reduce or even eliminate funding for home care services due to much smaller budget shortfalls. And further cuts are expected, with congressional Republicans’ One Big Beautiful Bill Act, signed into law last year, expected to cut federal Medicaid spending by more than $900 billion over the next decade.
“People will die,” Terakanabi said. “People will lose critical support and no longer be able to participate in their community in the way they want to.”
