Federal Medicaid funding freeze ‘totally illegal and unprecedented,’ Walz says

Minnesota Gov. Tim Walz called a Trump administration halt of $259 million in Medicaid funds for his state a “totally illegal and unprecedented” move that would cause more harm than tackle fraud that he and state lawmakers are already working to address.

Walz provided his initial in-person reaction to the federal freeze announced a day earlier as he laid out an 18-point anti-fraud package that includes more required financial controls, a centralized Office of Inspector General, additional payment withholding power and site visits and tougher penalties for people who steal taxpayer money.

The Democratic governor said the federal action is a continuation of a “reckoning and retribution” pressure campaign against him and the state he leads. 

“No state has experienced this before. How does taking and punishing children and elderly have anything to do with fighting fraud when that's not where this issue is taking place?” Walz said. “It does nothing, and they've given us no way to try and show that all the things they asked us to do, we've already done. They're not even looking at that.”

There remains some confusion over how the federal action will play out. Minnesota Medicaid Director John Connolly said the way it is structured will mean that the state will owe the federal government $260 million for the last three months of 2025 and will not see a future installment for this quarter until the halt is lifted.

“We're already facing budget challenges in the state, and this just exacerbates that challenge,” he said. “And so there will have to be difficult decisions made in the budgeting process with respect to how the state would absorb this impact.”

DFL Attorney General Keith Ellison has signaled he would sue to block the funding hold from taking effect.

But if a court rules against Minnesota, lawmakers would have to pull in state dollars to continue providing those services or make difficult decisions about services that might be on the chopping block.

Medicaid is the federal health care safety net for low-income Americans. It is administered by states. Some money flows directly to providers in clinics and hospitals who serve Medicaid enrolled patients; other money goes out in reimbursements for services provided away from traditional health care settings.

According to a letter sent by the Centers for Medicare and Medicaid Services sent to the state Department of Human Services, funding targeted for the freeze include: payments to state-only health programs related to “individuals lacking a satisfactory immigration status;” funding for some of the 14 Medicaid service programs identified as high-risk for fraud and abuse; and payments to practitioner, personal care and home and community-based services that “have questionable variances and raise concerns about allowability of claimed expenditures.”

Last month, officials with the Centers for Medicare and Medicaid Services suggested they would withhold funding from Minnesota for 14 programs deemed at high risk of fraud. The “temporary halt” described Wednesday by Vice President JD Vance and CMS Director Mehmet Oz includes some of those programs.

Vance said the funding stop was needed “in order to ensure that the state of Minnesota takes its obligations seriously to be good stewards of the American people’s tax money.”

But Walz rejected that explanation, saying the Minnesota Department of Human Services cooperated with CMS as it investigated possible fraud in the state's Medicaid programs. He said the federal government’s response did more to hurt fraud investigation efforts in Minnesota than help it.

Without a walkback by the Trump administration or an order from the courts preventing the halt, lawmakers could face difficult budgeting choices.

State Budget Director Ahna Minge told a Senate committee last week that a full cut of those 14 programs would cost the state $2 billion a year, if lawmakers continued funding the services with state dollars.

“We have a projected surplus of just over $2.5 billion and so if you were to remove $2 billion from that then we are left with a much smaller cushion to navigate,” Minge said. 

An upcoming economic forecast scheduled for Friday will provide more up-to-date information about the state’s budget outlook. But state economic officials have suggested their findings could be clouded by variables, including proposed federal budget cuts and the recent economic hit local businesses experienced during the federal immigration surge.

The Walz anti-fraud package released Thursday adds to the debate that’s already in full swing in the Legislature. Both parties have put proposals on the table and committees are working through them.

Walz said his goal is to prevent, detect and investigate fraud, as well as hold fraudsters accountable.

“The White House solution to this is to take health care from poor people. Our solution to it is catch these people before they do it, if we don't to lock them away for a long time,” Walz said.

House Republican leaders Lisa Demuth and Harry Niska said they hope Walz is committed to making strides on fraud. But they criticized Walz for slamming the Trump administration over Minnesota’s problems.

“Governor Walz’s indignation theater this morning proved only one thing — Democrats in Minnesota are feeling the heat over the fraud they’ve enabled for years, and now they’re trying to do damage control,” the GOP pair said in a news release.

Walz had planned to release the package of bills prior to the federal announcement, which came Wednesday afternoon.

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