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HHS and CMS are deferring more than $1 billion in federal Medicaid funds to Minnesota and California, agency officials confirmed July 21, marking one of the largest single funding deferral actions to date under the administration’s ongoing fraud crackdown.
How Much Funding Is Being Deferred From California and Minnesota
The agencies said they are deferring approximately $867.5 million in payments to California and $199 million to Minnesota after financial reviews flagged claims that require additional assessment before the release of matching funds. The states need to submit further documentation to validate high-risk claims tied to the program. The withheld funds are not permanent cuts, an HHS news release said.
CMS Administrator’s Blunt Framing
“If it smells like fraud, we’re not paying for it anymore,” CMS Administrator Mehmet Oz, MD, said during a press conference. Oz also cited Minnesota’s recent disenrollment of more than 3,000 providers following an audit. Those providers’ billing is a major driver of the $199 million deferral, he said.
What’s Driving This Funding Deferral for California and Minnesota
Oz said California’s spending on in-home supportive services programs jumped 24% over the past two federal fiscal years, exceeding the 12% national trend. Minnesota’s funding involves 14 high-risk service areas. The review identified claims with possible eligibility or billing concerns, giving both states specific documentation targets to address before the funds are released.
Expanded Exclusion Authority
HHS added that it is also expanding its exclusion authority. “Both CMS and the Office of Inspector General will be able to use that authority to remove bad actors from federal healthcare programs, and in many cases, to permanently ban them from returning,” HHS Secretary Robert F. Kennedy Jr. said, signaling a broader enforcement toolkit beyond just this specific funding action.
Prior Enforcement Actions Preceding This Medicaid Funding Deferral
The latest fraud, waste and abuse prevention efforts build upon earlier actions from the federal government targeting state health programs. The Trump administration previously froze $1.3 billion in funds to California in May. The Minnesota Department of Human Services said the state has faced quarterly deferrals of roughly $260 million and $91 million in the past.
Minnesota’s Continued Provider Enrollment Pause
In July, Minnesota continued a provider enrollment pause across 12 high-risk services, reflecting the state’s own ongoing efforts to address the same fraud concerns cited by federal officials, even as it now faces additional federal funding scrutiny.
Minnesota’s Response to the Medicaid Funding Deferral Announcement
“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,” John Connolly, the temporary commissioner of the Minnesota Department of Human Services, said in a July 21 statement.
A Sharp Rebuke From State Officials
“Today’s actions show that the federal government is acting again in unprecedented and punitive ways as part of their war on Medicaid and its recipients. Partnership, not politics, is required to stop criminals and protect services for the people who need them,” Connolly said. Becker’s contacted California’s Department of Health Care Services for comment and will update the story if more information becomes available.
What This Funding Deferral Means Going Forward for Medicaid
With both states now needing to submit additional documentation to validate high-risk claims before matching funds are released, the practical impact on beneficiaries and providers in California and Minnesota will likely depend on how quickly each state can satisfy federal documentation requirements. Given Minnesota’s public pushback and its request for greater transparency into CMS’s fraud-detection methodology, this Medicaid funding deferral California Minnesota dispute may also become a broader test case for how much cooperation, versus unilateral federal action, characterizes future oversight efforts across other states.
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