Minnesota sues to block $243 million Medicaid payment freeze

Minnesota filed a federal lawsuit Monday seeking a temporary restraining order to stop the Biden administration from withholding $243 million of a roughly $259 million pause in Medicaid reimbursements, saying the federal action is unlawful, arbitrary and politically motivated.

The complaint, filed by Attorney General Keith Ellison and the Minnesota Department of Human Services, names the Centers for Medicare and Medicaid Services and the Department of Health and Human Services as defendants and asks a Minneapolis federal court to restore the disputed funds while litigation proceeds. State officials say the administration declined to provide required detail and imposed retroactive conditions on federal funding in violation of statute and the Constitution.

Federal officials announced the pause last week as part of what the administration described as an aggressive crackdown on alleged misuse of social service dollars. The administration’s public materials characterize the withheld Q4 2025 payments as roughly $244 million tied to “unsupported or potentially fraudulent” Medicaid claims and about $15 million in claims involving individuals lacking a satisfactory immigration status. The totals add to roughly $259 million in federal reimbursements the government said it would defer.

Ellison framed the federal move as misdirected and harmful to vulnerable residents, saying, “Trump’s attempts to look like he’s fighting fraud only punish the people and families who most need the high-quality, affordable healthcare that all Minnesotans deserve.” He added, “As long as I am attorney general, I will do everything in my power to defend our tax dollars, both from fraudsters and from the Trump administration’s cruelty.”

State officials argue much of Minnesota’s anti-fraud work was coordinated with or known to federal partners. John Connolly, deputy commissioner and state Medicaid director at Minnesota DHS, said the federal decision “ignores the massive effort and resources we are already directing to identifying and addressing fraud — most of which are known to, or even directed by, CMS. It is extremely concerning to us given this could have a drastic and devastating impacts on Minnesotans who rely on our health care system.”

Federal leaders have insisted the pause is necessary to protect taxpayer dollars and to push the state to submit an acceptable plan to address alleged misuse. CMS Administrator Dr. Mehmet Oz sought to reassure providers and beneficiaries on the ground, saying, “If providers and beneficiaries are worried about getting their money and services, please call your governor... These are services the governor has already paid for; we are just not reimbursing the state. To make it clear, there is a rainy day fund in Minnesota, so we are very confident that people will not be hurt in Minnesota. This is not a problem with the people of Minnesota, it's a problem with the leadership of Minnesota and other states who do not take Medicaid preservation seriously.”

Governor Tim Walz called the move retaliation, posting on social media, “This is a campaign of retribution. Trump is weapon the entirety of the federal government to punish blue states like Minnesota. These cuts will be devastating for veterans, families with young kids, folks with disabilities, and working people across our state.” State leaders warn that even if the federal pause does not immediately stop payments to providers because of state reserves, the action could strain cash flow for counties, clinics and safety-net providers and complicate ongoing fraud investigations.

The dispute arrives against a backdrop of several high-profile fraud prosecutions and federal enforcement actions in Minnesota. Prosecutors previously charged dozens in a child nutrition fraud probe that alleged roughly $300 million stolen, and a former prosecutor cited by federal commentators has estimated broader Medicaid-related abuse in the state could total billions since 2018. The lawsuit puts those enforcement claims and the administration’s legal authority to withhold Medicaid funding before a federal judge, with potential implications for how Washington conditions federal payments to states nationwide.