Minnesota sues to block federal holdback of $243M Medicaid payments
Minnesota filed a lawsuit in U.S. District Court in Minneapolis seeking to stop the Trump administration from withholding $243 million in Medicaid spending, warning that the federal action could force cuts to health care for low-income families. In the complaint, the state asked the court to block federal health officials from “immediately withholding” the money, which funds what Minnesota described as its health care safety net.
The lawsuit names the Department of Health and Human Services and the Centers for Medicare and Medicaid Services, along with CMS administrator Dr. Mehmet Oz and HHS Secretary Robert F. Kennedy Jr. in their official capacities. The case was filed after federal officials announced a series of withholding actions tied to alleged fraud concerns.
Minnesota’s state Medicaid director, John Connolly, said the state is already appealing a CMS decision that would withhold $2 billion in annual Medicaid funds announced in early January. Connolly said Minnesota was awaiting feedback from CMS on a corrective action plan and described surprise when Oz said last week the state needed to provide such a plan.
The dispute follows comments by Vice President JD Vance, who said last week the administration would “temporarily halt” some Medicaid funding to Minnesota over fraud concerns as part of an aggressive crackdown on misuse of public funds. In response, Minnesota said it has been working to address Medicaid fraud, including with anti-fraud legislation that Gov. Tim Walz announced last week.
Minnesota Attorney General Keith Ellison said his office has a track record of fighting Medicaid fraud and cited results from his time in office that included more than 300 convictions and $80 million in judgments and restitutions. Ellison said in a statement that the Trump administration’s approach punishes families who need affordable health care, adding, “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.”
Minnesota’s lawsuit says the threatened withholding amounts to roughly 7% of the state’s quarterly Medicaid funding. The state said it could be required to cut health care services for low-income families or other government services if the federal holdback takes effect.
The complaint argues the administration violated due process procedures by taking hundreds of millions of dollars without proving Minnesota’s noncompliance with Medicaid regulations through discovery and an evidentiary hearing. It also alleged the federal government failed to provide Minnesota with details about its decision, in violation of federal law, and challenged the action as imposing retroactive conditions on Minnesota’s Medicaid funding in a way that violates the Constitution.
In addition, Minnesota said immediately withholding the funds was arbitrary and capricious and reflected a pattern of political punishment. The administration said it would hold off on paying $259.5 million to Minnesota for Medicaid spending in the fourth quarter of 2025, and the state’s lawsuit challenges the withholding of $243 million of that amount.
CMS declined to comment on the litigation. The agency, according to Minnesota, asked the state in a letter for documentation tied to $243 million related to 14 “high-risk” Medicaid service areas. Minnesota said it remains unclear how the federal government intends to carry out its plan to hold the money while requiring a corrective action approach.
Minnesota said Medicaid, known in the state as Medical Assistance, provides health insurance to 1.2 million Minnesotans who would otherwise be unable to afford coverage. The state said a family of four may qualify for Medical Assistance with an income at or under $42,759, as described in the attorney general’s office release.