Trump Administration Defers $1 Billion in Medicaid Payments to California and Minnesota

The Trump administration announced Tuesday it is deferring more than $1 billion in Medicaid payments to California and Minnesota, citing suspected fraud and noncompliance in the latest escalation of its sweeping anti-fraud campaign targeting mostly Democratic-led states.

The Centers for Medicare & Medicaid Services (CMS) is withholding approximately $867.5 million from California and $199 million from Minnesota, according to AP News. Including previous deferrals announced this year, the total amount of Medicaid funding deferred or withheld from the two states in 2026 now exceeds $3 billion.

Administration Cites Fraud Concerns

Health Secretary Robert F. Kennedy Jr. framed the deferrals as proactive fraud prevention, arguing the administration is stopping improper payments before they occur rather than trying to recover funds after the fact.

“We have a duty to stop the payments, demand answers and then follow the evidence wherever it leads,” Kennedy told a news conference, as reported by AP News.

CMS Administrator Dr. Mehmet Oz was blunter in his assessment. “If it smells like fraud, we’re not paying for it anymore,” Oz said, according to TIME Magazine.

Kennedy said the funds could be restored if the states provide documentation proving the payments are legitimate. “If Governor Gavin Newsom or Governor Tim Walz wants this funding released, all they have to do is provide basic documentation showing that these services are legitimate and not fraudulent,” he said, as reported by Fox 9.

Specific Concerns Raised by CMS

Oz pointed to several patterns that raised red flags for the agency. In California, CMS flagged rapid growth in the state’s in-home care program and instances of providers billing for four or more patients simultaneously or billing after a beneficiary’s death.

In Minnesota, the review focused on 14 high-risk Medicaid service areas previously identified by the state’s legislative auditor as vulnerable to fraud. Oz said roughly $413 million in Minnesota Medicaid claims were under review this quarter, with approximately $42 million tied to claims from nearly 870 providers flagged through fraud detection analytics. The largest share stems from providers Minnesota recently disenrolled after failed background checks or site visits.

“This raises questions about the claims tied to these same providers,” Oz explained. “We looked back to see how much they billed us last quarter, and unfortunately, it was a lot. It’s the majority of the $199 million that we’re deferring to Minnesota today.”

States Push Back

Both California and Minnesota vehemently rejected the fraud allegations, accusing the administration of political retaliation.

Minnesota Gov. Tim Walz, who was Kamala Harris’s running mate in the 2024 election, said the move “isn’t about fraud — it’s about cutting your healthcare so that Trump can afford the tax cuts he gave to billionaires.” He added, “They’re cutting more money in healthcare than they’ve prosecuted for fraud. The math doesn’t add up.”

California Gov. Gavin Newsom’s press office dismissed the fraud claims as a “recycled political stunt,” arguing that California is being targeted “for political reasons — and because Dr. Oz doesn’t understand that we are SAVING taxpayers money by keeping seniors and people with disabilities out of far more expensive nursing homes!”

John Connolly, temporary commissioner of Minnesota’s Department of Human Services, criticized CMS for lacking transparency. “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,” he said.

Broader Anti-Fraud Campaign

The deferrals are part of a sweeping Trump administration initiative to crack down on fraud across federal programs. In March, Vice President JD Vance launched a multi-departmental anti-fraud task force. Last month, the Justice Department charged 455 defendants across 45 states in what officials described as the largest coordinated health care fraud enforcement action in DOJ history, involving over $6.5 billion in alleged false claims.

The administration has also charged nearly 80 people in connection with the $250 million Feeding Our Future pandemic-era fraud scheme in Minnesota, with 65 defendants convicted as of April.

Legal Questions Remain

The deferrals raise significant constitutional questions about whether the executive branch can unilaterally withhold congressionally appropriated funds. Minnesota Attorney General Keith Ellison filed a lawsuit in March over an earlier $243 million deferral; a judge granted a mutual stay in May as negotiations continued. It remains unclear how the new deferrals will affect those talks.

CMS has previously acknowledged making a “significant error” in figures used to justify a fraud probe in New York, adding to criticism that the administration’s anti-fraud efforts lack rigor.

What’s Next

With the November 2026 midterm elections approaching and healthcare affordability ranking as a top voter concern, the political stakes are high. The administration shows no signs of slowing its anti-fraud campaign, while California and Minnesota are preparing for what could be a protracted legal and political battle over billions in federal funding that serves millions of vulnerable residents.

Kennedy suggested Tuesday he would extend the power to exclude providers from federal health programs to CMS, a move HHS Inspector General Thomas March Bell described as “a full force multiplier” that would “create additional momentum” in excluding bad actors from the system.