When Sarah Lindbo’s 14-year-old daughter Greta is thriving she is playful, engaged and not in pain. Greta, who has cerebral palsy, depends on doctors, medical equipment, prescriptions, a school paraprofessional and a home care assistant — many services funded by Medicaid. “Medicaid makes a huge impact in our day-to-day life,” Lindbo said. “It is the foundation of what gives Greta her experience at school and in our community and our family.”
Lindbo and other Minnesotans are anxious after federal prosecutors alleged last year that billions may have been stolen from the state’s Medicaid program and charged several people with fraud. In response, the Centers for Medicare and Medicaid Services (CMS) has moved to block federal Medicaid funds to Minnesota in two ways: a retroactive deferral of reimbursements and a prospective withholding of future payments.
In February, CMS announced it would delay reimbursement of about $259.5 million Minnesota spent on Medicaid last summer, citing concerns about potential fraud and payments for people not eligible for Medicaid. CMS asked Minnesota to prove funds were spent lawfully across 14 categories of providers the state had previously flagged as “high risk” for fraud. Minnesota had already shut down at least one program, Housing Stabilization Services, citing widespread fraud.
Deferrals are a normal oversight tool for CMS, but they are typically narrow — reviewing specific claims. Experts warn that broad or vague deferrals make it difficult and time-consuming for states to assemble the documentation CMS requests. “The state kind of has to shoot in the dark in responding to CMS on what documentation they need to provide,” said Allie Gardner, a health policy researcher at the Center on Budget and Policy Priorities.
Separately, after finding Minnesota’s corrective action plan inadequate, CMS announced it planned to withhold about $2 billion annually in future federal funding. Withholding affects future payments and, together with a deferral, could deliver a sudden financial shock. “CMS’ use of both of these processes to go after the same services at the same time — that’s really concerning,” Gardner said. The state has the right to a hearing before withholding begins and can appeal deferrals; Minnesota has already filed a federal lawsuit over much of the money held in deferral. CMS has said it will not comment because of pending litigation.
CMS Administrator Dr. Mehmet Oz framed the actions as part of a crackdown on long-standing fraud, saying the problem reflects failures of state leadership as well as harm to taxpayers and beneficiaries. Minnesota Attorney General Keith Ellison criticized the federal approach as “cut first,” warning it risks care for Minnesotans and noting the state has pursued anti-fraud measures.
Policy experts emphasize the practical consequences of sudden funding interruptions. Andy Schneider, a Medicaid policy expert at the Georgetown Center for Children and Families, noted states budget expecting federal reimbursements; a $259 million reduction in the near term is large and immediate. A permanent loss of $2 billion annually could slow payments to providers, delay enrollment of new patients, lead to lower reimbursement rates, and force cuts to covered services.
Minnesota’s situation may be a test case. CMS has sent letters raising fraud concerns to other large states, including California, New York and Maine. The House Committee on Energy and Commerce has launched investigations into Medicaid fraud in 10 states: California, Colorado, Massachusetts, Maine, Nebraska, New York, Oregon, Pennsylvania, Vermont and Washington. Schneider and others say rooting out fraud is important but that federal-state collaboration, not abrupt funding freezes, is the better path to fix problems without jeopardizing access to care.
Families like Greta’s fear the human toll if services are disrupted. Lindbo said private insurance does not cover many of her daughter’s critical supports — such as the school paraprofessional who helps Greta prepare for class and assists during seizures — and any interruption could cause regression. “That would just be so heartbreaking because she’s worked really hard,” she said. “People who work with her work really hard and those systems need to stay in place so she can continue to grow.”
Experts warn that if CMS’ approach becomes a model, it could destabilize Medicaid programs and the coverage and care of enrollees who depend on them. They urge cooperative oversight that targets fraud while preserving continuity of services for vulnerable patients.
