Minnesota Fights Back: State Sues Trump Administration Over Controversial Medicaid Cuts

An alleged campaign of “reckoning and retribution” has led the Trump administration to unlawfully withhold millions in Medicaid funds from Minnesota, according to a lawsuit filed this week in federal court.

Earlier this year, Dr. Mehmet Oz, Administrator of the Centers for Medicare & Medicaid Services (CMS), declared that Minnesota was not in compliance with Medicaid regulations, threatening to cut $2 billion in funding. In response, Minnesota swiftly challenged this decision.

By late February, CMS had already “deferred” $259.5 million from the state. Of this amount, over $243 million was due to what were described as “unsupported or potentially fraudulent Medicaid claims,” with the rest related to “claims involving individuals lacking a satisfactory immigration status.”

The state has now filed a 22-page complaint, accusing the Trump administration of using Medicaid as a political weapon against Minnesota.

This legal battle arises amidst ongoing disputes between Minnesota and the federal government, including large-scale immigration raids, some of which have had fatal outcomes, and allegations of extensive childcare fraud in Minneapolis and St. Paul.

In the specific dispute, the plaintiffs say CMS is trying to perform an end-run around the administrative process by using the deferral process after Minnesota appealed the earlier noncompliance effort.

“Deferral has never been used to categorically deny funds to a state across entire service areas, as is being done here,” the lawsuit reads. “By immediately denying Minnesota substantial Medicaid dollars for the very Medicaid services for which it is challenging the federal government”s January 6 claim of ‘noncompliance,’ the deferral effectively denies Minnesota the due process it is entitled to prove that no withholding is warranted.”

The state also says the deferral process is more appropriately considered a limited-use “auditing tool” used to dispute “a claim or a portion of a claim” if there is “a lack of supporting documentation showing that payment to a Medicaid provider is warranted.”

To hear the state tell it, the broad use of the deferral process is an effort to make good on a political threat leveled by President Donald Trump in a Truth Social post earlier this year.

The post in question is reproduced in the complaint:

Minnesota Democrats love the unrest that anarchists and professional agitators are causing because it gets the spotlight off of the 19 Billion Dollars that was stolen by really bad and deranged people. FEAR NOT, GREAT PEOPLE OF MINNESOTA, THE DAY OF RECKONING AND RETRIBUTION IS COMING!

The lawsuit argues that just months earlier, the state and CMS “worked cooperatively” to administer the in-state Medicaid program.

“To the best of [Minnesota’s] knowledge, information, and belief, CMS has never determined [Minnesota] in substantial noncompliance with Medicaid regulations; throughout its working relationship, [Minnesota] proactively identified and discussed issues and vulnerabilities with CMS, and when CMS raised similar issues, the parties worked together on solutions,” the complaint reads.

“Recently this changed,” the lawsuit notes.

But, Minnesota says, even after the January noncompliance determination, the state was intent on working with federal authorities.

The lawsuit contains several pages documenting what both the plaintiffs and defendants refer to as a “corrective action plan” meant to address the noncompliance determination. Eventually, however, CMS stopped cooperating and left Minnesota with no information as to how to actually correct the alleged deficiencies, the lawsuit alleges.

“[Minnesota] has also asked CMS to tell it how it is noncompliant with federal statutes or regulations given the vagueness of the January 6, 2026 notice,” the lawsuit goes on. “[Minnesota] asked for an amended notice, but CMS’s hearing officer denied the request…At the parties’ February 25, 2026 meeting, CMS told [Minnesota] that it continued to have no information for Minnesota about its revised corrective action plan.”

The plaintiffs say the vagaries in the ongoing dispute are also a problem in another sense: Namely that they violate the Administrative Procedure Act (APA), the federal statute governing agency behavior.

“Defendants’ deferral notice fails to provide the State with sufficient information about the particular ‘claim or portion of a claim’ at issue or the ‘specific reason’ for the deferral,” the lawsuit reads.

The filing elaborates:

As to the $243 million deferred, the only information Defendants’ deferral notice provided was that it was “attributable to CMS’s ongoing review of state expenditures.” It does not identify what those “state expenditures” are, nor does it provide any information about particular claims that could be at issue. It only states that the “focus” was on “fourteen high-risk Medicaid service areas [Minnesota] identified as particularly vulnerable to fraud or abuse,” but it does not state that the deferred dollars only come from those programs. Defendants’ breakdown of the $243 million is equally vague.

Defendants’ deferral notice does not provide Plaintiffs with specific information about the particular claims at issue.

“Because of the vagueness of the notice, Plaintiffs are blocked from establishing whether the ‘claims’ at issue are allowable under the regulatory scheme,” the lawsuit goes on. “Defendants’ deferral notice is without observance of procedure because it does not identify the type and amount of the deferred claims and does not specify the reason for denial and therefore violates the APA.”

The vagueness claim dovetails with another APA claim that the Trump administration’s actions are “arbitrary and capricious.”

The plaintiffs say the defendants, in their efforts to keep Minnesota guessing, “have made clear this deferral has nothing to do with the purpose of substantiating claims with documentation.”

This guessing game, the lawsuit goes on, means there is no “rational connection between the facts found and the choice made.”

“The pretextual reason for immediately withholding funds makes the decision arbitrary and capricious,” the lawsuit argues. “This action is also part of the Administration’s pattern and practice of political punishment against the State.”

The filing also alleges violations of procedural due process guarantees and the spending clause of the U.S. Constitution as well as a claim that the defendants are operating beyond their legal power or authority.

The lawsuit asks a judge to “declare unlawful and set aside” the $243 million deferral, saying the prospect of quarterly Medicaid coffer raids would be “crippling” to the state’s budget.

“The Trump Administration’s M.O. is to cut first, no matter what the law says or who gets hurt, and ask questions later, if at all,” Minnesota Attorney General Keith Ellison, a Democratic-Farmer-Labor Party member, said in a statement this week. “These cuts are the latest in a long series of efforts to go around the law to punish Minnesotans.”