Medicaid run amok

Medicaid funding is another seemingly bottomless hole of fraud being investigated in the state

This article originally appeared in the Summer 2026 issue of Thinking Minnesota magazine.

Minnesota’s Medicaid crisis is no longer a collection of isolated scandals, disputed forecasts, or bureaucratic mistakes. Taken together, the federal funding deferrals, the state’s handling of MinnesotaCare eligibility, the failure to deliver promised savings from program-integrity reforms, and the congressional investigation into whistleblower retaliation all point to the same deeper problem: a state government that expanded public benefits faster than it could verify, monitor, or defend them.

The result is a system that leaves taxpayers paying more, vulnerable people competing with fraudsters for limited resources, and public trust badly damaged. Minnesota’s Medicaid and public-assistance programs have become a magnet for abuse; official warnings about reform have not kept pace with fiscal reality; and accountability will be required to restore confidence in the programs meant to serve those most in need.

We can start with a significant escalation of efforts to combat fraud, when the Centers for Medicare & Medicaid Services (CMS) under Administrator Dr. Mehmet Oz has deferred an additional $91 million in federal Medicaid funding to Minnesota. The announcement was made on April 30, 2026. Of note, one of Oz’s top policy advisors in Washington, D.C. happens to be former American Experiment senior policy fellow Peter Nelson.

This follows an earlier deferral of approximately $259 million for Q4 FY 2025 expenditures. That week, the FBI also raided more than 20 businesses, including the infamous “Learning Center” childcare center that became a national meme for fraud in Minnesota.

Of the latest $91 million withheld, roughly $14–$15 million may relate to claims involving individuals lacking satisfactory immigration status, while about $76 million ties to 14 high-risk service categories that are highly vulnerable to fraud. Illegal immigrants are barred from Medicaid. But the unusual way Minnesota treats public healthcare dollars in this group goes a long way toward explaining exactly how this state became a fraud magnet.

Dr. Oz emphasized Medicaid’s fundamental purpose: “At CMS our responsibility is clear: the federal government covers more than half of Medicaid payments, which means we have both the duty and the authority to make sure these funds are used properly.”

The Center of the American Experiment has detailed how a controversial Minnesota plan to cover healthcare costs for undocumented immigrants was quickly overwhelmed by enrollment and mired in questionable entanglements with ineligible federal funding. The Walz administration’s guidance offered immediate enrollment in taxpayer-provided health care to undocumented immigrants — even if they had previously lied about their immigration status to obtain Medicaid. The estimated cost of providing care to 20,000 illegal immigrants for one year was $104 million.

The MinnesotaCare (MNCare) program that paid for the health care of illegal immigrants was supposed to be funded exclusively with segregated state-only dollars. However, the Health Care Access Fund — from which the money was drawn — is notorious for mixing state and federal money and diverting it to all kinds of non-healthcare spending.

The $14 million withheld for improper payments to undocumented immigrants is important for two reasons.

First, Minnesotans are struggling with out-of-control health insurance costs. It is simply unfair that Minnesota families go without coverage so that others can cheat the system and obtain millions in taxpayer dollars meant for the poor.

Second, it highlights why Minnesota has become a national center for public program fraud. Those in charge did more than look the other way — they enabled it, cheered it on, and actively designed a system that invited fraud and made it hard to find.

In the Nov. 7, 2024 bulletin titled “Expanding MinnesotaCare Eligibility to Include Undocumented Individuals,” the Walz administration created a pathway for anyone to enroll in free MNCare with almost no chance of detection if they simply claimed to have no Social Security number or income history. Those enrollees faced no additional review and received immediate coverage.

Dr. Oz has promised to “not pay claims that don’t meet federal standards.” He concluded: “Medicaid exists to protect our most vulnerable citizens and we have an obligation to protect it.” It is not yet clear where the $14 million was flagged, but (like most fraud in Minnesota), it feels a lot like the tip of an iceberg.

An administration in denial

When congressional Republicans passed H.R.1, the major reconciliation bill, Gov. Tim Walz and Sen. Amy Klobuchar warned that 250,000 Minnesotans would lose Medicaid coverage. They painted a dire picture: work requirements for able-bodied adults, eligibility checks, and basic program integrity measures would supposedly devastate our state. Rural hospitals would close. Families would be thrown into chaos. A quarter-million people would be kicked to the curb.

Yet here we are, months later, and reality tells a different story. After the Minnesota House passed H.F. 4546, which adjusted appropriations to align with the February forecast from Minnesota Management and Budget (MMB), Medicaid spending in Minnesota is not cratering — it’s going up. Enrollment remains stable at around 1.2 million. In fact, the state did an audit of the impact of H.R.1 (Trump’s One Big Beautiful Bill), and Walz’s own study found that (instead of the quarter-million people kicked off Medicaid) the state would actually increase the Medicaid rolls by 3,946. Who is being kicked off Medicaid? Fraudsters should, if they make too much money, live in another state, or are dead. But they aren’t.

Walz and Klobuchar claimed people would lose coverage if required to prove they were working, volunteering, or job-seeking. They insisted that requiring the state to verify eligibility more regularly would strip coverage from hundreds of thousands of people.

Spending forecasts have not collapsed. Instead of the bleeding predicted, the state is planning to spend more but save nothing by following through on implementing commonsense reforms from H.R.1. Lower improper payments and eligibility cleanups are producing savings without the human tragedy Democrats forecasted. Able-bodied adults without dependents are being asked to contribute — hardly radical.

The real question should be “Why isn’t spending going down?” The February forecast should have assumed the state would comply with stricter eligibility determinations, and the Medicaid headcount would go down. It should, if free riders and fraudsters are kicked out.

GOP Reps. Joe McDonald and Isaac Schultz asked DFL bill author Rep. Mohamud Noor a very straightforward question: Where is the money going? If there is $9 billion in fraud in Minnesota (mostly in Medicaid) and we are cutting a quarter million people off Medicaid, where is the additional $1.2 billion going? Noor claims it’s just an “enrollment adjustment… same as every other year.” American Experiment found that in recent years, up to 20 percent of Medicaid enrollees were already covered by another plan or were dead. There was no effort to find and remove them — just more spending on more people with zero accountability.

Walz claimed H.R.1 would “tear health care away from a quarter million Minnesotans so Trump can give tax cuts to billionaires,” but his administration plans on spending $1.2 billion more to grow Medicaid with zilch savings from fraud protection.

They can’t have it both ways. Either the reforms in H.R.1 are going to cause massive coverage losses or they aren’t. The evidence from H.F. 4546 and MMB’s numbers show that is not going to happen. Something is amiss. Minnesotans deserve honesty, not fearmongering. Program integrity isn’t cruelty; it’s sustainability. Fraud drains resources from those who truly need help. Work requirements and eligibility checks strengthen Medicaid for the vulnerable, rather than letting it balloon in an unsustainable way.

Medicaid enrollees pay less than one percent of their care costs in premiums, no deductibles, and no co-pays. However, Minnesotans who actually pay more are paying for less. A lot less. Higher premiums. Higher deductibles. Higher co-pays. More out-of-network costs. More rejected prescriptions and treatments. Klobuchar and Walz have worked to systematically replace the best health care in America with a Soviet-style system that crushes those who pay for insurance with sky-high costs for less access to care. Minnesota deserves to know what happened to its health care before it’s too late to get it back.

The investigation heard ’round the world

Chairman James Comer’s House Oversight Committee June 2026 staff report, “The Cost of Doing Nothing: How Tim Walz and Keith Ellison Fueled Minnesota’s Fraud Explosion,” reveals a governance philosophy that protected certain programs and their spending even when presented with bright red flags from investigators and whistleblowers. But it may go beyond that — and that’s where Vice President J.D. Vance takes over with his work as fraud czar.

Comer’s report demonstrates negligence in the Walz administration’s efforts to combat fraud. But did administration officials proactively enable fraud or hamper investigations to stop it? “Minnesota state officials are not above the law,” Vance said in a social media post, concluding, “if they facilitated fraud, lied under oath about what they knew, or harassed and intimidated whistleblowers, they must face justice.”

Chairman Comer’s 205-page report details how the Walz administration, aware of the fraud since 2019, failed to restrict payments or root out crooks. Gov. Tim Walz seemed to prioritize getting money out the door and measured success by volume rather than by how much good the money did. This invited fraudsters in, and when red flags were raised and whistles were blown, the whistleblowers and flag-raisers were threatened to keep the mess quiet. According to the Comer report, many of the suspicious activity reports were triggered by immigrant business owners or businesses simply engaging in programs whose goals were deemed more important than what did (or did not) get done to achieve them.

This enabled massive losses, including the $250 million Feeding Our Future scandal as well as “smaller” losses such as the Housing Stabilization Services program, which ballooned from $2.5 million in 2020 to over $100 million in 2024. These and other budget explosions seemed to escape the regulators in the Walz administration who were supposed to monitor such programs.

But the issue went beyond mere negligence. It wasn’t simply a lack of controls to spot obviously suspicious activity or turning a blind eye to eye-popping spending with no receipts.

The Comer report highlights testimony suggesting that whistleblowers and investigators were warned by higher-ups in the administration to stop finding fraud in certain areas. Over 30 state employees who raised concerns said they faced retaliation, including intimidation, threats, and professional repercussions. Instead of addressing the concerns, according to the Comer report, the administration suppressed dissent and the money kept flowing.

American Experiment has also detailed additional ways in which the design of the enrollment process itself may have provided a roadmap for hiding fraud. When illegal noncitizens admitted to fraudulently obtaining Medicaid, they were instructed to simply “correct” the application for MNCare by claiming “not legal” status. “When an enrollee who has previously indicated that they are a U.S. citizen or lawfully present non-citizen corrects their information to indicate that they are not considered lawfully present, the new attested information is not subject to verification.” This giant fraud loophole was presented to individuals by the administration who the state had already acknowledged had committed Medicaid fraud.

If they applied without providing a Social Security number or any other financial information, they were immediately enrolled in MNCare as long as they claimed no income. “An individual who reports having no income is not required to provide verification or an explanation, unless electronic sources or other information the agency has indicates there is inconsistent information.” If they did provide additional supporting documentation, it triggered a review and a higher standard of accountability. Clearly, that signals to enrollees that they need only provide a simple attestation, making it impossible to audit the application for fraud. This is not just looking the other way.

The next step — Vance’s referral to the Department of Justice’s Fraud Division for criminal investigation — clearly signals accountability for the fraudsters who financially benefited, as well as the potential for those enabling the fraud to face consequences. Nobody wants to see the weaponization of the government against people doing their jobs, so this needs to be done with the utmost care, but with the understanding that the victims of these crimes are the most vulnerable among us.

Even if this succeeds in prosecuting bad actors, Minnesota needs a major correction to regain trust. Minnesota needs to face the music and clean up the mess. This will include:

• Rigorous financial controls,
• Outcome-based metrics,
• Whistleblower protection.

To enable the next legislature and governor to address this issue properly, they will have to work with the Trump administration on a new way forward. In order to do that, Minnesotans need to know that they are not being laughed at by the fraudsters who got rich stealing from hungry kids and poor people on Medicaid.