The U.S. federal government has implemented new requirements for states to receive Child Care and Development Fund (CCDF) payments and has frozen or withheld significant Medicaid funding for Minnesota, citing concerns about widespread fraud. These actions are part of a broader "war on fraud" announced by the Trump administration, which has highlighted alleged irregularities in various programs across several states, with particular focus on Minnesota.
While federal officials state these measures are necessary to ensure program integrity, Minnesota officials have initiated legal challenges and contend that the actions are politically motivated and could harm vulnerable residents.
Federal Child Care Funding Changes and Freezes
The U.S. Department of Health and Human Services (HHS) has announced revisions to the Child Care and Development Fund (CCDF), a program providing financial assistance to states, tribes, and territories to make child care more affordable for low-income families.
Policy Revisions
The Trump administration has proposed repealing a Biden administration rule finalized in 2024 that mandated states pay child care subsidies to providers based on enrollment and in advance. This rule aimed to provide financial predictability for child care centers.
HHS plans to reestablish attendance-based billing practices, eliminate requirements for advance payments to providers, and restore the prioritization of a voucher system. These changes are subject to a 30-day public comment period.
Deputy HHS Secretary Jim O'Neill and Assistant Secretary for Family Support Alex Adams stated that these reforms aim to prevent fraud.
Deputy HHS Secretary Jim O'Neill noted that "bad actors can bill for children who aren't there," justifying the reforms to prevent fraud.
Funding Freezes and Increased Scrutiny
All 50 states must now provide additional levels of verification and administrative data to HHS before receiving further CCDF funding.
HHS initiated a freeze on federal funding for CCDF and other family assistance programs in Colorado, California, Illinois, Minnesota, and New York. This action, announced via letters to state governors, also targets Temporary Assistance for Needy Families (TANF) and Social Services Block Grant (SSBG).
Minnesota faces additional scrutiny and requirements, including more verification for child care centers suspected of fraud (attendance, licensing records, past enforcement, inspection reports). An audit of some Minnesota child care centers has also been called for. Allegations of fraud at day care centers operated by Somali residents in Minnesota were cited as a contributing factor.
Colorado could be short $91 million for the remainder of the fiscal year if the CCDF freeze remains, potentially affecting 27,000 children and 18,000 families. A dedicated fraud reporting portal has been launched at childcare.gov.
Reactions to Child Care Changes
Child care advocacy organizations, such as Child Care Aware of America and Zero to Three, expressed concerns that states already have program integrity requirements in place. They warned that the changes could introduce "chaos and confusion," potentially leading to facility closures due to narrow profit margins.
Minnesota Attorney General Keith Ellison announced exploration of legal options to prevent reductions in child care services. Governor Tim Walz described the administration's move as politicizing the issue, while acknowledging fraud seriousness.
Colorado Governor Jared Polis stated federal actions would "hurt vulnerable Coloradans" and described data demands as "unrealistic," affirming the state's commitment to supporting families. Colorado officials maintain their state has robust fiscal accountability systems exceeding federal minimum standards.
Minnesota Medicaid Funding Actions
The Trump administration has also taken significant steps regarding federal Medicaid funding for Minnesota.
Funding Halts and Withholdings
In February, the Centers for Medicare and Medicaid Services (CMS) delayed reimbursing approximately $259 million that Minnesota spent on Medicaid last summer. This deferral cited concerns about potential fraud and coverage for patients without legal status. CMS requested evidence from the state that funds were lawfully spent across 14 provider categories identified as "high risk."
In January, CMS announced its intent to withhold about $2 billion annually in future federal funding from Minnesota, stating that the state's submitted plan to prevent future fraud was "deeply insufficient." These actions follow previous federal freezes on child care funds and social services program funding in Minnesota and other states.
Vice President JD Vance stated the payments are paused "until the state government takes its obligations seriously to stop the fraud that's being perpetrated against the American taxpayer."
CMS Administrator Dr. Mehmet Oz attributed the issue to "the leadership of Minnesota and other states who do not take Medicaid preservation seriously."
Allegations of Fraud
Federal officials, including Dr. Mehmet Oz, stated they identified "scammers" who "hijacked ... a certain part of the Minnesota Medicaid system."
Federal prosecutors previously confirmed large-scale social services fraud in Minnesota, leading to dozens of convictions, many involving individuals of Somali origin, for stealing over $1 billion in public funds intended for food, housing, and disability services.
Some federal officials estimate up to $9 billion might have been stolen across various schemes linked to the state's Somali population. Specific examples cited by officials include an alleged program claiming to offer after-school services for autistic children without providing them, and a fraudulent biller claiming to work more than 24 hours a day for 450 days.
Minnesota's Response and Legal Action
Minnesota initiated a federal lawsuit against the Trump administration challenging a portion of the deferred Medicaid funds, claiming the federal government has used Medicaid against the state.
Minnesota's Deputy Health Commissioner John Connolly stated the state has been actively working to combat fraud and submitted a corrective action plan to the federal government. He noted the state's Medicaid payment error rate was 2% in 2025, which is below the national average of 6%.
Governor Tim Walz stated the federal announcement "has nothing to do with fraud."
While federal prosecutors have alleged billions in fraud, Governor Walz referred to such claims as "speculating," and Deputy Health Commissioner Connolly stated the actual figure was in the tens of millions. Minnesota lawmakers and Attorney General Keith Ellison have introduced legislation to increase staff in the Attorney General office’s Medicaid Fraud Control Unit and strengthen state fraud laws.
Potential Consequences and Expert Perspectives
Vice President Vance suggested Medicaid beneficiaries would not be directly affected, as providers have already received payments from the state, with federal action targeting state government payments.
However, Minnesota officials, including Deputy Health Commissioner Connolly and Ellie Wilson of the Autism Society of Minnesota, warned of "catastrophic" long-term impacts, including disruptions to provider payments, strain on healthcare facilities, jeopardized services for vulnerable populations, and destabilization of care for over a million Minnesotans.
Health policy experts, such as Andy Schneider of the Georgetown Center for Children and Families and Allie Gardner from the Center on Budget and Policy Priorities, indicated that the federal government's actions to withhold and defer funding deviate from typical procedures for handling fraud and are unprecedented, potentially setting a destabilizing precedent for other states.
Other Federal Actions and Investigations
The Trump administration's "war on fraud" extends beyond child care and Medicaid, encompassing several other programs and initiatives:
- National Moratorium: CMS Administrator Dr. Mehmet Oz announced a six-month national moratorium on federal funding for durable medical equipment, including prostheses and orthotics, due to fraud concerns.
- Other Program Investigations: The administration has initiated efforts to track fraud in Minnesota's unemployment insurance program.
- SNAP Funding: The administration has threatened to withhold SNAP (food aid) funding from Democratic-controlled states, including Minnesota, unless they provide information about recipients. Agriculture Secretary Brooke Rollins previously sent a letter to Minnesota threatening SNAP disqualification and funding cuts unless over 100,000 households were recertified and interviewed in person within 30 days, leading to a lawsuit filed by Minnesota's attorney general.
- Immigration and Denaturalization: White House Press Secretary Karoline Leavitt confirmed ongoing investigations into potential fraud sites in Minnesota and indicated plans to deport undocumented immigrants, with the Department of Homeland Security considering denaturalization of citizens. U.S. Homeland Security officials recently conducted a fraud investigation in Minneapolis, questioning workers at unidentified businesses.
- Expanded Scrutiny: Federal officials have communicated concerns about potential Medicaid fraud to California, New York, and Maine, indicating possible future deferrals or withholdings in those states. The House Committee on Energy and Commerce has also initiated investigations into Medicaid fraud in ten states.
President Trump has made remarks during public addresses concerning widespread fraud in "blue states" and specifically commented on cases in Minnesota in relation to the Somali population.
Concerns have been raised by some, including Washington State Attorney General Nick Brown, regarding potential harassment of home-based day care providers and members of the Somali community.