Trump Administration Suspends More Than $1 Billion in Medicaid Funding to California and Minnesota and Grants CMS New Exclusion Powers
In a major escalation of its campaign of administrative funding pauses targeting Democratic-led states, the Trump administration’s Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) have deferred more than $1.06 billion in federal Medicaid payments to California and Minnesota.
Alongside these unprecedented funding freezes, HHS Secretary Robert F. Kennedy Jr. has executed a landmark administrative overhaul, delegating "exclusion authority" directly to CMS. This move transforms the agency from a traditional administrative body into a powerful, frontline healthcare enforcer capable of permanently banning providers from participating in federal programs.
The Deferrals: Proactive Auditing as a Political and Fiscal Weapon
The funding deferrals, announced in late July 2026, represent the largest administrative freeze of Medicaid funds in the program's history:
- California: CMS deferred approximately $867.5 million in federal Medicaid payments after focused financial reviews flagged spending growth in in-home care programs and other claims that allegedly exceeded national averages.
- Minnesota: CMS deferred approximately $199 million in payments across 14 high-risk service areas, targeting claims linked to providers flagged during program integrity reviews.
CMS Administrator Dr. Mehmet Oz framed the deferrals as a proactive, document-driven approach to program integrity:
"CMS is done trying to chase down stolen and misused funds after they've already left the building."
Supporting the freezes, HHS Secretary Robert F. Kennedy Jr. stated:
"States that receive federal Medicaid funding must demonstrate that every dollar meets federal requirements. When they cannot, we will not release federal funds until they do."
Unlike permanent funding cuts, a "deferral" allows states to eventually recover the funds if they submit extensive documentation demonstrating compliance with federal rules. However, healthcare advocates and state officials warn that these freezes act as a blunt political instrument, threatening cash-flow disruptions for legitimate claims and placing immense administrative burdens on state Medicaid agencies.
A Frontline Enforcer: CMS Gains Unprecedented Exclusion Authority
Simultaneously, Secretary Kennedy delegated "exclusion authority" to CMS—a power that had historically belonged exclusively to the HHS Office of Inspector General (OIG).
Exclusion is one of the most severe administrative sanctions in federal healthcare. Excluded individuals and entities are barred from participating in or receiving payments from any federally funded healthcare programs, including Medicare and Medicaid, effectively shutting down their operations.
By sharing this authority with CMS, the Trump administration is creating what HHS Inspector General T. March Bell described as "a force multiplier" to accelerate the purge of "bad actors" from federal programs. Legal analysts at Sheppard, Mullin, Richter & Hampton LLP note that this delegation represents a profound structural expansion of CMS's enforcement toolkit. It raises serious due process questions and signals a "more aggressive and unfamiliar enforcement environment" where providers may face dual exclusions from both CMS and OIG for the same underlying conduct.