Gov. Tim Walz pitched a state takeover of locally managed Medicaid funds this week, and he wants the very agency under investigation for enabling billions in fraud to lead the charge.
The proposal landed with a thud in St. Paul. Lawmakers from both parties pushed back. The plan would cost taxpayers $72 million. And it arrives as federal authorities close in on what may be the largest Medicaid scam in American history.
Walz unveiled the overhaul at a Tuesday press conference, as the Washington Examiner reported. The proposal would strip Minnesota's 87 counties and managed care organizations of their Medicaid roles and hand nearly everything to the Minnesota Department of Human Services.
The key elements:
Managed care organizations currently administer more than 80% of Minnesota's Medicaid benefits. They also hold the power to freeze funds for suspected fraud and must report credible findings to DHS. Walz's plan would eliminate that frontline check.
The governor framed the overhaul as modernization.
"We think this is a way of simplification. It's a way to use best practices, AI, and what that does is take the burden off the counties, the managed care organizations. And that gives the state and the taxpayers a much more transparent view on how the system works."
He blamed the current mess on outdated technology and scattered oversight.
"It's antiquated computer systems. It's decentralized control."
That framing ignores an uncomfortable fact: the agency he wants to empower is the same one that let fraud fester for years.
DHS is currently the subject of a third-party fraud investigation. The department hired Optum via a $2.3 million contract to probe patterns of Medicaid fraud. But the initial report came back with completely blacked-out pages full of redactions, leaving legislators in the dark about what Optum actually found.
Rep. Kristin Robbins, the Republican chairwoman of the House Fraud Prevention and State Agency Oversight Policy Committee, told the Washington Examiner she has more questions than answers.
"The majority of the report was redacted, so I don't know what they found. The frustrating thing to me, as a legislator, is that they say they're on it, and they're finding fraud, and they're flagging all these vulnerabilities, except they can't possibly tell us what they are."
Robbins also questioned whether Optum flagged any of its own providers. The company previously received millions in state Medicaid funds through DHS. She drew a hard line on new spending.
"Yet they want us to spend millions and millions of dollars on technology upgrades. Well, until we understand better what the vulnerabilities are, we're not writing them a blank check."
The criticism wasn't limited to Republicans. Democratic state Sen. John Hoffman, chairman of the Senate Human Services Committee, issued a statement saying he was blindsided.
"Major structural changes to a system that serves hundreds of thousands of Minnesotans require thoughtful collaboration between the executive branch and the legislature."
Hoffman said his committee "exists specifically to examine these types of proposals, hear from stakeholders, and ensure reforms are implemented responsibly." He added he was "disappointed to learn about this proposal just last night without a thorough conversation" with lawmakers who hold jurisdiction over the system.
When even the governor's own party balks, that tells you something.
Republican Rep. Paul Torkelson, co-chair of the House Ways and Means Committee, was blunter. Speaking to reporters outside the governor's state Capitol office, he called the idea reckless.
"To put more responsibility on a state agency that acts irresponsibly, to me, is just a very stark, bad idea."
Consider what DHS has already done, and failed to do. Hennepin Health, a county-run managed care organization based in Minneapolis, sounded the alarm about fraud in Housing Stabilization Services over a year before DHS cut off Medicaid payments to the program. Hennepin Health sent DHS multiple fraud referrals and banned suspicious businesses from billing its own clients.
DHS continued to pay those questionable providers anyway.
The department ultimately had to shut down Housing Stabilization Services entirely. And the federal government threatened to withhold Minnesota's Medicaid payments, prompting DHS to sue to unblock the funds. This is the agency Walz wants to put in charge of everything.
Making matters worse, Walz permanently appointed the official who oversaw DHS financial operations during much of the fraud as the agency's commissioner late last month. That decision echoes the broader pattern of accountability failures that Republican leaders have flagged throughout this scandal.
The transition would cost taxpayers $72 million, $17 million in the first fiscal period and another $55 million in the following budget cycle. Initial estimates did not specify how much would go toward upgrading DHS computer software, the very systems Walz himself called "antiquated."
Walz acknowledged he will "need legislative buy-in" but also signaled he believes the executive branch can act independently.
"The executive branch is responsible for carrying these out. And to be very candid, we're telling you that the way some of these things are structured are antiquated."
That posture, asking for collaboration while insisting on executive authority, has not reassured skeptics on either side of the aisle.
Walz's proposal arrives as the scandal spirals beyond state borders. The Washington Times reported that Walz and Attorney General Keith Ellison are scheduled to testify before the House Oversight Committee about alleged large-scale fraud and possible money laundering in Minnesota social service programs. Chairman James Comer estimated that $9 billion in taxpayer funds were stolen from programs meant for children, low-income and disabled housing recipients, and Medicaid beneficiaries.
Comer stated that "Governor Tim Walz and Attorney General Keith Ellison ignored repeated warnings and retaliated against state employees who raised concerns."
Meanwhile, Fox News reported that CMS Administrator Dr. Mehmet Oz sent a letter notifying Walz of plans to audit Medicaid bills for 14 Minnesota programs flagged as problematic. Oz said the suspected fraud could involve $500 million or more in questionable Medicaid-related funds.
"What we have learned so far in Minnesota is just the tip of the iceberg, perhaps the largest Medicaid scam ever, taking place throughout the state in many different fashions."
The political fallout has been severe. The Minnesota House has initiated impeachment proceedings against the governor, and observers have noted that Walz may not survive politically into the next election cycle. Even prominent national figures have demanded his resignation.
Walz's pitch boils down to a familiar government reflex: when a program fails, make it bigger. When an agency enables fraud, give it more power. When taxpayers get robbed, ask them to fund a $72 million reorganization.
The managed care organizations Walz wants to sideline are the same entities that actually caught the fraud. Hennepin Health flagged suspicious providers. DHS kept paying them. Now Walz wants to remove the watchdogs and let the negligent agency run the whole show, with a heavily redacted audit as its only credential.
Legislators are right to demand answers before writing any checks. How many county workers lose their jobs? What did the Optum report actually find? Did Optum flag its own providers? None of these questions have been answered.
You don't reward failure with a promotion. You don't fix fraud by handing the keys to the people who let it happen.
