At the end of 2025, federal prosecutors uncovered “staggering, industrial-scale” fraud within Minnesota’s Medicaid program. Investigations into autism treatment centers (EIDBI) and Housing Stabilization Services (HSS) have led to numerous criminal charges, with prosecutors estimating that up to $9 billion of Minnesota’s Medicaid spending since 2018 may have been fraudulent. Schemes involved billing for services that were never provided, recruiting healthy children for fake autism treatments, and using kickbacks to enroll participants.
State Medicaid spending data reveal troubling patterns consistent with these revelations.
This Paragon Pic shows that Minnesota has the second highest per enrollee Medicaid spending under the Affordable Care Act (ACA), paying an average of $9,845 per ACA expansion adult in 2023 — 51 percent higher than the national average of $6,507. Part of the explanation for Minnesota’s high level of per capita spending is that the state covers exceptionally broad services. But in light of the scams recently exposed and lax oversight in Minnesota, it is likely that fraud also contributes to Minnesota’s high spending, resulting in taxpayer dollars being diverted away from those they were intended to help.
Paragon has consistently argued that Medicaid’s structural flaws weaken states’ incentives to root out fraud and abuse – and Minnesota is only the latest in a long string of similar cases. One key driver of fraud and improper payments in Medicaid is the funding structure created under the ACA, in which the federal government pays 90 percent of the costs for expansion adults, leaving the state to cover only 10 percent. (And due to schemes that amount to legalized money laundering, many states shift even more of the burden onto the federal government.)
This creates a massive moral hazard. For every $1 in Medicaid funds on expansion, adults lost to fraud, the state loses, at most, 10¢. Consequently, state officials have little financial incentive to rigorously monitor program integrity. In fact, the incentive is to look the other way as federal tax dollars flow into the state economy. Minnesota’s scandal is not just a failure of local management; it is a predictable outcome of a federal financing system that subsidizes waste and discourages accountability.
