Walz proposes overhaul of Minnesota Medicaid system

Walz said the proposal reflects the need to modernize systems built decades ago.

"Minnesota ranks as a top state to live because of the services we provide to make life easier for families," Walz said in a statement on social media. "But we need to strengthen program integrity and meet today’s challenges. I’m proposing a major overhaul to the way we deliver those services."

Medicaid, known in Minnesota as Medical Assistance, operates through a multi-layered structure which Walz's office called "complex" and "patchwork." About 45% of Medicaid spending and nearly 80% of basic care services are administered through eight managed care organizations.

Under Walz’s proposal, the state would transition away from the managed care model and establish a single statewide Administrative Service Organization responsible for administrative duties such as claims processing, financial transactions and provider services.

State officials say the change would improve services for Medicaid recipients.

Walz explained that Minnesota is one of only a handful of states that still relies heavily on a county-administered model.

“Counties and tribal nations are essential partners doing the work, but the system is growing too complex for necessary oversight,” Walz said during a Tuesday press conference on the proposal. “This is not putting blame on counties or managed care organizations. It’s just stating a reality that over the decades the system has become more complex.”

The proposal would also shift responsibility for determining Medicaid eligibility from counties to the state. Officials say the transition could be completed by July 2028.

Shireen Gandhi, the newly-appointed commissioner of the Minnesota Department of Human Services, said the proposal would centralize key functions while easing administrative burdens on local governments.

“We are proposing to centralize the administration of Medicaid by phasing out managed care contracts for Medicaid, changing how we serve about 80% of Minnesotans who are on the Medicaid program,” Gandhi said. “Moving some of the work of Medicaid eligibility from the counties to DHS will ease workforce pressures that we are hearing about from our county partners.”

Walz’s proposal also includes funding for an independent study examining how Minnesota administers human services programs. The review would analyze how responsibilities are divided and compare Minnesota’s structure with other states.

Programs included in the study would include many taxpayer-funded welfare services, including Medicaid, MinnesotaCare, behavioral health services, housing support, economic assistance, child support and child care programs.

The state has also issued a request for proposals from consulting firms to evaluate operations within the Department of Human Services and recommend ways to improve the agency’s effectiveness as Minnesota’s Medicaid administrator.

All of these initiatives are part of efforts by Walz’s office to provide what it says will be a “more transparent, efficient, and accessible system.”

The proposal comes as state lawmakers continue to debate how to address fraud in state-funded programs.

Republicans have pushed for stricter oversight measures and new enforcement tools, while Democrats say some proposals focus too heavily on punishment and could harm legitimate welfare recipients.

That policy debate has only intensified amid ongoing investigations into potential fraud schemes involving taxpayer-funded programs. Independent and federal investigators have estimated fraud in Minnesota could total between $9 billion and $20 billion.

Legal disputes are also ongoing between Minnesota and the federal government over Medicaid funding.

Minnesota Attorney General Keith Ellison and the state’s Department of Human Services filed a lawsuit in February after federal officials moved to withhold roughly $243 million in Medicaid payments while reviewing potential fraud-related compliance issues, as previously reported by The Center Square.

With more than one million Minnesotans enrolled in Medicaid, Walz said the proposed overhaul is critical to ensuring the program’s long-term stability.

“This proposal begins the work of modernizing how we deliver human services so we can strengthen oversight, increase efficiency and improve the quality of services Minnesotans rely on,” Walz said. “This is about asking whether the way our system is organized today best supports accountability, transparency, and effective service delivery for the future.”