HHS is freezing $10 billion in child care funding to five states while reversing several Biden-era policies that it alleges enabled fraud and weakened oversight.
In a rule change announced Jan. 5, HHS said it will require states to return to “attendance-based billing,” allow payments to be made after services are delivered and shift flexibility back toward parent-directed vouchers — rather than guaranteed contract slots with child care providers.
The changes roll back 2024 rules that mandated payments be based on enrollment, not attendance, and required advance payment to providers, even if no care had yet been provided, according to the agency. HHS said the previous approach “invites abuse,” citing fraud investigations and a viral video that prompted a federal audit in Minnesota.
“Loopholes and fraud diverted that money to bad actors,” HHS Secretary Robert F. Kennedy Jr. said in a news release. “Today, we are correcting that failure and returning these funds to the working families they were meant to serve.”
The five affected states are California, Colorado, Illinois, Minnesota and New York, an HHS official confirmed to ABC News. While the funding freeze is not permanent, HHS said payments will resume only after the states verify their programs are not vulnerable to fraud.
The rule changes are subject to a 30-day public comment period.
HHS did not respond to Becker’s request for comment.
Two more federal health updates:
NIH can’t cap indirect research costs, appeals court rules: A federal appeals court on Jan. 5 upheld a lower court’s earlier ruling to block the Trump administration from implementing a 15% cap on reimbursements to universities and academic medical centers for indirect research costs. The policy, announced by the National Institutes of Health in February 2025, was quickly challenged in a lawsuit brought by attorneys general in 22 states, along with national groups representing medical schools, teaching hospitals and universities.
In a unanimous decision, a three-judge panel on the 1st U.S. Circuit Court of Appeals found that the NIH’s attempt to replace negotiated reimbursement rates for indirect research costs with a flat cap violated both congressional appropriations law and the agency’s own grant regulations.
“Congress went to great lengths to ensure that NIH could not displace negotiated indirect cost reimbursement rates with a uniform rate,” Judge Kermit Lipez wrote in the 38-page decision.
Indirect costs refer to expenses that support research infrastructure, such as utilities, lab space, equipment, and support staff. NIH estimated the cap would save more than $4 billion annually. In recent years, indirect cost rates for research institutions have averaged around 27%.
Research institutions had warned the cap would stall scientific progress and limit access to clinical trials and groundbreaking treatments.
Trump says he will meet with insurers over pricing: President Donald Trump said Jan. 6 that he plans to meet with 14 insurance companies “in a few days” to pressure them to lower prices for Americans.
“We’re trying to solve the healthcare problem. We’re trying to get better healthcare at a lower price,” he said during an almost 90-minute speech to House Republicans, published by PBS News.
The president renewed his push for lawmakers to redirect federal healthcare dollars away from insurers and toward consumers directly, an idea he first floated last fall.
“Let the money go not to the big fat cats and the insurance companies that made 1,700% over the last short period of time. Let the money go directly to the people where they can buy their own healthcare,” President Trump said.
Enhanced ACA subsidies expired at the end of 2025. A Democratic proposal to extend the subsidies for three years and a Republican alternative centered on health savings accounts both failed to advance in the Senate.
Approximately 4 million people will lose coverage without an extension, according to the Congressional Budget Office.
The House is expected to vote this week on a three-year subsidy extension, though it is unlikely to pass in the Senate, according to NBC News.
