Federal auditors have directed the State of California to reimburse the federal government more than $1 billion in Medicaid funds. This order comes after findings that the state incorrectly charged the federal government for healthcare services provided to individuals residing in the country illegally. The audits, spearheaded by the Centers for Medicare and Medicaid Services (CMS) during the Trump administration, have escalated federal scrutiny of state Medicaid programs.
California accounts for the lion's share of approximately $1.35 billion in dubious reimbursements identified across multiple Democrat-led states, including Illinois, Washington, Oregon, Colorado, Minnesota, New York, and the District of Columbia. Federal law confines Medicaid coverage for illegal aliens to emergency medical services only, barring the application of federal funds for routine or elective care.
CMS Administrator Dr. Mehmet Oz disclosed that investigators have discovered additional improper expenditures, elevating the total questioned amount to over $1.8 billion across eight states. States failed to provide sufficient documentation to prove that non-emergency care for illegal aliens was financed exclusively with state dollars, as mandated by federal law. Consequently, CMS is enforcing corrective measures. Nearly $300 million in federal Medicaid funds will be withheld from California until the state can substantiate compliance with federal guidelines.
Dr. Oz stated, “These states failed to provide that for this $1.8 billion. So today, CMS is announcing that we’re withholding nearly $300 million from California—which is by far the worst offender—until they demonstrate to our satisfaction that they’re spending that money properly.”
The controversy originates from expansions to Medi-Cal under Governor Gavin Newsom's administration. In 2022, the program extended coverage to non-citizen seniors, and in January 2024, it further broadened eligibility to include all illegal aliens, irrespective of age. This expansion led to a surge in enrollment, with approximately 1.7 million non-citizens, making up about 11 percent of total Medi-Cal participants, as reported by the California Globe.
State analysts have noted that these expansions have propelled annual Medi-Cal expenditures to nearly $10 billion, contributing to a $6.2 billion deficit detected in early 2025. Some projections indicate that the total cost to taxpayers could reach $23 billion over two years, forcing California to request emergency loans and federal aid to maintain the program.
Republican legislators have condemned the expansion as a foreseeable fiscal mismanagement. State Senator Brian Jones (R-San Diego) remarked that he had cautioned Newsom over a year ago against proceeding with the expansion, predicting it would destabilize the healthcare system. Jones emphasized that the state gave precedence to coverage for illegal immigrants over legal residents and urged for Medi-Cal to revert to its foundational intent.
Federal audits are in progress, and Dr. Oz indicated that CMS now conducts quarterly reviews of state Medicaid programs to guarantee the appropriate use of federal funds. “The state is giving that money back. We will collect the rest of it, and we’re continuing to audit quarterly the state Medicaid system,” he affirmed, clarifying that elective procedures, such as dental cleanings, are ineligible for federal reimbursement.
California officials have repudiated any misconduct, maintaining that federal funds are confined to emergency services and that non-emergency care is financed with state resources. However, auditors have reported that the billing records inspected during the CMS audits do not corroborate these assertions, contradicting years of state assurances.
