Federal auditors have ordered California to repay more than $1 billion in Medicaid funds after determining the state improperly billed the federal government for healthcare services provided to illegal aliens.
The audits, conducted by the Centers for Medicare and Medicaid Services (CMS) under the Trump administration, have intensified federal oversight of state Medicaid programs.
California represents the largest portion of roughly $1.35 billion in questionable reimbursements identified across several blue states, including Illinois, Washington, Oregon, Colorado, Minnesota, New York and the District of Columbia.
Federal law limits Medicaid coverage for illegal aliens to emergency medical services only, preventing the use of federal funds for routine or elective care.
CMS Administrator Dr. Mehmet Oz said investigators have uncovered additional improper spending, raising the total questioned amount to more than $1.8 billion across eight states.
Investigators found that states did not provide adequate documentation proving non-emergency care for illegal aliens was funded solely with state dollars, as federal law requires.
As a result, CMS is taking enforcement action. Nearly $300 million in federal Medicaid funds is being withheld from California until officials can demonstrate compliance.
“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,” Oz said.
The dispute stems from expansions to Medi-Cal under Gov. Gavin Newsom (D). In 2022, the program was extended to cover non-citizen seniors, and in January 2024, eligibility was broadened to include all illegal aliens regardless of age.
Enrollment has surged to approximately 1.7 million non-citizens, roughly 11 percent of total Medi-Cal participants, according to the California Globe.
State analysts report that these expansions have driven annual Medi-Cal costs to nearly $10 billion, contributing to a $6.2 billion deficit identified in early 2025.
Some estimates suggest the total cost to taxpayers could reach $23 billion over two years, prompting California to seek emergency loans and federal assistance to sustain the program.
Republican lawmakers criticized the expansion as predictable fiscal mismanagement.
State Sen. Brian Jones (R-San Diego) said he warned Newsom over a year ago to halt the expansion before it destabilized the healthcare system.
Jones argued that the state prioritized coverage for illegal immigrants over legal residents and called for Medi-Cal to return to its original purpose.
Federal audits are ongoing. Dr. Oz said CMS now conducts quarterly reviews of state Medicaid programs to ensure federal funds are used appropriately.
“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 said, noting that elective procedures, such as dental cleanings, are not eligible for federal reimbursement.
California officials have denied wrongdoing, insisting that federal funds are limited to emergency services and non-emergency care is paid for with state dollars.
However, auditors reported that billing records reviewed during the CMS audits do not support these claims, contradicting years of state assurances.
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