In 2024, California Gov. Gavin Newsom proudly made California the first state to offer medical care for people who entered the country illegally and reside in the Golden State. However, the cost, estimated at almost $8 billion, is being paid by all taxpayers, not just Californians.
Do people in Texas, North Carolina, and hyper-taxed Illinois want to fund California’s 700,000 illegal immigrants? They don’t have a choice. Newsom is using Medi-Cal, California’s Medicaid safety net program, and the federal government matches the state’s funding, using American taxpayers’ money. Yet illegal immigrants are prohibited by the 1996 Personal Responsibility and Work Opportunity Reconciliation Act from enrolling in Medicaid.
Federal Funding of States’ Medicaid
All state Medicaid programs are funded jointly by the state and federal government using a formula called Federal Medical Assistance Percentage (FMAP). Poorer states such as New Mexico and Mississippi get as much as three federal dollars for every one they budget, while rich states like California get one federal dollar for every state dollar.
The FMAP formula provides an incentive for states to increase spending because as they spend more state dollars, they get more dollars from taxpayers nationally.
Newsom is budgeting $42 billion for Medi-Cal in 2025-26.
In Newsom’s budget estimate last year, the cost of insuring illegal immigrants was estimated at $6.5 billion, but it has been revised to $9.5 billion “and is expected to grow even higher,” according to the L.A. Times. In fact, Newsom is now seeking a loan of an additional $3.4 billion to cover the increased costs.
Newsom’s Fraud
By law and Centers for Medicare and Medicaid Services (CMS) rules, illegal immigrants are prohibited from enrolling in Medicaid or Children’s Health Insurance Program (CHIP). By allowing illegal immigrants to enroll, Newsom directly contravenes federal rules and takes matching Medicaid funds that he should not. He acquires the money in several fraudulent ways.
Paul Winfree of Economic Policy Innovation Center and Brian Blase of Paragon Health Institute recently exposed a money laundering scheme that Newsom uses. California put a tax on insurers that increases “costs” to Medi-Cal. This forced Washington to contribute more taxpayer dollars to California. The state then approves higher rates for the insurance companies, which compensates them for the additional tax. California gains federal dollars. The only losers are taxpayers and the rule of law.
Another Newsom scheme involves having Medi-Cal pay for long-term care insurance for wealthy donors, according to Winfree and Blase. Newsom canceled the asset test that would prohibit rich individuals from qualifying for such insurance. He then uses “laundered” Medi-Cal funds to pay the additional insurance premiums.
California has been raiding the national piggy bank through its abuse of the Medicaid system. It is doubtful that taxpayers in other states wish to support medical care for California’s shenanigans. Some Americans know from bitter personal experience that they — legal citizens enrolled in Medicaid — get denied care, so why should illegal immigrants receive any?
California is not the only state to abuse the dollar-matching program to pay for illegals’ care — Oregon too has approved their enrollment in its state Medicaid program, Oregon Health Plan.
Solution
The current financing scheme for Medicaid provides an incentive for states to over-budget their Medicaid programs. The more they say their programs need, the more taxpayer dollars Washington must send state-ward.
A solution, beside DOGE clawing back the fraudulently acquired funds, is to change the matching formula so that a state negotiates with Washington for a fixed amount that can only be adjusted for inflation and legal population growth or shrinkage.
This would be a big win for federalism, taxpayers, and honest state governments. It restores the federalist concept embodied in the Constitution. Washington will no longer write blank checks to the states and will have a more predictable budgeting process.
Taxpayers will no longer be forced to pay for improper spending by a state. Much of the current waste, fraud, and abuse will cease. Hundreds of billions of dollars could be saved.
In addition, states should be permitted to design and operate their Medicaid programs as they see fit, no longer bound by CMS rules. If one state wants work requirements but another doesn’t, no problem. If different states want to have divergent eligibility standards, they may. If states want to make cross-border insurance contracts to maximize efficiency of limited medical services, they are free to do so.
If California or Oregon want to provide services to illegal immigrants, the state residents will have to approve payment because it will be their state’s dollars paying the freight.
Non-restrictive block grants for Medicaid would do more than solve the financial problems, close the fraud loophole, and eliminate the incentive to spend, they would also restore the original, federalist intent of the 1965 Medicaid law. Section 1801 is titled, “Prohibition against any federal interference.” State Medicaid programs were supposed to be designed and operated as the states, not Washington, decided. Yet, piece by piece over 60 years and many changes to the law, the federal government has imposed a one-size-fits-all approach. Non-restrictive block grants would fix that and restore Medicaid to its original design.
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