California is using a loophole to redirect billions in federal taxpayer dollars to fund healthcare for illegal immigrants. A new study exposes how the state manipulates Medicaid rules to funnel money back into its own system without contributing its fair share.
Key Facts:
- A study by EPIC and the Paragon Health Institute claims California is exploiting Medicaid provider taxes to finance illegal immigrants’ healthcare.
- The state collects provider taxes, receives federal reimbursement, and then redistributes the money—creating the appearance of state funding.
- California is set to receive over $19 billion in federal funds without state contributions from April 2023 through December 2026.
- The scheme benefits insurance companies and increases the federal debt while shifting costs onto working Americans.
- House and Senate Republicans are considering closing this loophole as part of broader budget cuts.
The Rest of The Story:
Under current Medicaid rules, states must pay providers an amount equal to taxes collected, with the federal government matching those payments by 60%.
California, however, has devised a workaround: it levies higher provider taxes, secures federal reimbursement, and then redirects those funds—without actually using state money.
The study describes this as a “money laundering scheme,” alleging that the state is using federal dollars to expand Medicaid for illegal immigrants and cover long-term care for the wealthy.
In a new paper, @brian_blase and I expose how California launders federal funds through a tax on Medicaid insurance plans to cover illegal immigrants.
While the feds covers 50% of Medicaid for the disabled & pregnant in California, they pay 100% for illegal immigrants. pic.twitter.com/Q6cHBCXwkU
— 𝙿𝚊𝚞𝚕 𝚆𝚒𝚗𝚏𝚛𝚎𝚎 (@paulwinfree) March 12, 2025
This setup has allowed California to pull in more than $19 billion in federal funds while dodging any state financial responsibility.
With House Republicans seeking up to $2 trillion in savings, closing this loophole could reportedly save $630 billion.
However, experts doubt a complete repeal, suggesting instead that Congress may reduce the scope of the scheme, which disproportionately benefits blue states.
“It’s much more likely that they will reduce what’s called the safe harbor. So, in other words, what they’ll do is they’ll just reduce the amount of gaming that goes on, including this kind of gaming.” Paul W, co-author of the study told Fox News.
“And if that happens, it is more likely to affect some of the big blue states than it is the red states, simply because it’s the blue states that have really tested the upper limits of this kind of this kind of gimmick,” Winfree continued.
Commentary:
What California is doing isn’t just unethical—it should be illegal.
The state has found a way to launder federal tax dollars, using Medicaid provider taxes to bankroll illegal immigrants’ healthcare without putting up a dime of its own money.
If any private entity ran such a scheme, its leaders would face criminal charges.
This is yet another example of how blue states manipulate federal funds to support their left-wing agendas at the expense of working Americans.
California is effectively taking money from taxpayers across the country and using it to fund policies that many voters oppose.
Meanwhile, hardworking citizens struggle with rising healthcare costs, while illegal immigrants get free coverage.
Congress has a clear opportunity to shut this down. The loophole that allows states to abuse Medicaid reimbursements should be closed entirely.
Unfortunately, given the track record of Washington politicians, they will likely water down the fix, ensuring California and other liberal states continue their wasteful spending.
Republicans must push hard to end this scheme before more taxpayer dollars vanish into the pockets of bureaucrats and insurance companies.
Americans need to demand accountability and pressure their representatives to act. If they don’t, this corrupt system will only expand.
The Bottom Line:
California is exploiting a Medicaid loophole to funnel billions in federal dollars into illegal immigrants’ healthcare, enriching insurers while evading state financial responsibility.
Congress has a chance to stop this fraud, but whether they will act remains uncertain.
If Washington fails to fix this, taxpayers across the country will continue footing the bill for California’s reckless spending.
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