The Trump administration says it will recover more than a billion dollars in federal Medicaid payments after a Centers for Medicare and Medicaid Services audit found millions were used to pay for healthcare for illegal immigrants in several Democrat-run jurisdictions. The audit points to systemic loopholes and billing maneuvers that funneled federal matching dollars into state programs covering undocumented people, with California singled out as the largest offender. Officials and public health experts are calling this abuse, and senior administration figures are pressing for aggressive recovery and accountability.
A preliminary audit by the Centers for Medicare and Medicaid Services found that, primarily during 2024 and 2025, California, Washington, D.C., Illinois, Washington, Colorado and Oregon improperly spent a combined $1,351,204,127 in federal Medicaid funds on care for illegal immigrants. Federal law generally bars Medicaid funds from being used for noncitizens who are not lawfully present, though emergency care is permitted regardless of status. The audit alleges states stretched or misapplied rules to pull federal dollars into programs that paid for broader services.
Federal Medicaid can pay for emergency treatment no matter a patient’s immigration status, and states may use state tax dollars to cover broader benefits for undocumented residents. But Republicans argue many Democratic-led states are exploiting matching rules, provider taxes, and accounting gimmicks to get federal matches for programs that effectively serve undocumented populations. That alleged practice is the core reason the administration is now seeking to claw back funds and tighten oversight.
“Protecting Medicaid from waste, fraud, and abuse isn’t optional—it’s the law. Every dollar misspent on illegal health care spending is a dollar taken from vulnerable Americans,” CMS spokesperson Emily Hilliard, told Fox News Digital. “Federal law forbids using Medicaid funds for illegal immigrants, yet several Democrat-led states did it anyway. The Trump Administration won’t tolerate it. CMS is auditing aggressively, recovering every dollar, and holding states accountable.”
California emerged as the biggest single source of the disputed spend, with the audit attributing more than $1 billion of improper federal Medicaid payments to the state. Illinois was listed next at nearly $30 million, and Oregon was cited for roughly $5.5 million. Those totals are fueling political pressure on governors and state legislatures to defend their programs or return federal money.
California’s governor’s office has pushed back, saying the accusations are “false.” Meanwhile, critics including former media figures and policy analysts have argued that California used a complex “provider tax” structure and other state maneuvers to generate federal matching funds that were later applied to coverage for undocumented people. Officials say that pattern amounts to gaming the system rather than following the intent of federal Medicaid rules.
“Medicaid is by far the largest source of federal funding for states. It was originally intended to only provide aid for eligible beneficiaries, but over time states have figured out how to game the system — padding permitted expenses and diverting the profits to fund activities which are supposedly prohibited,” said Pope. “Any claim that state healthcare expenditures don’t ultimately involve some form of federal funds should be regarded with suspicion.” Those are blunt words from a public health policy expert pointing to the mixing of state and federal flows.
Jim O’Neill, the current Acting Director of the Centers for Disease Control and Prevention and a deputy at Health and Human Services, has been posting daily examples under the label “MorningMedicaidMugshot” to illustrate the kinds of cases critics say should not be federally funded. He highlighted individual cases including Layth Kamil, a 24-year-old from Iraq convicted of exposing himself to a 15-year-old, and Haissam Massalkhy, a 45-year-old from Lebanon convicted after a fatal DUI. Those examples are being used to make a political case that taxpayer-funded care is reaching people with violent criminal records.
“Democrats are demanding continued funding of this violent illegal alien’s Medicaid as a condition for reopening the government and paying the hardworking public servants at my department,” O’Neill lamented in one of his recent “MorningMedicaidMugshot” posts. That appeal captures the administration’s message: recover the money, stop the practices, and redirect scarce federal Medicaid dollars to the people they were meant to help. The audit and the push to claw back funds mark the start of a tougher federal posture on how Medicaid dollars are used at the state level.
