News/Commentary

California using an ‘existing loophole’ to make taxpayers pay for illegals’ healthcare

March 13, 2025 | | Print Article

California has been credibly accused of using an “existing loophole” to pay for illegal aliens’ healthcare with taxpayer money.

The accusation comes from the Economic Policy Innovation Center (EPIC) and Paragon Health Institute.

The way it works, according to a study published by the two, is that California “dramatically raise[d] taxes on Medicaid insurers,” which produced $16.7 billion in revenue for the California General Fund.

Since California is required to pay Medicaid providers the same as the tax raised, California then invoiced the federal government for $16.7 billion.

The federal government then paid out 60 percent of the money, meaning California received $9.5 billion. Of this money, $5.6 billion was then spent on expanding Medicaid, while $3.9 billion was set aside to put illegal aliens on Medicaid.

Look:

(Source: EPIC)

“The state taxes Medicaid insurers and then makes higher payments to those same insurers with that tax revenue,” the study’s executive summary reads. “The higher payments enable the state to claim additional federal matching dollars. These federal funds leave California with surplus money to spend elsewhere. This scheme effectively allows the state to ‘launder’ federal Medicaid funds without spending any of its own money.”

“California uses this influx of federal money to fund large-scale Medicaid expansions. The most significant of these are extending Medicaid coverage to illegal immigrants and eliminating the asset test so wealthy people can qualify for taxpayer-financed long-term care. Because the federal dollars are money laundered, the state circumvents restrictions on federal Medicaid funding for illegal immigrants,” it continues.

Speaking with Fox News, EPIC president and CEO Paul Winfree said it all comes back to the loophole.

“They are exploiting an existing loophole within law,” he said. “States can do these provider taxes to funnel money back to the state, that they are then using to pay for, to put illegal immigrants on Medicaid. That’s quite literally what’s going on.”

It’s essentially money laundering.

“Medicaid spending is supposed to be jointly financed by the federal government and states. However, states are increasingly designing Medicaid money laundering schemes that result in massive federal expenditures without any state financial obligation,” the study reads.

“The state of California, colluding with insurance companies who cover Medicaid beneficiaries, has created one of the most outrageous ones yet, a money laundering scheme that results in California obtaining more than $19 billion in federal money without any state contribution over the period from April 2023 through December 2026,” the study adds.

Winfree noted that this is money that the Department of Government Efficiency (DOGE) could potentially claw back. He further speculated that closing the loophole altogether for all states could save the federal government $630 billion.

“One of the things that Congress is looking at right now is limiting the Medicaid provider tax loophole,” he said. “It’s actually one of the most significant offsets that is within the Medicaid portfolio that the Energy and Commerce Committee and Finance Committee over in the Senate can look at while they’re putting together their reconciliation bill.”

Though he’s doubtful they’ll reach the full $630 billion in savings.

“It’s much more likely that they will reduce what’s called the safe harbor,” he said. “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.”

“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,” he added.

All this comes about a year and a half after California expanded health insurance to illegal aliens.

“This expansion is projected to cost more than $835 million in the next six months and $2.6 billion every year thereafter,” CalMatters reported at the time.

This likewise comes two months after Rep. Kevin Kiley introduced the “No Medicaid for Illegal Immigrants Act.”

“The No Medicaid for Illegal Immigrants Act will save California taxpayers billions of dollars each year,” Kiley said in a statement at the time. “This common sense legislation ensures that taxpayer-funded healthcare benefits are preserved for those who lawfully qualify, prioritizing the needs of American citizens and legal residents while promoting fairness and fiscal responsibility.”

Vivek Saxena
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