Federal Audits Demand California Repay Over $1 Billion in Misused Medicaid Funds for Illegal Aliens

In a major escalation of federal oversight, audits by the Centers for Medicare and Medicaid Services (CMS) under the Trump administration have determined that California must repay more than $1 billion in improperly claimed federal Medicaid funds tied to healthcare for illegal aliens. The findings highlight California’s role as the “biggest culprit” among several blue states—including Illinois, Washington, Oregon, Colorado, and the District of Columbia—that collectively face demands to return $1.35 billion in questioned reimbursements.

The revelation, first highlighted in a Fox News alert on Monday, underscores the ongoing fiscal strain caused by the state’s decision to extend full Medi-Cal coverage to all “undocumented migrants”, a move that has ballooned costs to the near point of fiscal insolvency.

🚨 BREAKING: California is being required to return over $1B in federal healthcare funds spent on services for undocumented migrants, according to federal audits.pic.twitter.com/M4XjsNB8zX

— Derrick Evans (@DerrickEvans4WV) January 19, 2026

According to the CMS preliminary audit conducted in late 2025, California alone accounts for the lion’s share of $1.35 billion in improper federal reimbursements across several blue states. The audit found that these funds were used to subsidize non-emergency healthcare for non-citizens violating federal restrictions that limit Medicaid reimbursements to emergency services only for non-citizens without satisfactory immigration status.

Fox News reported that the Trump administration, through CMS Administrator Dr. Mehmet Oz, is aggressively pursuing recovery of these funds, labeling the expenditures a “terrifying reality” of taxpayer dollars being diverted to support illegal immigration. Oz’s office emphasized that California was the “biggest culprit,” with over $1 billion in questioned costs, some of which allegedly benefited individuals with violent criminal records.

The California Globe has extensively covered the fiscal fallout from Newsom’s Medi-Cal expansions. In 2022, the governor expanded coverage to undocumented seniors, and by January 2024, the program was opened to all undocumented immigrants regardless of age. This led to a massive enrollment surge, with an estimated 1.7 million non-citizens now on Medi-Cal rolls—representing about 11 percent of total participants. Costs have skyrocketed to nearly $10 billion annually, far exceeding initial projections and contributing to a $6.2 billion Medi-Cal deficit in early 2025. 

Recent reports showing Medi-Cal is basically insolvent–costing taxpayers $23 billion over 2 years, forcing Newsom to get both an emergency loan and a bailout during the Biden administration. 

That Gavin Newsom wants to give free healthcare to illegal immigrants is not speculation. He literally drove Medi-Cal insolvent by doing precisely that.

The program cost California taxpayers $23 billion over 2 years, forcing Newsom to get both an emergency loan and a bailout. pic.twitter.com/aLrsRV5jDk

— Rep. Kevin Kiley (@RepKiley) September 30, 2025

Republican lawmakers and analysts have long warned of this outcome. 

“We warned him,” said Senator Brian Jones (R-San Diego) in a statement. “I urged the governor to immediately freeze his reckless Medi-Cal expansion for illegal immigrants a year and a half ago, before it buried our healthcare system and bankrupted the state. Had he listened, we wouldn’t be in this crisis—breaking promises, scrambling for loans, and cutting services for legal Californians just to keep this broken program afloat. Let’s be clear: Democrats are prioritizing illegal immigrants over citizens. With a massive deficit largely driven by this policy, our focus should be on preserving Medi-Cal for those it was originally designed to serve. Even Governor Jerry Brown understood this was a bad idea and refused to go down this path. After seven years of reckless expansions, Newsom is now backtracking to the same position Brown held from the beginning. It’s time to end the political games, immediately freeze this program, and restore Medi-Cal to serve those who are here legally.”

 The Legislative Analyst’s Office (LAO) has projected that illegal alien healthcare now accounts for one-fourth of all state Medi-Cal spending, dwarfing allocations for law enforcement. 

“California is financing its expansion of Medicaid to illegal aliens by implementing a budget gimmick to draw down increased federal funding, placing American taxpayers on the hook for the free health care California is giving to illegal aliens,”  the Congressional Budget Committee revealed.

This isn’t the first time California’s handling of federal Medicaid funds has come under scrutiny. A 2024 audit by the U.S. Department of Health and Human Services Office of Inspector General (OIG) found that the state improperly claimed $52.7 million in reimbursements for payments to illegal aliens.  The OIG criticized California’s outdated proxy methodology, which failed to accurately exclude non-emergency costs, recommending periodic reassessments that the state has yet to fully implement.

The OIG’s earlier report recommended that California refund the $52.7 million and reassess its proxy system, but as of January 2026, no formal repayment has been confirmed.

Last November, California’s Department of Health Care Services (DHCS)  pushed back, insisting that the state is not misusing federal funds and that its Medi-Cal expansions comply with regulations. A spokesperson for Governor Newsom echoed this, stating that the program uses state funds to cover non-emergency services, while federal dollars are appropriately limited to emergencies.

Federal officials have not issued new public announcements since the 2025 audit findings, but HHS Press Secretary Emily Hilliard affirmed the administration’s stance: “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. 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.”  

Attempts to reach Governor Newsom’s office for comment were unsuccessful due to the holiday. We will reach out to the Governor’s office on Tuesday.