California exploiting Medicaid 'loophole' to pay billions for illegal immigrants' healthcare, study says

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FIRST ON FOX: California is funneling billions of federal taxpayer dollars into paying for illegal immigrants’ healthcare, a new study claims.

"They are exploiting an existing loophole within law," Paul Winfree, president and CEO of the Economic Policy Innovation Center (EPIC), told Fox News Digital.

"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."

The paper released by EPIC and the Paragon Health Institute draws a line between California’s Medicaid provider taxes and what, on paper, appears to be nearly $4 billion in state funding going toward illegal immigrants’ healthcare and other initiatives.

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A study accuses California Gov. Gavin Newsom's administration of funneling billions of federal dollars into healthcare programs for illegal immigrants. (Getty Images)

But that funding is actually coming from the federal government, according to EPIC, via reimbursements to California.

A spokesperson for California's health department pushed back on the report.

But Winfree suggested it could be an area to claw back federal dollars as House Republicans work to find between $1.5 trillion and $2 trillion in savings to offset the cost of President Donald Trump’s budget priorities.

Under current law, states are required to pay Medicaid providers the same amount as taxes raised.

The federal government then matches those payments by 60% in an effort to help states recoup some Medicaid costs.

"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 paper said. 

"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 paper continued that those funds were "used to implement major expansions in the Medicaid program to fund illegal immigrants and long-term care (LTC) for the wealthy."

"This scheme enriches insurers, attracts illegal immigrants to the United States, and adds mountains to the federal debt, all at the expense of working Americans," it said.

Former President Donald Trump speaks to a crowd during a campaign rally in Summerville, S.C., on Sept. 25, 2023. (Sean Rayford/Getty Images)

Winfree said closing a loophole that allows states like California to significantly raise the provider tax could save up to $630 billion, adding it was something Republicans are looking at as they seek as much as $2 trillion in savings or more in the budget reconciliation process.

House and Senate Republicans are looking to use their majorities to pass a massive bill covering Trump’s border security, defense, energy and tax policies. 

They can do so because reconciliation allows the Senate to lower its threshold for passage from 60 votes to 51, provided measures in the legislation are related to budgetary and fiscal policy.

As part of the framework resolution House Republicans passed last month, which has been sent to the relevant committees with instructions on how much to find cuts, or in some cases, spend extra dollars.

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The Energy and Commerce Committee, which oversees Medicaid and Medicare, is charged with finding $880 billion in spending cuts.

Republicans have insisted they are only looking to root out waste, fraud and abuse, but Democratic opponents of the Trump budget bill are accusing the GOP of trying to significantly cut federal medical benefits for millions of Americans.

"One of the things that Congress is looking at right now is limiting the Medicaid provider tax loophole. 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," Winfree said.

He cited a projection that said eliminating the loophole could save as much as $630 billion but added that it was an unlikely scenario.

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"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. 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 said.

Even without total elimination, reforming the tax could still potentially save billions in federal spending.

A spokesperson for California's Department of Healthcare Services called EPIC's report "misleading" and urged people to visit a link on their website "for accurate information on this topic."