The Trump administration is launching Medicaid spending probes targeting California’s $12.4 billion immigrant healthcare program and five other Democratic-led states.
The Centers for Medicare and Medicaid Services is reviewing federal payments for healthcare services to immigrants without permanent legal status, focusing on potential waste, fraud and abuse.
California’s Massive Program Under Scrutiny
California faces the biggest threat after self-reporting at least $500 million in improper federal billings for immigrant healthcare services. CMS warned of enforcement actions, including “possible referrals to the Attorney General” if violations are confirmed, according to a March 18 letter obtained by KFF Health News and The Associated Press.
California provides comprehensive Medicaid coverage to 1.6 million immigrants without legal status through its Medi-Cal expansion, rolled out from 2016 to 2024. The state program costs $12.4 billion annually, with $1.3 billion in federal reimbursements for emergency and pregnancy-related care.
See Also: RFK Jr. To Link Tylenol Use To Autism: Report
Former state Medicaid director Jacey Cooper discovered the billing errors during her 2020-2023 tenure, finding improper charges for mental health services, addiction treatment, prescription drugs and dental care. “Once I identified the problem, I thought it was really important to report it,” Cooper told the AP.
Financial Pressure Forces Program Cuts
Three Democratic states have already scaled back immigrant Medicaid programs due to ballooning costs. Illinois eliminated coverage for adults aged 42-64, saving $404 million. Minnesota cut all adult immigrant coverage, saving $57 million. California plans to halt new adult enrollments in 2026, projecting over $3 billion in savings.
The cuts reflect programs costing significantly more than projected, creating multibillion-dollar budget deficits. Healthcare providers warn the reductions discourage immigrants from seeking preventive care, potentially increasing long-term emergency room costs.
Market Implications and Legal Battles
The “One Big Beautiful Bill” will reduce federal reimbursement rates from 90% to 50% for emergency services by October 2026, pressuring healthcare sector margins. Twenty states are suing over the administration’s decision to share Medicaid data with immigration enforcement, temporarily blocked by a federal court.
Healthcare ETFs showed modest gains despite sector headwinds: Health Care Select Sector SPDR Fund (NYSE:XLV) rose 0.34% to $137.90, Vanguard Health Care Index Fund ETF (NYSE:VHT) gained 0.50% to $257 and iShares Global Healthcare ETF (NYSE:IXJ) advanced 0.49% to $88.31.
CMS Administrator Mehmet Oz defended the reviews as ensuring “benefits are strictly reserved for those eligible under the law,” while California Attorney General Rob Bonta called it a “manufactured” political attack on immigrant-friendly states.
Read Next:
Image via Shutterstock
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
