Blue state governors thought they could hide their spending spree forever.
The Trump administration just pulled back the curtain on what they were really doing with federal dollars.
And Trump just exposed one billion-dollar scam that has Gavin Newsom in full panic mode.
Trump administration targets illegal Medicaid spending in blue states
The Trump administration announced it's clawing back over $1.3 billion in federal Medicaid dollars that blue states spent on healthcare for illegal aliens — some with violent criminal records.¹
A Centers for Medicare and Medicaid Services audit found six Democrat-run states improperly spent a combined $1,351,204,127 in federal Medicaid funds between 2024 and 2025 to cover healthcare for people in the country illegally.²
California topped the list by far, burning through over $1 billion in federal money. Illinois came in second with nearly $30 million in improper spending, followed by Oregon with approximately $5.5 million. Washington, D.C., Washington state, and Colorado also made the list.³
Federal law clearly prohibits using Medicaid funds for illegal aliens except in emergency situations.
States can use their own tax dollars if they want to provide comprehensive coverage to people here illegally, but they're not supposed to tap federal matching funds.
CMS spokesperson Emily Hilliard didn't mince words about what the agency found.
"Protecting Medicaid from waste, fraud and abuse isn't optional. It's the law," Hilliard said. "Every dollar misspent on illegal healthcare spending is a dollar taken from vulnerable Americans."⁴
She made crystal clear where the Trump administration stands on this issue.
"Federal law forbids using Medicaid funds for illegal immigrants, yet several Democrat-led states did it anyway," Hilliard added. "The Trump administration won't tolerate it. CMS is auditing aggressively, recovering every dollar and holding states accountable."⁵
Gavin Newsom's elaborate backdoor scheme exposed
Newsom's office denied any wrongdoing, telling the Los Angeles Times that Republican claims about improper federal funding are "false."
But experts say California exploited a complex loophole to get around federal restrictions.
Steve Hilton — a former Fox News host now running to replace Newsom as California's next governor — explained how the scheme actually works.
California dramatically increased taxes on Medicaid insurance providers in 2023. During 2023-2024 and 2024-2025, this "provider tax" generated $16.7 billion that went straight into the state's general fund.⁶
The federal government then matched a portion of that money at a 60% rate under normal Medicaid funding rules.
California pooled all that cash together, including the federal matching funds, and used it to pay for comprehensive healthcare coverage for illegal aliens.⁷
Chris Pope, a public health policy expert at the Manhattan Institute, said states figured out how to game the entire system.
"Medicaid is by far the largest source of federal funding for states," Pope explained. "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."⁸
California expanded Medi-Cal coverage to all illegal aliens who meet income requirements in January 2024. The state originally projected the program would cost $3 billion per year.
California officials recently admitted they expect to spend $9.5 billion for illegal alien Medi-Cal in fiscal year 2024-2025 — more than triple the original estimate.⁹
That's roughly the same amount California generated from the federal government through its enhanced provider tax scheme. Coincidence? Not likely.
Federal funds going to violent criminals
Jim O'Neill, acting director of the Centers for Disease Control and Prevention and deputy secretary at Health and Human Services, started posting daily "MorningMedicaidMugshot" examples showing exactly who's getting this taxpayer-funded healthcare.
On October 29, O'Neill highlighted Layth Kamil, a 24-year-old illegal alien from Iraq convicted of exposing himself to a 15-year-old. Kamil received close to $16,000 in taxpayer-funded healthcare through Medicaid.¹⁰
The day before, O'Neill posted about Haissam Massalkhy, a 45-year-old illegal alien from Lebanon convicted of driving under the influence and killing an American citizen who was out jogging. Massalkhy got over $30,000 in Medicaid benefits.¹¹
Other cases included illegal aliens convicted of attempted murder and child rape.
"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 said in one of his posts.¹²
Trump's crackdown goes beyond California
The Trump administration isn't just auditing past spending. They're implementing new safeguards to prevent future abuse.
CMS began providing states with monthly enrollment reports identifying individuals whose citizenship or immigration status couldn't be confirmed through federal databases, including the Department of Homeland Security's verification system.¹³
States now have to review these cases, verify citizenship or immigration status, request additional documentation if needed, and take appropriate action — including adjusting coverage or enforcing non-citizen eligibility rules.
The administration also issued new guidance making clear that federal Medicaid dollars cannot be used for managed care payments on behalf of illegal aliens. States using the same contracts for both Medicaid and state-funded programs must now revise their practices.¹⁴
This represents the most aggressive federal oversight of state Medicaid spending in years. States that expanded coverage to illegal aliens are scrambling to figure out how to pay for these programs without federal dollars flowing through backdoor schemes.
Even Newsom admitted California faces a reckoning. He proposed freezing Medi-Cal enrollment for illegal aliens age 19 and older starting in 2026, and charging a $100 monthly premium beginning in 2027.¹⁵
Democrats created this mess by using federal matching funds to bankroll healthcare for people who entered the country illegally. Now Trump's forcing them to own the consequences.
¹ "Key Trump agency vows to claw back over $1B benefiting illegals in blue states: 'Won't tolerate it,'" Fox News, October 30, 2025.
² Ibid.
³ Ibid.
⁴ Ibid.
⁵ Ibid.
⁶ "California's Insurance-Tax Shuffle: How Federal Money Ends Up Paying for Medicaid for Illegal Immigrants," Paragon Institute, May 8, 2025.
⁷ Ibid.
⁸ Fox News, October 30, 2025.
⁹ Paragon Institute, May 8, 2025.
¹⁰ Fox News, October 30, 2025.
¹¹ Ibid.
¹² Ibid.
¹³ "CMS Launches Nationwide Push to Remove Ineligible Medicaid Enrollees, Uphold Citizenship Requirements," HHS.gov, August 19, 2025.
¹⁴ "DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services," State Medicaid Director Letter, January 10, 2025.
¹⁵ "Newsom's pitch as he seeks to pare down immigrant healthcare: 'We have to adjust,'" MMM Online, May 20, 2025.
