California Gov. Gavin Newsom is seeking a $3.4 billion loan from the general fund to help a shortfall in the state’s Medi-Cal healthcare program. The shortfall problem comes only a year after Newsom expanded Medi-Cal coverage to include millions of illegal immigrants. California’s continuing deficits and mounting debts have some officials concerned that the additional subsidies to illegals will cause a fiscal emergency in the near future.
There are at least 2.6 million illegal immigrants in the state according to recent estimates. However, California has operated on sanctuary laws since 2013 and does not track the migrant status of its citizens. Because of this, there is no way for officials to estimate potential costs associated with welfare programs and medical programs which illegals commonly tap into. Around 60% of all illegal migrants exploit welfare programs upon arrival to the US and access is generally dependent on which state they settle in.
In 2024, California expanded the state’s Medicaid program (also known as Medi-Cal) in two major ways. First, the state opened up Medicaid coverage to illegal immigrants between the ages of 26 and 49. While the state had previously granted Medicaid eligibility to illegal immigrants in other age groups, the 26 to 49 age bracket is by far the largest in California (and nationally), comprising about 75% of individuals who are in the country illegally.
The state’s general fund is, technically, separate from the ample federal funding that California receives, and federal dollars are not legally allowed to go towards migrants. But the way in which the government cycles those dollars through its programs is deceptive and California is far more dependent on federal money than it claims.
To fund Medi-Cal’s growth, California has resorted to using a Medicaid money laundering scheme which forces federal taxpayers to indirectly pay for the state’s mismanagement. The state’s scheme tripled the taxes on Medicaid insurers, which generates revenue for CA’s general fund. The state is then required to spend the same amount of money on Medi-Cal as the taxes they generated (the money goes back to the insurers).
The tax is higher on Medicaid insurance plans because the state receives federal reimbursement when they pay those plans to provide Medicaid coverage. The federal government reimburses CA for the money they spend on Medicaid programs by 60%. The payments to medical insurers are then, essentially, used to open the spigot to federal funds which the state did not necessarily need. This adds billions in extra dollars for the state’s general fund which is then used for illegal aliens.
The federal government permits states to engage in these tactics within certain limits, though California’s case is particularly egregious. Democrats often tout California as a “donor state” that gives more in federal income than it takes, but it is also the most indebted state in the country by half a trillion dollars. California runs an annual deficit of around $50 billion to $80 billion. Despite having the some of the richest citizens in the country and a high GDP, the state suffers the worst homeless epidemic in the US and is consistently in the red. The level of budget chicanery is off the charts.
Poor governance and a refusal to secure the state from foreign invasion is leading to medical program shortfalls, even with billions in scammed federal funds. With the Trump Administration in the midst of federal audits and program cuts, it is likely that states like California that rely on hidden federal revenues will be hit the hardest.
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