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Democrats want to remove a provision of Trump’s One Big Beautiful Bill Act (OBBA) before reopening the government, but Republicans argue the line item they want removed is allowing California to use a “loophole” to draw down funds from the federal government to help pay for the state’s ballooning cost of healthcare for illegal immigrants.
The White House released a memo on Wednesday during the first day of the government shutdown fight indicating Democrats want to repeal Trump reforms in his “big, beautiful bill” that aimed to close this alleged backdoor tactic. However, California Gov. Gavin Newsom’s office and left-leaning health policy experts insist claims that California is using this tactic are not true.
“When Democrats say, as they keep saying, that there is no federal money or any taxpayer money going for illegal immigrant healthcare because it’s illegal and barred by federal law, it’s simply not true,” said Steve Hilton, a former Fox News host now running to replace Newsom as governor of California.
Hilton claimed that California has been using a complex Medicaid provision known as a “provider tax” to obtain matching federal dollars, which then gets pooled into the money used by the state to pay for its healthcare offered to undocumented immigrants.
WHITE HOUSE MEMO SAYS DEMOCRATS’ PLAN COULD SPEND $200B ON HEALTHCARE FOR ILLEGAL IMMIGRANTS
California is being accused of utilizing a Medicaid “loophole” to draw down federal funds to help pay for the ballooning cost of illegal immigrant healthcare. (Getty/iStock)
“If [federal dollars] are funding non-emergency healthcare for ineligible immigrants, the sole cause is provider taxes,” Michael Cannon, a health policy expert at the CATO Institute told Fox News Digital.
Cannon, however, suggested Republicans shot themselves in the foot by choosing only to limit the scope of eligibility around provider tax funds in the OBBBA, saying no more could go to states providing illegal immigrants healthcare, and they should have just quashed them altogether.
“What they did was that Republicans preserved the ability of states to use provider taxes to fund healthcare for undocumented immigrants using Medicaid,” he argued.
However, Newsom’s office insisted to the Los Angeles Times that the claim California is utilizing a provider tax “loophole” to fund illegal immigrant healthcare is simply not true. It is effectively impossible to make a determination one way or the other because states do not keep records on how provider tax funds from the federal government are spent.
“This is false — CA does not do this,” Gardon said in a one-line email to the LA Times. Newsom’s office did not reply to Fox News Digital’s request for comment in time for publication.
FED AUDIT, EMERGENCY MEDICAID UNDERCUT DEMS ON ILLEGAL IMMIGRANT HEALTH COVERAGE
California Gov. Gavin Newsom during a bill signing event related to redrawing the state’s congressional maps Aug. 21, 2025, in Sacramento, Calif. (Justin Sullivan/Getty Images)
Other healthcare policy experts agree as well that this is not happening.
“The so-called California loophole references a provision in the law that ends a waiver of the uniformity requirements for provider taxes. This provision has nothing to do with using federal funds to pay for care for undocumented immigrants,” Jennifer Tolbert, a healthcare expert at the nonprofit healthcare research organization KFF.
“But the White House makes the claim that California uses the money they get from the provider tax to pay for care for undocumented immigrants.”
Chris Pope, a health policy expert from the Manhattan Institute, argues California is also using emergency care claims to draw down even more funds to help pay for its ballooning cost of being the first state in the nation to offer comprehensive healthcare coverage for anyone regardless of their immigration status.
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Supporters of single-payer health care march in Sacramento, Calif. (Rich Pedroncelli, File/AP Photo)
Federal law does not permit federal funds to be used for non-emergency medical care for illegal immigrants, but it does not prohibit them from being used for emergency care for these folks.
“The enormous and open-ended discretion Medicaid gives states to claim federal funding makes it hard for the feds to ensure that the program’s expenditures are reserved for its intended purposes,” Pope wrote in an Op-Ed for the New York Post Friday. “Until that changes, the Democratic claim that federal money isn’t being used on illegal immigrants is simply not true.”
