The government shutdown has stretched into a fourth week, with negotiations in Congress stalled over whether states have been using federal Medicaid dollars to cover health care for illegal immigrants.
The audit was ordered earlier this year, following the implementation of new oversight provisions for Medicaid eligibility and state reporting. Lawmakers on both sides agreed that a review was needed after repeated reports of states expanding coverage to non-citizens while claiming federal reimbursement. The release of the preliminary findings has now become a central point of contention in the budget talks that have kept much of the government closed.
A preliminary audit by the Centers for Medicare and Medicaid Services found that five states and Washington, D.C., collectively received more than $1.35 billion in federal reimbursements tied to programs serving individuals who are not eligible under federal law. The review showed California accounted for the majority of the total—more than $1.3 billion—with smaller amounts identified in Illinois, Washington, D.C., Colorado, and Oregon.
CMS Administrator Mehmet Oz called the findings “deeply concerning” and said the agency plans to recover the misspent funds. Oz said. “Whether willful or not, these actions highlight that taxpayers have been footing the bill for ineligible coverage.”
The audit has become a central point in the budget fight that has led to portions of the federal government being closed. Republicans argue that enforcing Medicaid eligibility rules is essential to restoring accountability. House Speaker Mike Johnson said, “They have made a decision that they would rather give taxpayer-funded benefits to illegal aliens than to keep the doors open for the American people.”
Democratic leaders dispute the claim, insisting that Medicaid funding for undocumented immigrants is already barred under federal law. Senate Majority Leader Chuck Schumer said, “Not a single federal dollar goes to providing health insurance for undocumented immigrants. NOT. ONE. PENNY.”
House Minority Leader Hakeem Jeffries added in an interview with ABC News, “Federal law prohibits the use of Medicare, Medicaid, the Children’s Health Insurance Program, and the Affordable Care Act to provide health insurance in any way, shape or form to undocumented immigrants. Period, full stop.”
Medicaid operates as a shared program between the federal government and the states. States may spend their own funds on certain programs for non-citizens, but the audit found several states requested federal matching funds for that spending—a move CMS said violates funding rules.
Earlier this year, Congress passed the One Big Beautiful Bill Act, which introduced new guardrails for Medicaid reporting and eligibility. The law strengthened verification checks, prohibited accounting maneuvers used to inflate spending, and reaffirmed that federal Medicaid reimbursements are reserved for citizens and lawful residents.
CMS officials said the review is still underway and that final audit results will be published later this year. The agency estimates improper Medicaid payments total about $30 billion annually, with overall program costs exceeding $800 billion a year.
The debate has kept Congress at an impasse. Republicans say the audit underscores why tighter oversight is needed, while Democrats argue the findings are preliminary and do not justify holding up the broader spending bill. For now, the disagreement continues to block a resolution to reopen the government.
