Federal Government Pauses $860 Million in Medi-Cal Funding Amid Fraud Concerns

The federal government has paused more than $860 million in Medicaid payments to California following findings of excessive in-home supportive services claims and mounting concerns over fraud and waste in the state's Medi-Cal program, according to a new report from the Pacific Research Institute (PRI).

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The move highlights growing tension over the program’s rapid expansion, with critics warning that mismanagement and unchecked growth are straining California’s ability to provide care and protect taxpayer funds. The funding freeze comes as Medi-Cal, California’s Medicaid program, faces increased scrutiny over its ballooning costs and oversight challenges.

The PRI report, titled Too Big, Too Broken: Restoring Integrity to Medi-Cal, was released just weeks after California approved a record $351.7 billion state budget for fiscal 2026-27. That budget included cuts to parts of Medi-Cal expansion due to rising costs. Medi-Cal now covers 15 million people—about one in three Californians—and accounts for roughly 40% of the state’s budget, with a total cost of $220 billion.

Federal Funding Freeze

On July 21, the Trump administration announced that the Centers for Medicare & Medicaid Services (CMS) would pause $860 million in funding to California. Federal officials identified in-home supportive services claims that far exceeded national trends, raising red flags about potential fraud and abuse. The PRI noted that this action by the federal government follows a pattern of escalating fiscal pressures and oversight challenges as Medi-Cal enrollment and spending have surged in recent years.

The PRI report warns that Medi-Cal’s rapid growth has made it increasingly vulnerable to fraud, waste, and abuse, with oversight mechanisms struggling to keep pace. As enrollment has grown, so have the administrative challenges. The study cites longer wait times for patients, worsening provider shortages, and more difficult oversight as direct consequences of the program’s expansion. These issues, according to PRI, threaten the program’s ability to serve its most vulnerable populations effectively.

Report Details and Recommendations

The PRI study traces Medi-Cal’s evolution from a safety-net program for low-income residents, seniors, and people with disabilities to a much broader system. In the 1980s, eligibility expanded to include pregnant women. The Affordable Care Act further broadened eligibility to able-bodied adults. More recently, California extended state-funded Medi-Cal to low-income immigrants regardless of immigration status, further increasing the program’s reach and cost.

Sally Pipes, president of the Pacific Research Institute, emphasized that eliminating fraud, waste, and abuse should be lawmakers’ top priority. “If lawmakers could make only one thing happen this year, it should be eliminating fraud, waste, and abuse from Medi-Cal, which now covers 15 million Californians at a cost of $220 billion,” Pipes told the Daily Signal.

"If fraud and abuse are cut from Medi-Cal, there would be so much more funding available to cover those who are truly vulnerable and eligible for the program."

— Sally Pipes, president, Pacific Research Institute

The report recommends several reforms, including strengthening eligibility verification, improving oversight, increasing transparency around financing, and prioritizing resources for the most vulnerable populations. Pipes argued that rooting out fraud would not only save taxpayer dollars but also help eligible Californians access care more quickly. Many Medi-Cal recipients, she noted, struggle to find doctors due to high demand and provider shortages, problems that are exacerbated by the program’s size and complexity.

State Response and Ongoing Debate

The Daily Signal and PRI report that the state recently scaled back some Medi-Cal expansion efforts in response to soaring costs. California officials have not yet issued a detailed public response to the federal funding pause or the new PRI report. Supporters of Medi-Cal expansion have previously argued that broad coverage is essential for public health and equity, especially in a state with significant income inequality and a large uninsured population. However, critics say the program’s size now outpaces the state’s ability to manage it effectively and efficiently.

Robert Kennedy Jr., secretary of Health and Human Services, was quoted in the PRI study saying, “Medicaid exists to serve vulnerable Americans—not to bankroll unsupported claims. Accountability must be restored.”

The PRI report concludes that reforms are needed to restore Medi-Cal’s safety-net mission and protect taxpayers, as federal scrutiny and budget pressures intensify. As the debate continues, the future of Medi-Cal will likely depend on the state’s ability to balance broad access to care with fiscal responsibility and program integrity.

For more on California’s Medi-Cal crisis, see the Daily Signal’s coverage.