California's Medicaid program covers more than 10 million residents, and a new issue brief from U.S. Congress Joint Economic Committee Republicans argues that the very structure funding that coverage may be giving states like it less reason to crack down on fraudulent and improper payments. The brief centers on a basic fact of how Medicaid is financed: states never pay more than 50 cents of their own money for every federal Medicaid dollar they receive, a ratio the report says can blunt the incentive to police waste closely.
The analysis, reported by The Center Square, says states that lean heavily on the healthcare sector for economic activity face steeper consequences whenever federal Medicaid spending contracts. California is held up as the prime example, with the outlet noting that much of the state's job growth occurs in the healthcare system itself. That dynamic, the brief contends, creates a structural tension: the same spending that critics call wasteful or unnecessary may also be propping up local employment.
A Senior Policy Advisor's Warning
JEC senior policy advisor Alex Schunk wrote that states may have less incentive to rein in wasteful or unnecessary spending when that spending is artificially driving job growth, according to the same report. Schunk was careful to frame this as a structural risk rather than an accusation of wrongdoing, saying states are not necessarily deliberately allowing fraud, but may underenforce program integrity when healthcare makes up a significant share of the state's economy, per the Center Square account.
The brief lands against a backdrop of major Medicaid upheaval. The One Big Beautiful Bill enacted boosted work requirements for Medicaid recipients, and the Congressional Budget Office and others estimate that roughly 5 million people will fail to meet those new requirements and lose coverage, the report states. California is one of roughly two dozen states that sued the federal government over the boosted work requirements, according to the Center Square's reporting. Separately, the Congressional Research Service notes that the community-engagement requirements generally take effect beginning December 31, 2026, or sooner if a state opts in, with the HHS secretary able to grant temporary exemptions to requesting states.
Coverage Losses Could Ripple Into State Budgets
The report traces a chain reaction: as people lose Medicaid coverage, state spending on Medicaid benefits will fall, and that drop will in turn trigger a decrease in federal matching payments. The same bill also implemented measures intended to prevent fraud and improper payments, which the brief estimates will reduce the flow of federal dollars into state healthcare systems more broadly. With total Medicaid spending expected to top $8 trillion over the next decade, according to the Center Square, the stakes attached to those enforcement questions are substantial.
JEC Chairman David Schweikert argued that reforming Medicaid's payment structure is necessary both to stabilize spending and to push states to pursue fraud more aggressively, the outlet reported. “The federal government is basically an insurance company with a military,” Schweikert said, according to the same report. He added that states should bear more financial risk when administering Medicaid programs given that the federal government currently foots most of the bill, and he argued that moving toward block grants would give states a greater incentive to root out waste, fraud and abuse.
What's Actually Known About Fraud and Improper Payments
It's worth separating fraud from the broader category of improper payments, a distinction KFF emphasizes in its own analysis of Medicaid program integrity. Most improper payments, KFF notes, stem from missing documentation or missed administrative steps rather than outright fraud, and the organization states plainly that there are no reliable measures of fraud against Medicaid nationwide. That absence of a solid national yardstick complicates any effort to prove whether California, or any other state, is underenforcing relative to its peers.
On that score, California's own fraud-recovery record cuts against a simple narrative of laxity. KFF Health News reported that states recovered about $1.4 billion in Medicaid fraud in fiscal 2024, against $949 billion in total Medicaid spending nationwide, and that California alone recovered more than 50% of all criminal recoveries made by state anti-fraud units that year despite accounting for only about 17% of national Medicaid enrollment. The outlet also found California ranked fourth in the country in 2024 for dollars recovered per Medicaid enrollee across civil and criminal investigations, and that the state had revoked the licenses of more than 280 hospices over the prior two years while evaluating 300 more.
A separate federal audit examined whether California reported and returned the correct federal share of Medicaid overpayments identified by its Medicaid Fraud Control Unit during federal fiscal year 2023, according to the HHS Office of Inspector General. That review was one in a series of audits across multiple states checking whether overpayment amounts identified by Medicaid Fraud Control Units were properly reported and returned to the federal government.
Taken together, the evidence leaves an open structural question rather than a settled verdict: the JEC brief argues the incentives built into Medicaid's funding formula could discourage aggressive fraud enforcement in healthcare-dependent states, while California's own recovery numbers suggest its anti-fraud units have been active by national comparison. Neither data set resolves the other, and no nationwide measure exists to settle how much fraud is actually occurring in the program.
