California’s $200 billion-a-year Medicaid program, known as Medi-Cal, is one of the largest public healthcare systems in the nation. Behind the staggering price tag lies a program repeatedly flagged for waste, mismanagement, and fraud, raising fresh doubts as state leaders propose taxing billionaires to keep it afloat.
For years, audits and federal investigations have documented everything from improper payments to large-scale fraud schemes. State officials have acknowledged that fraud has reached alarming levels in some sectors, including hospice services and in-home healthcare.
“Hospice fraud has become an epidemic,” said California Attorney General Rob Bonta, who in early February announced the arrests of seven individuals accused of cheating Medi-Cal of $3.2 million through fraudulent hospices in Monterey County.
Despite these long-standing problems, the state legislature has continued to expand Medi-Cal with Gov. Gavin Newsom’s approval. As part of Newsom’s drive for universal healthcare, the expansion of the program to undocumented migrants proved particularly costly.
The plot now thickens as Medi-Cal collides with a new fiscal reality: Federal cuts to Medicaid under President Trump are expected to reduce funding over the coming years, placing additional strain on California’s budget.
Progressive lawmakers and labor unions are pitching a first-in-the-nation wealth tax on billionaires as a response to those cuts. While advocates say the funds are needed to sustain coverage for 15 million Californians, critics argue that the wealth tax ignores Medi-Cal’s core problem of mismanagement, which undermines any attempt to save it.
“With no desire to stop the fraud, California politicians insist that they will start taxing the assets of the richest Californians,” Silicon Valley tech investor Chamath Palihapitiya wrote on X. “When the richest Californians leave, the middle class will be the only group left to plug the hole because they are the largest collective taxpayers in the state.”
Wealth Tax Bonanza
Proponents of the wealth tax are gathering the 900,000 signatures required to qualify the “2026 Billionaire Tax Act” for November’s ballot – a possibility that has divided Democrats. Perhaps positioning himself for a presidential run, Newsom warns that the unprecedented levy on wealth could accelerate the flight of rich residents to low-tax states. But progressive lawmakers like Representative Ro Khanna, whose district includes Silicon Valley, are willing to take the risk.
In a statement to RealClearInvestigations, Khanna said the wealth tax is necessary “to make up for the severe Trump cuts to Medicaid that will cost 2 million Californians healthcare and 200,000 healthcare workers their jobs.”
California’s Legislative Analyst’s Office (LAO) estimates that “the new federal legislation will increase state spending [by] $3.2 billion” over the 2026-27 budget period. If approved by voters, the wealth tax could raise an estimated $100 billion in five years, far surpassing the budget gap caused by federal spending cuts.
Under the proposal, billionaires residing in California on Jan. 1, 2026, would owe a one-time tax equal to 5% of their net worth, payable in 2027. This retroactive levy would apply to most assets, including unrealized investment gains, with limited exemptions for real estate holdings, pensions, and retirement accounts.
Ninety percent of the revenue raised from the measure would be allocated to Medi-Cal, the largest program in the state budget, comprising 40% of spending across all funding sources, according to LAO. The rest of the money would support state-wide education and food assistance programs – areas also impacted by federal funding reductions.
Republican lawmakers and business leaders say that California’s problem is not insufficient taxation but chronic fiscal mismanagement. The state with the highest income tax rates in the nation is facing a budget shortfall of $18 billion for fiscal year 2026-27, according to LAO.
One affluent business executive from Khanna’s district, who spoke on the condition of anonymity for fear of harassment, expressed frustration with the state’s budgetary issues. “It’s unconscionable to tax us more,” the executive said, noting that Texas and Florida operate without state income taxes. “Sacramento had persistent budget gaps long before Congress passed Trump’s bill.”
Chronic Mismanagement
Medi-Cal’s accountability issues date back at least to 2007, when the Department of Health Care Services (DHCS), which administers the program, was first cited as “high risk” for mismanagement problems by the state auditor.
Not much has changed two decades later. The auditor’s December 2025 High Risk Audit report continued to cite the department for poor oversight, accusing it of enabling “waste, fraud, abuse or mismanagement” that “may result in serious detriment to the State or its residents.” Requests for comment from DHCS were not returned.
The audit found that the department continued to make costly errors in determining which Medi-Cal applicants were eligible for the program. In some cases, eligible applicants were wrongly rejected for benefits, while others were erroneously approved.
Two previous investigations conducted by the auditor in 2018 and 2020 “identified discrepancies in Medi‑Cal eligibility records resulting in at least $4 billion in questionable payments.” The issue persists. “As of April 2025, the number of eligibility discrepancies…remains only somewhat below the level that we identified in 2021 that was estimated to have caused the State to disburse $1.9 billion in questionable payments,” the latest report says.
DHCS Director Michelle Baass has defended her agency, saying she “has a different view” from the audit’s findings. In an October 2025 letter to the auditor, Baass asserted that “DHCS has implemented system enhancements to improve oversight,” which includes “expanding monitoring statewide.”
Improper payments are the tip of the iceberg. The preliminary results of a federal audit by the Centers for Medicare & Medicaid Services allege that DHCS illegally utilized more than $1 billion in federal reimbursements to expand Medi-Cal coverage to undocumented migrants – an allegation the department rejects as “flatly false.”
Magnet for Scammers
Medi-Cal has also been a magnet for scammers who run fraudulent businesses or bill the program for services never rendered. In 2022, the auditor raised concerns about the “excessive geographic clustering of hospices with no clear correlation of increased need” in places like Los Angeles County, which “has experienced a 1,500% increase in its number of hospice agencies” between 2010 and 2022.
In a single building in the community of Van Nuys, there were more than 150 licensed hospice and home health agencies – a number that exceeds the structure’s apparent physical capacity, the auditor noted in a report.
Lax hospice licensing requirements in California contributed to a sharp increase in the number of facilities. To obtain a license, an applicant is simply required to complete a form and pay a fee of $2,971. Although licenses must be renewed every two years, the Licensure Act does not require the state to conduct an inspection as part of the process.
State auditors suspect that “many of these hospice agencies may have been created to fraudulently bill Medicare and Medi-Cal for services rendered to ineligible patients or services not provided at all,” the report said.
Last year, 75-year-old Nita Almuete Paddit Palma was sentenced to nine years in federal prison after she fraudulently billed Medi-Cal roughly $10.6 million for hospice-related services beginning in 2015. Palma’s business was charging Medi-Cal “for purported hospice care for patients that were not dying,” according to Bonta, California’s attorney general. She had already been prosecuted in a similar fraud case and had been barred from operating hospice facilities in the state, which underscores the lax oversight cited by auditors.
Since Bonta began serving as attorney general in April 2021, California’s Department of Justice has investigated 101 criminal enterprises, and 109 individuals have been charged with hospice-related offenses, according to a January press release from Newsom’s office.
In Monterey County, state prosecutors allege that the defendants owned and operated three hospice companies simultaneously and used the businesses to enroll patients for unnecessary services. Some patients did not suffer from a terminal diagnosis. Others were unaware they had been enrolled in a hospice in the first place.
Newsom has banned all new hospice licenses through Jan. 1, 2027, in an effort to address concerns about fraud and abuse. But Medi-Cal’s fraud problem extends to other services, including In-Home Supportive Services (IHSS), which are designed to provide aid to patients at home instead of an expensive facility. While the motivation behind IHSS was to cut healthcare costs, the opposite has happened.
The total number of in-home service providers in California grew from 532,073 in December 2019 to nearly 800,000 by December 2025, according to data from the California Department of Social Services (CDSS). “The 2025-26 spending plan provides a total of $29.9 billion for IHSS,” according to LAO, or 12% above the prior year’s expenditures on the program. Social Services reported that the state spent $22.7 billion on in-home services just two years earlier.
Much like hospice services, in-home providers are highly concentrated in specific geographic areas. Of the 303,269 recipients of such care in Los Angeles County, the most recent data indicates 44,580 are Armenian speakers. Armenians represent a little over 2% of the population in LA County, yet account for 14.7% of in-home care recipients.
Critics like Republican Congressman Kevin Kiley, who represents California’s 3rd Congressional District, argue that the state isn’t doing enough to investigate obvious signs of fraud. For example, 28 counties reported a total of 964 completed in-home care fraud investigations in fiscal year 2023-24, identifying just $8 million in losses and $4.6 million in administrative overpayment recovery, according to the Department of Social Services. The identified losses account for less than 1% of the $22.7 billion California spent on IHSS in that fiscal year.
“I’m asking the Government Accountability Office to conduct a study on the scale of fraud in California,” Rep. Kevin Kiley said in a speech on the House floor. Kiley requested that the nonpartisan agency produce a report identifying the perpetrators of fraud and to “provide a breakdown of fraud by economic sector,” such as transportation, healthcare, and housing.
Medi-Cal’s Costly Expansion
The soaring costs and ongoing mismanagement of Medi-Cal are tied to its expansion. In 2022, California’s lawmakers expanded the pool of eligible Medi-Cal recipients by raising the asset limit for new enrollees from $2,000 to $130,000. Two years later, with the goal of achieving universal healthcare, lawmakers eliminated the asset test entirely. Applicants could qualify for Medi-Cal regardless of their wealth as long as their income didn’t surpass 138% of the federal poverty line.
Medi-Cal’s senior caseload increased by at least 112,000 enrollees within the first year of the asset test elimination, costing the state an additional $1.4 billion, according to LAO. Faced with major deficits, California restored the asset limit of $130,000 beginning this year.
Medi-Cal’s move to include non-citizens proved to be the most costly expansion. Undocumented children were already eligible for Medi-Cal prior to Newsom taking office. But Newsom went further than previous governors by signing legislation that expanded full-scope coverage to undocumented young adults ages 19 to 25 in 2022.
The state budget reached its breaking point in 2024, when full-scope Medi-Cal was open to all low-income residents, regardless of immigration status or age. Enrollment surged far beyond projections, sending costs soaring. State data showed the expansion covered about 1.8 million noncitizens, making up roughly 11% of all Medi-Cal beneficiaries.
Lupe Manriquez from the Department of Finance revealed in a February 2025 subcommittee hearing on the state budgetthat providing Medi-Cal to noncitizens was costing the state “$9.5 billion [a year],” which drew the ire of Republican Assemblyman Carl DeMaio. “I don’t think covering $9.5 billion of illegal immigrant health care…would be at the top of the list” of priorities for California’s taxpayers.
By March 2025, Newsom announced that the Department of Health Care Services needed a $3.4 billion loan from the state’s general fund. A week later, the department asked for another $2.8 billion bailout to cover Medi-Cal’s obligations for the next two months.
Confronted with a $12 billion budget gap, lawmakers partially retreated from their ambitious expansion efforts and ended full-scope Medi-Cal coverage for new undocumented applicants at the start of 2026.
However, cuts in federal Medicaid spending will place significant financial stress on the program. The California Budget and Policy Center estimates that the state will lose up to $30 billion a year in federal funding and jeopardize coverage for 3.4 million people.
Will Billionaires Fund or Flee?
Khanna concedes that “we do have a problem with waste, fraud and abuse in California.” He says similar complaints from constituents compelled him to work “on federal legislation to make sure that there is an audit of waste in every state.”
In the meantime, billionaire tech investors Ron Conway and Daniel Tierney have joined forces with Newsom to roll out a campaign seeking to squash the wealth tax. Some ads are expected to feature the governor making the case that the levy will drive away wealthy Californians. Others will include several of the candidates vying to replace him in this year’s gubernatorial race.
Polling on the wealth tax is scarce. However, one Mellman Group poll that was commissioned by Republican strategist Mike Murphy shows that 48% of voters support it. Thirty-eight percent rejected the idea, and 14% were undecided. Roughly half of the respondents said it is either very likely or almost certain that the wealth tax will be tied up in courts and that billionaires will flee the state.
But not all of them will. NVIDIA CEO Jensen Huang told Bloomberg he’s “perfectly fine with it” when asked about the tax. Airbnb CEO Brian Chesky told CNBC that he plans to stay in California.
Whatever the outcome of the wealth tax, the bigger issue for Californians is whether the state will get serious about cleaning up the underlying abuses in Medi-Cal that waste billions of taxpayer dollars.
This article was originally published by RealClearInvestigations and made available via RealClearWire.
