Federal prosecutors in Minnesota have launched one of the largest Medicaid fraud crackdowns in American history. Raids. Indictments. Billions of dollars. A system designed to help the poor became a loot bag for criminals and grifters.California saw those headlines and said, “They should have consulted us!”Taxpayers don’t care whether fraud happens the Minnesota way — through day-care centers and nonprofits — or the California way — through health care accounting games.Sacramento’s progressive class has spent years perfecting a cleaner version of the same scam — one that stays inside the lines, collects federal dollars on paper, and sends the bill to taxpayers everywhere else. Call it “legal.” Call it “approved.” Call it “routine.” None of those words makes it legitimate.In 2004, the Government Accountability Office warned Congress that states were gaming Medicaid through intergovernmental transfers. States would shuffle public money through a circular process to make spending look real, inflate federal matching payments, then cycle the funds back to themselves. The GAO described “round-trip” arrangements that generated federal dollars without exposing states to true financial risk and that undermined the balance Congress intended.Washington shrugged. Some states backed off. Others refined the trick.California scaled it.Medi-Cal, the state’s massive Medicaid program, now serves as the vehicle for this legal laundering operation. State officials insist that the system complies with federal rules. Fine. A loophole still remains a loophole, and taxpayers still pay the tab.Paragon Health Institute, a conservative health policy organization, has laid out the mechanism clearly. Counties and public hospital systems transfer funds to the state through IGTs. The state counts that money as the “non-federal share” of Medicaid spending, then claims a larger federal match. Sacramento sends the combined state and federal funds back to government-owned providers through supplemental payments and formula-driven reimbursements.The math almost always works in the contributors’ favor. The entities that send money in get reimbursed in full — and often receive more than they put up.RELATED: $300M frozen: California allegedly forced Americans to fund illegal alien Medicaid — so Dr. Oz drops the hammer Photo by Alex Wong/Getty ImagesCalifornia’s ambulance program shows how ugly this gets. Under the state’s Ground Emergency Medical Transport program, California bars payments from the state’s general fund. Public ambulance agencies instead receive “supplemental payments” that California largely restricts to public providers, limiting private companies’ access.The result: California pays public ambulance providers about $1,065 per transport, while it offers private ambulance companies roughly $339 for the same job.Then the federal government matches the inflated payments.This isn’t just favoritism. It warps the market. It pushes private providers out and leaves patients with fewer options.California has also expanded Medi-Cal eligibility regardless of immigration status. The state claims it funds routine coverage for “undocumented” adults with state dollars, but emergency Medicaid remains federally reimbursable. Sacramento still taps federal funds through the back door, even as it sells the program as a self-funded moral gesture.This system stinks — even when regulators bless it.And the political contrast tells you everything. Minnesota’s fraud scandal has created enough public anger to drive its Democrat governor out of the next election. California Gov. Gavin Newsom (D), whose administration runs a program built on the same kind of federal exploitation — just with better paperwork — remains a top Democrat presidential prospect in 2028.The federal government could stop this tomorrow. The Centers for Medicare and Medicaid Services could clamp down on the abuse of IGTs and demand a genuine state contribution, not an accounting illusion. Instead, under the Biden administration, CMS approved major expansions and encouraged the same incentives that fuel the problem.Audits don’t fix it, either. Regulators review what states claim on paper, not what taxpayers actually fund. If a state can justify the scheme in bureaucratic language, CMS signs off. Fraud analysis often misses the point for the same reason. A state can structure IGTs so the “state share” exists largely as a bookkeeping device. Federal taxpayers remain the only party exposed to real financial loss.Congress never designed Medicaid to serve as a revenue stream for local governments. It created Medicaid to help the poor. California’s 12-to-1 payment disparities punish the poor by reducing competition, shrinking access, and driving private providers out of business.RELATED: The insane little story that failed to warn America about the depth of Somali fraud Tom Williams/CQ-Roll Call Inc. via Getty ImagesCongress already has the solution. The GAO outlined it two decades ago, and the George W. Bush administration backed the basic idea: Close the loophole by prohibiting Medicaid payments that exceed actual costs for government-owned facilities.In plain English: Stop rewarding government-owned providers with inflated reimbursements that private providers can’t touch. Set equal rules. Require real state contributions. Cut the circular funding schemes that turn Medicaid into a federal ATM.Taxpayers don’t care whether fraud happens the Minnesota way — through day cares and nonprofits — or the California way — through health care accounting games. We care that Washington keeps subsidizing systems designed to break the rules everyone else has to follow.California built this machine. Congress can shut it down.