The iconic budget legislation proposed by President Donald Trump would penalize 14 states that provide health coverage to undocumented individuals living in the country.
These states, mostly led by Democrats, offer medical insurance to some low-income immigrants — often children — regardless of their immigration status. Advocates argue that the policy is humanitarian and ultimately saves costs.
However, the federal legislation, dubbed One Big Beautiful Bill by the Republicans, would drastically cut federal Medicaid reimbursements to these states by billions of dollars annually in total unless they reduce these benefits.
The bill was narrowly passed in the House of Representatives on Thursday, May 22, and now moves to the Senate.
While advancing much of Trump’s national agenda, including large tax cuts that primarily benefit the wealthiest Americans, the legislation also makes substantial cuts to Medicaid spending that, according to Congressional budget officials, will leave millions of low-income people without health insurance.
If approved by the Senate, these cuts would pose a complex political and economic challenge for the states and Washington, DC, that use their own funds to provide health insurance to some individuals living in the United States without authorization.
These states would see a 10-percentage-point reduction in federal reimbursements for individuals covered under the Medicaid expansion carried out under the Affordable Care Act (ACA).
These cuts could cost California, the state with the most to lose, up to $3 billion annually, according to an analysis by KFF, a nonprofit organization dedicated to health information that includes KFF Health News.
Collectively, the 15 affected locations (14 states and DC) cover approximately 1.9 million undocumented immigrants, according to KFF. The entity notes that the penalty could also apply to other states that cover immigrants with legal residency.
Two of the states, Illinois and Utah, have “trigger” laws that require them to end their Medicaid expansions if the federal government reduces their funding. This means that unless those states repeal their trigger laws or stop covering individuals without legal immigration status, many more low-income Americans could be left without insurance.
If they continue to cover undocumented individuals, starting in fiscal year 2027, the remaining states and Washington, DC, would have to contribute millions or billions of additional dollars each year to offset the reductions in their federal Medicaid reimbursements.
After California, New York could lose the most federal funding: nearly $1.6 billion annually, according to KFF.
California State Senator Scott Wiener, a Democrat and Chair of the Senate Budget Committee, stated that Trump’s legislation has created chaos as state lawmakers work to pass their own budget before June 15.
“We have to stand strong,” he said. “California has decided that we want universal healthcare and that we are going to ensure everyone has access to healthcare, and we are not going to allow millions of undocumented people to receive primary care in emergency rooms.”
California Governor Gavin Newsom said in a statement that Trump’s bill would devastate healthcare in his state.
“Millions of people will lose coverage, hospitals will close, and social safety nets could collapse under that weight,” Newsom said.
In his May 14 budget proposal, Newsom urged lawmakers to cut some benefits for undocumented immigrants, citing the skyrocketing costs of the state’s Medicaid program. If Congress cuts funds for Medicaid expansion, the state would not be able to cover the expenses, the governor said.
Newsom questioned whether Congress has the authority to penalize states for how they spend their own money and said that his state would consider challenging the measure in court.
Utah State Representative Jim Dunnigan, a Republican who helped push a bill to cover children in his state regardless of their immigration status, said that Utah needs to maintain the Medicaid expansion that began in 2020.
“We cannot afford, both monetarily and politically, to have our federal funding for the expansion cut,” he said. Dunnigan did not specify whether he believes the state should cancel its coverage for immigrants if the Republican provision on penalties becomes law.
Utah’s program covers around 2,000 children, the maximum allowed by its law. Undocumented adult immigrants are not eligible. Utah’s Medicaid expansion covers around 75,000 adults, who must be citizens or legal immigrants.
Matt Slonaker, Executive Director of the Utah Health Policy Project, a consumer advocacy organization, said that the federal House bill puts the state in a difficult position.
“Politically, there are no great alternatives,” he said. “It’s a prisoner’s dilemma: any move in any direction doesn’t make much sense.”
Slonaker pointed out that a likely scenario is that state lawmakers repeal their trigger law and then find a way to make up for the loss of federal funds for the expansion.
Utah has funded its share of the Medicaid expansion cost through sales and hospital taxes.
“The Congress would put the state of Utah in a position where it has to make a very difficult political decision,” Slonaker said.
In Illinois, the Republican Party’s penalty would have even more severe consequences. This is because it could lead to 770,000 adults losing the medical coverage they obtained through the state’s Medicaid expansion.
Stephanie Altman, Director of Healthcare Justice at the Shriver Center on Poverty Law, a Chicago-based advocacy group, said that it is possible that their Democratic-led state would repeal its trigger law before allowing the Medicaid expansion to end.
She added that the state could also circumvent the penalty by asking counties to fund coverage for immigrants. “Obviously, it would be a difficult situation,” she said.
Altman noted that the House bill seems drafted to penalize states controlled by Democrats, as they tend to provide coverage to immigrants regardless of their immigration status.
She added that the provision demonstrates the “hostility of Republicans towards immigrants” and that “they do not want them to come here and receive public coverage.”
Mike Johnson, Speaker of the US House of Representatives, stated in May that state programs providing public coverage to individuals regardless of their immigration status act as an “open doormat,” inviting more people to cross the border without authorization. He said that efforts to eliminate these programs have public opinion support.
A Reuters-Ipsos survey conducted from May 16 to 18 showed that 47% of Americans approve of Trump’s immigration policies, while 45% disapprove. The survey revealed that Trump’s overall approval rating has dropped 5 percentage points since returning to office in January, to 42%, with 52% of Americans disapproving of his administration.
ACA, also known as Obamacare, encouraged states to expand Medicaid to adults with incomes up to 138% of the federal poverty level, or $21,597 per person this year. Forty states and Washington, DC, expanded their coverage, contributing to a historic low national uninsured rate.
The federal government now covers 90% of the costs for individuals included in Medicaid thanks to the Obamacare expansion.
In states that cover healthcare for undocumented individuals, the Republican bill would reduce the federal government’s contribution from 90% to 80% of the cost of coverage for anyone who joins Medicaid under the ACA expansion.
By law, federal Medicaid funds cannot be used to cover individuals in the country without papers, except for pregnancy and emergency services.
The other states that use their own funds to cover individuals regardless of their immigration status are: Colorado, Connecticut, Maine, Massachusetts, Minnesota, New Jersey, Oregon, Rhode Island, Vermont, and Washington, according to KFF.
Ryan Long, Director of Congressional Relations at the Paragon Health Institute, an influential conservative political group, said that even if states use their own funds for immigrant coverage, they still rely on federal funds to “support systems that facilitate the enrollment of undocumented immigrants.”
Long said that concerns that states with trigger laws may see the end of the Medicaid expansion are a “red herring,” as states have the option to repeal their triggers, as Michigan did in 2023.
The penalty for providing health coverage to individuals in the country without papers is one of the various ways the House bill cuts federal spending on Medicaid.
The legislation would also shift more Medicaid costs to states by requiring them to verify if adults covered by the program are working. States would also have to recertify the eligibility of Medicaid expansion beneficiaries every six months, instead of once a year or less, as most currently do.
The bill would also freeze states’ practice of taxing hospitals, nursing homes, managed care plans, and other healthcare companies to fund their share of Medicaid costs.
In a preliminary estimate on May 11, the Congressional Budget Office (CBO) indicated that under the House bill passed by the House of Representatives, around 8.6 million more people would lose healthcare coverage in 2034.
That number would increase to nearly 14 million, according to the CBO, after the Trump administration finalizes new ACA regulations and if the Republican-led Congress, as expected, refuses to extend enhanced subsidies to help pay for premiums of health plans sold through the Obamacare markets.
The enhanced subsidies, a priority of former President Joe Biden, completely eliminated monthly premiums for some individuals purchasing Obamacare plans. They expire at the end of the year.
This story was produced by Kaiser Health News, which publishes California Healthline, an editorially independent service of the California Health Care
