Proposed Medicaid Federal Match Penalty for States that Have Expanded Coverage for Immigrants: State-by-State Estimates

Note: This piece was originally published on May 21, 2025 and was updated on May 22, 2025 to reflect revisions made in the version of the bill passed by the House.

Introduction

The House reconciliation bill will substantially reduce federal Medicaid spending and coverage and increase the number of uninsured according to estimates from the Congressional Budget Office (CBO). The bill includes a provision that would penalize states that expand coverage for immigrants by reducing the federal Medicaid matching rate for the Affordable Care Act (ACA) Medicaid expansion population from 90% to 80% for states that either provide health coverage or financial assistance to purchase health coverage to certain groups of immigrants. However, the groups of immigrants receiving coverage that would subject states to the penalty was revised several times before the bill was passed by the House:

• The initial version of the bill passed by the House Energy and Commerce committee would reduce federal Medicaid funding for states that provide coverage to immigrants who were not a qualified alien or otherwise lawfully residing in the United States—affecting 14 states and DC that have expanded coverage to undocumented immigrants with their own funds.
• A revision made to the bill before it was considered by the House Rules Committee removed “otherwise lawfully residing” immigrants from coverage that could be provided without the penalty, effectively broadening the penalty to an additional 19 states that have taken up a federal option available in Medicaid and the Children’s Health Insurance Program (CHIP) to expand coverage for lawfully residing children and pregnant people.
• Per amendments made to the final version of the bill passed by the House, the penalty was limited to states providing coverage to immigrants who are not a “qualified alien” or a “child or pregnant woman who is lawfully residing in the United States” covered under the Medicaid option for these groups. This change appears to largely apply the penalty to the 14 states and DC that cover undocumented immigrants with state funds. However, because the exception is more limited than the prior language, which excluded states covering “otherwise lawfully residing” immigrants from the penalty, additional states that cover lawfully residing groups through other pathways could be affected.

KFF data show that 14 states plus DC cover children regardless of immigration status, including 7 states plus DC who cover at least some adults regardless of status, that would be affected by the current version of the provision. In Utah and Illinois, the provision could result in federal funding and coverage losses for the entire ACA Medicaid expansion population, since the states have “trigger” laws that require them to terminate the expansion if federal funding decreases. As noted, additional states that have expanded coverage for lawfully residing immigrants could be affected by the penalty.

This analysis examines the potential impacts of this policy change on state Medicaid spending, including state-by-state estimates of potential losses in federal financing (and increases in state spending) if the 14 states and DC that cover immigrants regardless of immigration status maintain their programs. It also presents enrollment data for these programs to estimate the number of people who may be at risk for coverage losses if states eliminate these programs based on KFF analysis of publicly available state enrollment data, budget documents, and media reports. Losses in federal financing and coverage may be larger if additional states are affected by the provision.

If states maintained their coverage programs, they would need to find ways to offset the loss of federal funding. This could include increasing state tax revenues, decreasing spending on non-Medicaid services such as education, or making other Medicaid cuts. If states eliminated their programs, there would likely be increased uninsured rates and barriers to care for immigrant families and negative impacts for the U.S. economy and workforce due to the role immigrants play.

Potential Impacts on State Spending if States Maintain Coverage and are Subject to the FMAP Penalty

The analysis assumes that, starting in fiscal year (FY) 2027, expenditures for people eligible in the ACA Medicaid expansion would be matched at 80% instead of 90% in the 14 states and DC that offer coverage for people regardless of immigration status. This analysis does not make assumptions about specific state behavior and instead illustrates the potential impact on state Medicaid spending if all states maintained their existing coverage programs in response to this policy change. CBO projected that the provision to penalize states the 14 states and DC that offer state funded coverage to undocumented immigrants would result in federal savings of $11 billion between 2025 and 2034 and a coverage loss of 1.4 million people. This estimate accounts for assumptions about state behavioral responses and other secondary effects.

A reduction in the expansion match rate or “FMAP” for the 14 states and DC with state-funded coverage for people regardless of immigration status could shift $92 billion in costs from the federal government to the states over the next ten years if the states maintained their programs (Figure 1). State Medicaid spending increases across the states range from $30 billion in California to $300 million in Vermont or from 8% in Oregon and Washington to 3% in Massachusetts, Vermont, New York, and Minnesota. The cost shift would be larger if additional states that cover lawfully residing immigrants are affected by the penalty.

In addition, there would be large Medicaid spending and enrollment declines in Utah and Illinois if their ACA expansion coverage was eliminated per their current state “trigger” laws. Utah and Illinois have laws in place that automatically end expansion if the federal match rate were to drop, meaning the provision could result in funding and coverage losses for the entire ACA Medicaid expansion population in these states. Prior KFF analysis found that if states drop their ACA Medicaid expansion coverage altogether, 78,000 (or 23%) of Medicaid enrollees could lose coverage in Utah and 840,000 (or 28%) of Medicaid enrollees could lose coverage in Illinois by FY 2034. This would result in a decrease of about $11 billion in federal Medicaid spending in Utah and $96 billion in Illinois over a ten-year period. It’s likely many of these expansion enrollees would become uninsured and gains in financial security, access to care, and health outcomes associated with Medicaid expansion would be reversed.

If states maintained their current coverage, they would need to find ways to offset the loss of federal funding. This could include increasing state tax revenues, decreasing spending on non-Medicaid services such as education, which is the largest source of expenditures from state funds, or making other Medicaid cuts. Given the size of the federal Medicaid funding cuts in the reconciliation bill, states would likely face substantial challenges in efforts to replace the loss of federal funds and significant pressure to drop their current coverage programs.

Potential Impacts on Coverage if States Eliminate Coverage to Avoid the FMAP Penalty

More than 1.9 million people could lose health coverage if states eliminate their state-funded coverage for immigrants regardless of immigration status to avoid the penalty. About 1.9 million people are enrolled in state-funded coverage programs for immigrants based on enrollment data from 7 of the 14 states providing coverage to children and DC and 6 of the 7 states and DC providing coverage to at least some adults (Table 1). This includes roughly 1.6 million adults and about 300,000 children, although data are not available from six states that cover children (Illinois, Maine, Massachusetts, New York, Rhode Island, and Washington) and Minnesota does not report separate data for adults and children. As such, these data undercount the number of people enrolled in these programs and at risk for coverage losses. Moreover, the dates of the enrollment data vary across states. If additional states that cover lawfully residing immigrants eliminate coverage to avoid the penalty, coverage losses would also be larger. As noted, CBO estimates that 1.4 million people would become uninsured by 2034 due to original version of the penalty which applied to states covering undocumented immigrants; this estimate represents a different time period than these enrollment data and makes assumptions about state behaviors in response to the provision.

States could avoid the FMAP penalty by eliminating their programs, but there would likely be increases in the uninsured rate and barriers to accessing care among immigrant families. Although most immigrants are working, they are often employed in jobs that do not offer employer-sponsored health coverage and undocumented immigrants are prohibited from enrolling in federally funded coverage options. As such, without these programs most will not have access to an affordable coverage option and become uninsured. People who are uninsured often delay or go without needed care, which can contribute to health conditions becoming worse and more costly. Reduced coverage and access to care may also negatively impact the U.S. economy and workforce due to lost productivity since immigrants play an outsized role in many occupations including health care, construction, and agriculture.