The Loopholes Fueling Illegal Alien Medicaid and ObamaCare Benefits

Overview

Medicaid was designed as a safety net for America’s most vulnerable citizens—low-income children, the elderly, and individuals with disabilities.¹ Yet over the years, loopholes, gimmicks, and lax enforcement have allowed millions of illegal aliens to exploit the program at the expense of taxpayers.

State and federal taxpayers now spend billions each year providing Medicaid to illegal aliens through emergency coverage, parole status, temporary reprieves, and outright fraud. In many cases, federal funding streams are more generous for illegal aliens than they are for truly needy citizens, creating a perverse incentive structure that diverts resources away from Americans.

The One Big Beautiful Bill Act of 2025 (OBBB) addressed these issues by ending bonus funding given to states for illegal aliens’ “emergency” Medicaid benefits, narrowing program eligibility to citizens and legal immigrants, pausing Biden-era regulations that made it more difficult to detect fraudulent enrollment by illegal aliens, requiring states to check data that would help uncover when illegal aliens were using stolen identities to enroll in the program, and ending financing gimmicks used by states to fuel “state-funded” programs for illegal aliens.²

OBBB will begin restoring fairness and integrity to Medicaid, but congressional Democrats have demanded that all these provisions be repealed as a condition for ending the government shutdown.³ If successful, all progress Congress made earlier this year will be reversed and taxpayers will once again be forced to bankroll massive welfare benefits for illegal aliens while needy citizens are left behind.

Illegal aliens receive “emergency” Medicaid

States receive federal funding to provide “emergency” Medicaid coverage to illegal aliens.⁴ Although initially created as a narrow safety net to reimburse hospitals for life-saving care provided to illegal aliens, spending on this program has ballooned in recent years. Federal spending on these services nearly tripled over the last five years, reaching an alarming $6.1 billion in 2024.^5-7

The lion’s share of this spending is driven by California, which alone received more than $4.5 billion last year—nearly 75 percent of the entire national total.⁸ California’s outsized share of spending is particularly troubling, given that just 16 percent of illegal aliens in the United States reside in California and its share of other types of federal Medicaid funding totals less than 16 percent.^9-10

Several states also improperly funnel this federal “emergency” Medicaid funding to managed care companies that provide full Medicaid benefits to illegal aliens on what are supposed to be “state-funded” programs.¹¹ Auditors at the Office of Inspector General, for example, found that the Newsom administration had used this scheme to improperly claim millions of dollars in federal funding for illegal aliens’ non-emergency benefits.¹²

But perhaps one of the most troublesome aspects of this program is how the federal government matches state spending on emergency services for illegal aliens at far higher levels than it does for truly needy citizens, including the elderly, low-income children, and individuals with disabilities.

Under ObamaCare, states can claim higher matching rates for able-bodied adults—even when they are in the country illegally and only qualify for emergency services.¹³ This means states that expanded ObamaCare receive an unusually generous flow of federal dollars to cover these costs, while receiving a comparatively worse deal for covering truly needy citizens.¹⁴ In 2024, for example, California received $2.31 in federal funds for every state dollar spent on emergency Medicaid for illegal aliens, compared to just $1.07 in federal funds for every state dollar spent on truly
needy enrollees.¹⁵

This disparity reveals a perverse incentive structure: States can secure more federal funding by directing spending toward emergency care for illegal aliens than by investing in services for children with developmental disabilities.

Congress addressed this distortion through OBBB.¹⁶ OBBB corrected the match-rate loophole by limiting federal reimbursement for emergency Medicaid for illegal aliens to the state’s normal Medicaid match rate, rather than the enhanced ObamaCare rate.¹⁷ By making this change, OBBB ensures that states no longer profit from prioritizing emergency care for illegal aliens over services for needy citizens, restoring fairness and aligning federal funding with the program’s
original intent.

Certain illegal aliens can obtain “qualified” alien status for Medicaid eligibility

States may claim federal funding for non-citizens who may be classified as “qualified aliens” for purposes of Medicaid eligibility, even if they entered the country illegally and are not legal immigrants.^18-19 For example, illegal aliens granted parole for at least a year are treated as “qualified aliens,” despite their lack of legal status.²⁰

The Immigration and Nationality Act grants the U.S. Department of Homeland Security (DHS) authority to temporarily parole aliens into the United States, on a case-by-case basis, for “urgent humanitarian reasons or significant public benefit.”²¹ This parole status is temporary, discretionary, and revocable at any time.²²

Crucially, as federal law and the courts have recognized for more than a century, parole is not a lawful admission, nor does it grant legal status upon its recipients.^23-24 Parole is simply a courtesy allowing certain aliens to avoid confinement while administrative proceedings are underway.^25-30 For immigration purposes, parolees are regarded as if they were stopped at the border and kept there until admission proceedings are complete.^31-45 It does not affect illegal aliens’ immigration status or transform them into legal immigrants.⁴⁶ Nevertheless, these illegal aliens are deemed “qualified aliens” for Medicaid eligibility purposes so long as their parole is for longer than a year.⁴⁷

Federal law expressly limits DHS’s authority to grant parole to aliens only on a “case-by-case basis,” not en masse.^48-50 Despite this limitation, the Biden administration granted parole to nearly three million otherwise inadmissible aliens, including sweeping grants of parole to illegal aliens crossing the southwest border.⁵¹ The Biden administration did not “conduct[] meaningful case-by-case analysis” before granting parole, as it spent just 15 to 30 minutes to process those cases.⁵² Worse yet, the Biden administration issued guidance that automatically granted parole unless certain criteria were met.⁵³ In many cases, parole was granted to aliens without application or petition.⁵⁴

The Biden administration also refused to take enforcement action when aliens’ parole expired unless they had committed certain crimes, expecting those illegal aliens to either leave on their own or apply for another protected status.⁵⁵

Congress addressed this issue through OBBB, limiting Medicaid eligibility to citizens, Green Card holders, Cuban and Haitian refugees, and non-immigrants authorized to reside and work in the United States without visas due to treaties with Micronesia, the Marshall Islands, and Palau.⁵⁶ Other groups of non-citizens, including various classes of illegal aliens, are now excluded from the program.

Certain illegal aliens are categorized as “lawfully residing” or “lawfully present” for Medicaid, S-CHIP, and ObamaCare eligibility

States can also receive federal funding under Medicaid and the State Children’s Health Insurance Program (S-CHIP) for certain illegal aliens deemed to be “lawfully residing” in the United States.^57-59 Many of those illegal aliens are also deemed “lawfully present” immigrants for ObamaCare subsidy eligibility purposes.^60-63

Illegal aliens who are paroled into the United States for less than a year, have temporary protected status (TPS), have deferred enforced departure (DED) status, have deferred action status, are seeking asylum, or meet a variety of other statuses, are considered “lawfully residing” for Medicaid and S-CHIP purposes and “lawfully present” for ObamaCare purposes.⁶⁴

Although these statuses may shield illegal aliens from immigration enforcement actions, they do not grant legal immigrant status to their recipients.⁶⁵ TPS, for example, grants aliens of designated countries experiencing armed conflict, natural disasters, or other extraordinary conditions a temporary reprieve from removal when removal is unsafe.^66-67 It does not cure an illegal alien’s unlawful entry or grant legal immigrant status.^68-71

Similarly, DED status serves as temporary protection from deportation, but does not grant legal immigrant status to its holders.⁷² Indeed, DED status has no statutory basis and does not affect immigration status under the Immigration and Nationality Act.⁷³ Like DED status, deferred action status has no statutory basis and is simply a reprieve from removal proceedings, created as “administrative convenience” that “gives some cases lower priority.”^74-80

The number of aliens receiving these reprieves skyrocketed under the Biden administration.⁸¹ TPS recipients, for example, more than tripled between December 2020 and early 2025.^82-83

Congress addressed this issue through OBBB, limiting ObamaCare eligibility to citizens, Green Card holders, Cuban and Haitian refugees, and non-immigrants authorized to reside and work in the United States without visas due to treaties with Micronesia, the Marshall Islands, and Palau.⁸⁴ Other groups
of non-citizens, including various classes of illegal aliens, are now excluded from the program.

Illegal aliens enroll in Medicaid while their immigration status is checked

Federal law requires states to verify citizenship or immigration status when determining Medicaid eligibility.⁸⁵ However, if a state cannot immediately verify an applicant’s stated immigration status, applicants are enrolled in the program and given a reasonable opportunity period (ROP) to prove their status.⁸⁶ Reasonable opportunity periods were intended to give applicants time—typically 90 days—to make a good-faith effort to offer proof of citizenship or lawful immigration status.⁸⁷

What was intended as a scarcely used, temporary process for individuals to establish their immigration status has turned into a massive Medicaid on-ramp for illegal aliens. The Biden administration and state Medicaid agencies supercharged these temporary coverage windows by granting unprecedented levels, extending their duration, and renewing them indefinitely.⁸⁸

Between 2019 and 2023, the number of reasonable opportunity periods granted by state Medicaid agencies increased by roughly 45 percent.⁸⁹ Worse yet, the number of these enrollees who were ultimately unable to prove citizenship or lawful immigration status spiked by more than 400 percent over the same period.⁹⁰ In 2024, the Biden administration doubled down on this abuse by prohibiting states from capping how many temporary coverage periods an illegal alien may claim consecutively.^91-92

This “temporary” coverage has also extended far beyond the typical 90 day period set by regulation.⁹³ Roughly 70 percent of reasonable opportunity periods now last or are extended for more than 90 days.⁹⁴ State data reveals that Medicaid agencies are keeping illegal or potentially illegal aliens on the program for years.⁹⁵ In some cases, states have kept these “temporary” windows open for more than 14 years.⁹⁶

Congress partially addressed this issue through OBBB by pausing the Biden administration’s 2024 rule that prohibited states from capping reasonable opportunity periods.⁹⁷

Illegal aliens are fraudulently enrolling in Medicaid

Another way illegal aliens enroll in Medicaid is through outright fraud, such as using stolen identities. Illegal aliens assuming stolen identities is a well-known problem.^98-102 The U.S. Department of Justice has prosecuted countless illegal aliens using stolen identities and fraudsters selling stolen identities to illegal aliens.^103-107 In 2025, a raid conducted by the U.S. Immigration and Customs Enforcement at a single employer identified more than 100 victims of identity theft due to illegal aliens using stolen identities.¹⁰⁸ Many of those illegal aliens using stolen identities enroll in various welfare programs, including Medicaid, food stamps, public housing, unemployment, or other programs.^109-120 Some of those illegal aliens have even been able to use their stolen identities to vote.^121-123

The exact extent of this fraudulent activity is unknown, but evidence suggests it is massive. Nearly 24 million Americans are victims of identity theft each year, while nearly one-quarter have had their identities stolen at least once in their lifetime.¹²⁴ Common uses of those stolen identities include filing fraudulent tax returns, obtaining employment, concealing the criminal’s real identity from the government, and applying for welfare benefits.¹²⁵

The Social Security Administration maintains the Earnings Suspense File (ESF), a database of inaccurate W-2s.¹²⁶ According to the agency’s inspector general, illegal aliens using stolen Social Security numbers (SSN) are the “chief cause” of these inaccurate W-2s.¹²⁷ Although the agency’s first inspector general testified in 1998 that one of the biggest problems facing the Social Security Administration was the ESF’s growth, the problem has only spiraled even further out of control.¹²⁸ More than $2 trillion in wages were added to the ESF in the intervening years.^129-131 More than 27 million new wage records were added to this database in 2021 through 2023 alone.^132-134

Auditors have identified nearly 19 million active SSNs of people over the age of 100 with no death record in the system—including more than 13 million born before the world’s oldest living person.¹³⁵ Billions of dollars in wages are reported for these individuals each year and added to the ESF.¹³⁶ One of these SSNs, for example, appeared on a whopping 405 different wage reports in the ESF over a five-year period.¹³⁷ The Social Security Administration has also identified millions of aliens with SSNs in their own name obtained with fraudulent information and millions more with SSNs that have mismatched information.¹³⁸

Other federal systems have identified similar problems. The U.S. Department of Health and Human Services, for example, maintains a repository of quarterly wage records for most workers.¹³⁹ Auditors at the Government Accountability Office reviewing a single quarter of data from this repository found millions of cases of likely identity fraud.¹⁴⁰ This includes stolen SSNs for tens of thousands of deceased individuals, including some who had been dead for more than a decade, seniors, and children.¹⁴¹

Many of these stolen SSNs are being used fraudulently by multiple people at the same time. Nearly three million SSNs had wage records reported from three or more employers in a single quarter, with some of those SSNs associated with more than 30 different employers.¹⁴² In one case, 15 different employers in 14 different states reported a combined $400,000 in annualized wages for the same SSN in a single three-month period.¹⁴³

Illegal aliens’ use of stolen identities for other purposes is a significant cause for alarm in program integrity for various welfare programs, including Medicaid. Although federal law restricts Medicaid eligibility to certain classes of aliens, most states do not require proof of identity during the Medicaid application process, opening the door to fraud for illegal aliens using stolen identities.¹⁴⁴ Unfortunately, the Biden administration supercharged this opportunity for fraud. In 2024, the Department of Health and Human Services finalized regulations that prohibit states from requiring applicants to provide proof of their identity if the provided SSN is verified as a citizen’s.^145-146

Identity theft is likely a key reason so much eligibility fraud is present in the Medicaid program, particularly among deceased and duplicate enrollees. In Arkansas, for example, more than 20,000 enrollees were reported to have “high-risk identities,” such as those using stolen or fraudulent SSNs.¹⁴⁷ Similarly, in New Jersey, auditors discovered more than 18,000 enrollees with fake or duplicative SSNs.¹⁴⁸

Auditors have uncovered hundreds of millions of dollars in Medicaid funding spent on enrollees with the SSN of a deceased individual, including individuals who had died as early as 1981.^149-166 Auditors have also found millions of SSNs associated with enrollees in multiple states.^167-176 A federal review of 47 states’ Medicaid programs, for example, found every single reviewed state had enrollees who had SSNs that were associated with enrollees in other states’ programs at the same time.¹⁷⁷ In some cases, the same SSN was associated with enrollees in as many as nine states at once.¹⁷⁸ A 2025 review identified more than 2.8 million SSNs associated with enrollees who were enrolled in Medicaid in multiple states or simultaneously enrolled in both Medicaid and ObamaCare.¹⁷⁹ Audits have also identified tens of thousands of SSNs who were enrolled more than once in the same state—with some SSNs having as many as seven open Medicaid cases at one time.^180-181

Congress addressed this issue through OBBB in a variety of ways. First, OBBB paused the Biden administration’s 2024 rule that prohibited states from verifying identity.¹⁸² Second, OBBB required states to begin checking Social Security death records on at least a quarterly basis.¹⁸³ Third, OBBB required states to submit SSNs of enrollees to the federal government monthly to avoid duplicate enrollment.¹⁸⁴ Finally, OBBB enforces financial penalties on states with large amounts of eligibility errors.¹⁸⁵

Illegal aliens receive “state-funded” Medicaid coverage fueled by federal dollars

Some Democrat states have created “state-funded” programs for illegal aliens when all other pathways for them to obtain Medicaid has failed.¹⁸⁶ At least a dozen states fund Medicaid benefits for illegal aliens using these programs.^187-202 These states use “state” dollars to finance non-emergency benefits for illegal aliens, bypassing federal restrictions on providing non-emergency coverage to illegal aliens.²⁰³

California, for example, has spent years gradually expanding Medicaid coverage for illegal aliens.In 2015, then-Governor Jerry Brown signed legislation expanding coverage for Medi-Cal, the state’s Medicaid program, to illegal alien children.²⁰⁴ In 2021, Governor Gavin Newsom signed legislation expanding coverage to illegal aliens over the age of 50.²⁰⁵ California completed its disastrous quest to cover illegal aliens in 2022, when Governor Newsom signed legislation expanding eligibility for illegal aliens between the ages of 26 and 49.²⁰⁶ California now spends more than $12 billion on health coverage for illegal aliens.²⁰⁷

Despite California’s claims that this is a “state-funded” program, the reality is that federal dollars fuel it. Illegal aliens apply for this “state-funded” program through the normal Medicaid application channels.²⁰⁸ State bureaucrats determine illegal aliens’ eligibility through the regular Medicaid eligibility determination process.²⁰⁹ The program delivers benefits to illegal aliens through Medicaid managed care organizations (MCOs) operating under regular Medicaid contracts.²¹⁰ In short, this “state-funded” program wholly relies on federally funded Medicaid infrastructure.

The “state-funded” program also relies on federal funding for some benefit costs.²¹¹ Although federal reimbursement for illegal aliens is only available for emergency services, California has claimed matching funds for enrolling them in managed care plans.²¹² In 2019, for example, federal taxpayers covered roughly 42 percent of the cost of managed care premiums for these illegal aliens.²¹³ In 2024, California claimed more than $4.5 billion in “emergency” Medicaid for illegal aliens, which it uses to fund a portion of the “state-funded” program.²¹⁴

This use of federal funds is unlawful, as the managed care costs for these programs are not tied to specific emergency services rendered for specific aliens, but rather are based on historical utilization rates, and also incorporate other costs such as administrative costs, taxes, and other operational expenses.²¹⁵ Auditors at the Office of Inspector General also concluded that the Newsom administration improperly claimed millions of dollars in federal funding for illegal aliens’ non-emergency benefits as “emergency” benefits.²¹⁶

If that were not bad enough, California used financing gimmicks to draw down additional federal funding that it could then use to pay for this “state-funded” program.²¹⁷ One of the most egregious gimmicks is the state’s use of managed care taxes. Despite the statutory requirement that these taxes be “uniform,” California requires MCOs to pay a tax of nearly $188 per month for Medicaid enrollees and just $2 per month for non-Medicaid enrollees.²¹⁸ The entire cost of this tax is built into the capitated rates paid to Medicaid MCOs, effectively turning this into a $7.6 billion per year tax on federal taxpayers.²¹⁹ California then uses the proceeds from that money laundering to offset general fund costs, allowing them to dedicate general funds to pay for the “state-funded” program for illegal aliens.²²⁰ California budget officials have even admitted that the MCO tax has been used “solely to offset General Fund spending” on Medicaid.²²¹

But California is not alone in using federal dollars to finance programs for illegal aliens. All states operating these programs use federally funded Medicaid infrastructure to operate.²²² New York and other states have copied California’s MCO tax scheme, allowing them to effectively finance state-funded programs for illegal aliens with federal dollars.²²³

States’ use of other provider taxes has also allowed them to draw down significantly more federal dollars than their typical matching rate would allow.^224-225 These financing gimmicks have allowed states to draw down more than enough additional federal funding to cover illegal aliens in “state-funded” programs.²²⁶

Congress addressed this issue through OBBB in a variety of ways. First, OBBB prohibited states like California and New York from using MCO tax schemes that effectively allow these states to impose a tax on federal taxpayers in other states.²²⁷ Second, OBBB prohibited states from creating new or expanding existing provider tax schemes to draw down additional federal dollars, which states then use for other special projects.²²⁸ Finally, OBBB phased down expansion states’ safe harbor thresholds for provider taxes, capping the amount of funding states could receive through this gimmick.²²⁹

The One Big Beautiful Bill Act will reduce federal spending on illegal aliens

OBBB is the single largest welfare reform legislation passed in American history.²³⁰ The new law will move millions of able-bodied adults from welfare to work and crack down on waste, fraud, and abuse.²³¹ This includes crucial reforms to stop Medicaid and ObamaCare benefits from going to illegal aliens.

In summary, these include:

• Ending the 90 percent federal matching bonus for illegal aliens receiving emergency Medicaid
• Narrowing Medicaid and ObamaCare eligibility to citizens, Green Card holders, and Cuban and Haitian refugees
• Pausing Biden-era regulations that prohibited states from capping how many times illegal aliens could get temporary coverage by fraudulently attesting to satisfactory immigration statuses
• Pausing Biden-era regulations that prohibited states from identity verification
• Requiring states to begin checking Social Security death records to identify illegal aliens using stolen identities
• Requiring states to submit enrollees’ SSNs to the Department of Health and Human Services to identify illegal aliens using stolen identities
• Imposing financial penalties on states with large amounts of eligibility errors, including those related to immigration status
• Prohibiting states from using MCO tax schemes to generate additional federal dollars that could fund programs for illegal aliens
• Prohibiting states from imposing new or expanding existing provider taxes to draw down additional federal dollars that could fund programs for illegal aliens
• Phasing down the safe harbor thresholds for expansion states’ existing provider taxes used to generate additional federal dollars that could fund programs for illegal aliens

Congressional Democrats have demanded that all these provisions be repealed in order to end the government shutdown.²³² If successful, all progress Congress made earlier this year to reduce federal welfare spending on illegal aliens will be reversed.

The Bottom Line: The One Big Beautiful Bill Act’s reforms are necessary to slow the flow of Medicaid and ObamaCare dollars to illegal aliens and protect funds for the truly needy.

Illegal aliens exploit nearly every weakness in Medicaid’s structure to secure taxpayer-funded benefits. From “emergency” Medicaid and parole-based eligibility to fraudulent enrollment through stolen identities and state-funded gimmicks, the scope of abuse is staggering. These loopholes not only drain billions of federal dollars but also crowd out resources for America’s most vulnerable citizens.

Congress took historic steps earlier this year to end enhanced federal matching rates for illegal aliens, close loopholes that enabled fraudulent enrollment, and ban gimmicks that funneled federal dollars into state-run programs for illegal aliens. These reforms represent a critical course correction, ensuring Medicaid resources are directed toward citizens and legal residents as intended.

But the fight is not over. Congressional Democrats are now demanding repeal of these reforms to end the government shutdown, threatening to roll back progress and once again prioritize illegal aliens over needy Americans. Policymakers must resist these efforts, defend the integrity of Medicaid, and continue building on OBBB’s reforms to protect taxpayers and restore Medicaid to its original purpose.

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