How Congress Can Stop States From Diverting Medicaid Resources to Illegal Aliens

Overview

Medicaid was designed to provide a safety net for truly needy Americans, including low-income children, seniors, and individuals with disabilities.¹ However, the program has shifted from its intended purpose and instead prioritizes able-bodied adults.² Resources are being siphoned away from the truly needy, and the program is on an unsustainable trajectory as taxpayer dollars are now going toward providing coverage for illegal aliens.

Illegal aliens have historically only comprised a small share of Medicaid as federal law limits coverage to emergency services.³ However, under the Biden administration, this reality fundamentally changed. The Congressional Budget Office estimated that the previous administration’s open border policies, which increased Medicaid-funded emergency services for illegal aliens, have cost taxpayers more than $16.2 billion.⁴ According to data received from 18 states, the total Medicaid expenditures on illegal aliens have increased by more than 75 percent between 2020 and 2024.⁵

Fortunately, President Trump recently took action to safeguard taxpayer dollars by issuing an executive order that blocks Medicaid and other public benefits from being used to support illegal aliens, ensuring these resources go to American citizens who truly need them.⁶ Federal lawmakers should codify these policies to make these changes permanent. Congress has a once-in-a-generation opportunity to crack down on this abuse of Medicaid through the reconciliation process, which would achieve meaningful and lasting savings.

Medicaid reasonable opportunity periods enable widespread abuse

One of the most widespread ways in which state Medicaid agencies have implicitly encouraged increased Medicaid spending on illegal aliens has been through reasonable opportunity periods (ROPs). By law, states are required to verify an individual’s citizenship or satisfactory immigration status when determining Medicaid eligibility.⁷ When a state is unable to make this determination immediately, the applicant is granted an ROP, during which they receive full benefits and are expected to make a good-faith effort to obtain the necessary documentation to provide proof of citizenship or lawful immigration status.⁸

Historically, ROPs were supposed to last just 90 days as states attempt to verify immigration status. However, states have abused this process by extending ROPs and granting the same individuals new ROPs each time they apply for the program, allowing illegal aliens to effectively remain on the program indefinitely.^9-10

Data from 10 state Medicaid agencies reveals a sharp rise in the number of individuals covered under ROPs—increasing by 45 percent from 2019 to 2023.¹¹ But even more shocking is that the number covered under ROPs who were ultimately unable to prove their citizenship or lawful immigration status increased by more than 400 percent over the same period.¹²

Not only has the number of ROP recipients surged, but so has the duration of their ROPs. In 2023, roughly 70 percent of ROPs issued exceeded 90 days. In some states, individuals were allowed to remain on ROPs for more than 14 years—well beyond the time it would conceivably take to prove citizenship or lawful immigration status.¹³

Even more concerning, in 2024, the Biden administration exacerbated this problem by finalizing a Medicaid “streamlining” rule to eliminate the option for states to cap the number of ROPs an individual can receive.¹⁴ Now, an applicant can repeatedly receive ROPs, effectively allowing illegal aliens to receive Medicaid benefits indefinitely—even if they ultimately fail to provide proof of citizenship.¹⁵

A rise in the number of illegal aliens—coupled with inadequate policies to govern ROPs and verify Medicaid eligibility—has contributed to an explosion in ROP-driven Medicaid enrollment.

The solution is clear. Individuals should not be enrolled in Medicaid while their eligibility is still pending citizenship verification. Closing this loophole would prevent fraud and save taxpayers an estimated $5 billion.¹⁶

States exploit Medicaid infrastructure to fund coverage expansions for illegal aliens

Currently, 12 states and Washington, D.C. have expanded non-emergency Medicaid coverage to illegal aliens. These states have effectively circumvented federal law by using nominally “state-only” funds to finance Medicaid benefits for their populations of illegal aliens, instead of utilizing federal matching funds for these groups.

However, most of these states still use federal resources to subsidize illegal aliens covered under their Medicaid programs. The infrastructure behind these programs—the administrative overhead that the programs rely upon—is still funded by federal taxpayers. States rely on jointly funded Medicaid infrastructure for various functions, including application processes, eligibility determinations, and managed care contracts. As a result, even so called “state-funded” benefits for illegal aliens are administered using federal resources.

However, one state in particular has gone even further to shift costs onto federal taxpayers for services that don’t qualify for federal funding. In California, auditors at the Department of Health and Human Services uncovered that the state had improperly classified non-emergency services for illegal aliens as federally approved emergency services to claim federal matching funds. This practice made federal taxpayers foot the bill for more than 12 percent of California’s costs for “state-funded” non-emergency services for illegal aliens.³⁸ Even worse, California’s expansion of non-emergency coverage to illegal aliens has been financed by billions in federal dollars achieved through a Medicaid funding gimmick known as “provider taxes”, where states raise taxes on providers to draw down even more federal Medicaid dollars.³⁹

Federal policymakers should enforce the provisions of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 that restrict states from granting public benefits to illegal aliens. This would ban the use of Medicaid infrastructure to facilitate these state programs once and for all—saving taxpayers an estimated $7 billion.^40-41

States face no penalties whatsoever for expanding non-emergency coverage to illegal aliens

A number of states have expanded non-emergency Medicaid coverage to illegal aliens. In addition to taking advantage of Medicaid infrastructure to provide benefits to these populations, the federal government does not penalize states for circumventing federal law. Specifically, these states’ federal medical assistance percentages (FMAPs) are not reduced as a sanction for expanding coverage to illegal aliens.

Several of these states are already benefiting from an FMAP floor of 50 percent that artificially props up the federal government’s contributions to their Medicaid programs above what it would otherwise be.⁴²

There is nothing stopping federal policymakers from adopting an across-the-board penalty on the FMAPs of states that expand non-emergency coverage to illegal aliens. For example, Congress could reduce states’ FMAPs by five percentage points for every quarter in which they continue to cover these populations—even pushing their FMAPs below the statutory floor, if necessary.

If these states choose to continue covering these groups despite the FMAP reduction, then federal taxpayers will benefit from reduced FMAP payments to these states. On the other hand, if these states opt to rescind their non-emergency coverage of illegal aliens, then the FMAP reduction will have successfully convinced states that providing public benefits to illegal aliens is not worthwhile. In either case, other states contemplating potential future expansions of Medicaid coverage to illegal aliens will be deterred from following down this path.

In the event that states continue to provide coverage to these groups, the federal FMAP savings would be as high as $202 billion—a substantial penalty for circumventing federal law.⁴³

The Bottom Line: Congress can reform Medicaid through the reconciliation process to roll back welfare for illegal aliens.

The influx of illegal aliens under the Biden administration—and several states’ willingness to expand coverage to these individuals—is putting a strain on Medicaid resources and crowding out services for the truly needy.

As part of reconciliation, Congress can pursue meaningful reforms by requiring verification of citizenship or lawful immigration status prior to enrollment, banning Medicaid infrastructure from facilitating the coverage of illegal aliens, and penalizing states that adopt non-emergency coverage expansions to illegal aliens. Along with Medicaid work requirements for able-bodied adults, more frequent eligibility checks, reforms to the FMAP formula, and more, these reforms to prevent states from granting public benefits to illegal aliens would both save taxpayer resources and refocus the Medicaid program on the truly needy.

It is long past time to get Medicaid spending on illegal aliens under control—before it is too late.

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