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

Note: This piece was updated on May 21, 2025 to reflect a recent revision made to the reconciliation bill to broaden the FMAP penalty to states that have taken up a federal option to expand coverage for lawfully residing children and/or pregnant people in Medicaid and/or CHIP.

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 seeks to reduce federal Medicaid funding to states as a penalty for providing coverage to undocumented immigrants with their own state funds. A recent revision made to the bill broadened the penalty to 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. Specifically, the bill proposes reducing the federal 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 individuals who are not “a qualified alien.” Immigrants with a “qualified status” are a subset of immigrants who are lawfully present in the United States.

A total of 33 states and DC could be affected by this penalty based on the latest version of the bill. 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 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.  An additional 19 states have taken up the federal option to expand coverage for lawfully residing children and/or pregnant people in Medicaid and/or CHIP and have adopted the ACA Medicaid expansion that could be affected by the penalty. An additional 7 of these 19 states (Arkansas, Iowa, Montana, New Hampshire, New Mexico, North Carolina, and Virginia) also have laws that would require termination of or changes to the Medicaid expansion if federal funding decreases.

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 states maintain their programs. It also presents enrollment data for the state-funded programs in 14 states and DC that cover some immigrants regardless of immigration status 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. The revision to broaden the penalty to states that have taken up the federal option to expand coverage for lawfully residing children and/or pregnant people in Medicaid and/or CHIP further increases the number of people at risk for coverage loss. However, separate enrollment data are not available for these groups.

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 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. It also estimates the impacts if the 19 additional states that have taken up the federal option to expand coverage for lawfully residing children and/or pregnant people in Medicaid and/or CHIP are subject to the penalty. 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 projects 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. CBO has not estimated the effects of the provision with the broadened penalty to include states that have expanded coverage to lawfully residing children and/or pregnant people in Medicaid and/or CHIP.

Under the original penalty provision that affected the 14 states and DC with state-funded coverage for people regardless of immigration status, a reduction in the expansion match rate or “FMAP” could shift $92 billion in costs from the federal government to the states over the next ten years if the states maintained their programs. 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.

Under the latest version of the penalty, which includes states that have taken up the federal option to expand coverage for lawfully residing children and/or pregnant people in Medicaid and/or CHIP, a reduction in the expansion match rate could shift $153 billion in costs from the federal government to the 33 affected states and DC over the next ten years. State Medicaid spending increases across the states range from $30 billion in California to $300 million in Vermont or from 14% in Louisiana to 3% in Massachusetts, Vermont, New York, and Minnesota.

In addition, there could be large Medicaid spending and enrollment declines in states with “trigger” laws that require them to eliminate or make changes to ACA expansion coverage if federal funding reduces. Overall, 9 of the 33 states that would be affected by the latest version of the penalty have laws in place that automatically end expansion or require changes 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. These states include Arkansas, Iowa, Illinois, Montana, New Hampshire, New Mexico, North Carolina, Utah, and Virginia. Prior KFF analysis found that if states drop their ACA Medicaid expansion coverage altogether, coverage losses by FY 2034 could range from 61,000 people in New Hampshire to 840,000 people in Illinois or from 19% of all Medicaid enrollees in North Carolina to 45% in Virginia (Table 1). Federal Medicaid spending decreases ranged from $4 billion in New Hampshire to $96 billion in Illinois over a ten-year period. The prior analysis assumed a one-year prior implementation date (FY 2026 instead of FY 2027), which would impact 10-year spending estimates but not enrollment estimates. 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, and additional lawfully residing children and pregnant people could lose coverage if states eliminate their expansions for these groups. 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 2). 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. 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. The broadening of the FMAP penalty to include states that have taken up the federal option to expand coverage for lawfully residing children and/or pregnant women could lead to larger coverage losses if the additional 19 affected states eliminated coverage through this option. However, separate enrollment data are not available for these groups.

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.