Are federal dollars paying for illegal immigrants’ health care?

OPINION:

With the federal government already shut down, Vice President J.D. Vance has raised a question that has received more heat than light: Are federal dollars paying for health care for undocumented immigrants?

The Democratic response to this question has been categorical: Federal funds don’t go to nonemergency care for illegal immigrants.

Yet that answer is not supported by the record. It is a lawyerly half-truth at best. As a middle ground, it is disingenuous. At its most blunt reading, it is simply untrue.

Federal Medicaid law is clear enough on paper. Noncitizens with “unsatisfactory immigration status” are not eligible for full-scope Medicaid. The exception is emergency Medicaid, a limited benefit that covers stabilization in the emergency room, labor and delivery, or other life-threatening crises. The statute does not allow federal matching funds to be applied to routine, nonemergency services for undocumented residents.

California has pushed the envelope. Its financing practices create a complicated loophole that is out of step with the spirit of the law. For years, the state has relied on a provider-tax arrangement known as the Managed Care Organization tax.

The mechanism works like this: California imposes a special tax on Medi-Cal health plans. The state collects that money and immediately channels it back by raising the monthly payments to those same plans. Because Medicaid is a federal-state partnership, every extra dollar the state pays to health plans triggers additional federal matching dollars. In practice, the plans are made whole, the state brings in more federal funds, and California’s general fund is freed up to provide full-scope Medi-Cal to the state’s undocumented residents.

This accounting trick means the extra funds don’t officially count as federal matching dollars. Although states are allowed to experiment with Medicaid innovations, including programs for undocumented people, California never could have afforded the expansion to this group without the federal funds.

This is not a partisan critique. In May 2024, the Biden administration’s inspector general issued an audit concluding that California had improperly claimed $52.7 million in federal Medicaid reimbursements by undercounting the share of managed care payments covering nonemergency services for undocumented immigrants. The inspector general recommended repayment and stronger oversight. The finding made explicit what had long been implicit: Federal Medicaid money was being drawn into the financing of nonemergency care for illegal immigrants.

One year later, this May, the Trump administration’s Centers for Medicare & Medicaid Services took the next step. CMS proposed a rule to eliminate the loophole, clearly exposing the fact that states were using these financing schemes to obtain federal dollars and then using their “freed” state funds for “new benefits for illegal immigrants.” Where the inspector general had identified the problem in an audit, CMS attempted to resolve it through regulation.

The sequence of these two actions is important. Democrats continue to state that “federal funds don’t support nonemergency care for undocumented immigrants.” However, the financing structures, formally called out last year, mean that, in practice, federal dollars have been underwriting this coverage for years. Federal money pays the bills, freeing states to fund an expansion of coverage that would be impossible without it.

The scale is substantial. California today provides full-scope Medi-Cal to nearly 1.6 million undocumented residents. That coverage would be fiscally impossible without the federal match dollars generated by the MCO tax scheme. This is not a marginal program operating at the edges of the budget. It is the central feature of Medi-Cal to finance health care for illegal immigrants.

Mr. Vance’s phrasing is blunt, but it’s closer to the truth than the official line Democrats have offered in response. Federal dollars are involved not at the claim level but at the structural level. Democrats are free to argue the merits of extending coverage to undocumented residents, but they cannot credibly deny the reality of how these programs are funded.

The government is shut down, and every taxpayer dollar is under scrutiny. Americans deserve candor about how those dollars are being spent. If we are to have an honest debate about immigration, health care and federal spending, that debate must be honest about the facts.

• Monique Yohanan, M.D., MPH, is a senior fellow at Independent Women. She previously served as a medical director for a California Medi-Cal plan. She is currently the chief medical officer at Adia Health.