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.

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

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.

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, 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.

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.