Democratic Government Funding Proposal Would Increase Federal Health Care Spending on Noncitizens and Unlawful Immigrants by Nearly $200 Billion

Senate Democrats have put forward an alternative continuing resolution (CR) to fund the government for a month. The deeply reckless bill would increase federal health care spending by $1.5 trillion and provide a massive taxpayer-funded windfall to health insurers. The result will be higher health care costs for Americans. What’s attracted the most attention so far are the provisions that would significantly increase federal spending on health care services received by unauthorized immigrants and non-citizens.

On October 1, the White House released a memo on how the One Big Beautiful Bill (OBBB) reconciliation package would reduce spending on federally subsidized health care benefits for unauthorized immigrants and non-citizens. The memo correctly notes that repealing those provisions of the OBBB would “result in the federal government spending nearly $200 billion on healthcare for illegal immigrants and non-citizens over the next decade.”

Those estimates are from the Congressional Budget Office’s (CBO) analysis of the OBBB’s immigration-related health provisions and the projected federal savings. So, reversing them would mean roughly $200 billion in higher spending on unauthorized immigrants and non-citizens over the next decade. Along with Ryan Long, I coauthored a policy brief that went into detail on the immigration-related health provisions of the OBBB. Below, I discuss four significant policy reforms in the OBBB that the Democratic alternative would repeal.

Massive and Unfair Funding for Unauthorized Immigrants’ Use of Emergency Services

Starting October 1, 2026, section 71110 of the OBBB reduces the federal reimbursement for Medicaid emergency services provided to unauthorized immigrants from 90 percent (Obamacare’s Medicaid expansion rate) to the lower rate that the state receives for traditional Medicaid enrollees like children, pregnant mothers, seniors, and individuals with disabilities. This provision ensures the federal share of emergency services spending on unauthorized immigrants does not exceed that for citizens. Reinstating the 90 percent reimbursement rate would result in policy that favors unauthorized immigrants over U.S. citizens.

The “California Loophole”

In some states (notably California), providers and states use accounting schemes to channel federal funds to provide coverage to unauthorized immigrants or to cross-subsidize broader state-only health programs. These legalized money laundering schemes mean that states obtain federal funds without any actual state contributions. The Biden administration approved a scheme in California, which we wrote about with the Economic Policy Innovation Center in the spring, that resulted in California obtaining $19 billion in federal funds without any state contribution. Shortly after receiving that influx of federal money, California expanded Medicaid to unauthorized immigrants—effectively using increased federal money to circumvent the statutory prohibition on federal reimbursement for noneligible immigrants.

OBBB section 71117 tightened the rules around these money laundering schemes—making California’s scheme unlawful. Removing this guardrail positions states to reinstate their money-laundering machinery to divert federal Medicaid dollars into unauthorized immigrant care or unrelated programs.

ACA Subsidies for Noncitizens Below the Poverty Level

Under pre-OBBB rules, certain noncitizens in the Medicaid waiting period (e.g. lawful permanent residents, parolees, conditional entrants) could receive Obamacare subsidies for exchange plans, even if their income was below the eligibility threshold (the federal poverty level (FPL) in non-expansion states and 138 percent of the FPL in Medicaid expansion states). This five-year waiting period was intended to encourage independence so that new immigrants would work and pay taxes before they partake in welfare programs. The ACA made categories of noncitizens eligible for subsidies if their income was below the FPL—a benefit not available to citizens in the same income bracket.

Section 71302 of the OBBB closed this loophole and eliminated subsidy eligibility for noncitizens whose income is below the FPL in non-expansion states and below 138 percent of FPL in Medicaid expansion states. This effectively restores the intent of the Medicaid waiting list. Repealing this provision, as Democrats propose, would restore an inequity in which noncitizens would get premium subsidies unavailable to U.S. citizens.

Blanket Coverage for Unauthorized Immigrants and Noncitizens

In sections 71109 and 71201, the OBBB restricts federal subsidies (Medicaid, CHIP, Medicare, and Obamacare) to only citizens, certain lawful permanent residents, Cuban and Haitian immigrants, and those under Compacts of Free Association. It disallows federal payments through these programs for refugees, parolees, asylees, and unauthorized immigrants, except for emergency care. Since the Biden administration loosened border enforcement, it made it easier for unauthorized immigrants to stay in the U.S. under the parolee and asylee designations. Specifically with respect to Obamacare, OBBB prohibits subsidies for individuals not meeting the “eligible alien” definition.

Removing these eligibility restrictions would open the door for greater abuse and exploitation of existing alien designations. That opens the door to a massive expansion of federally subsidized health coverage to populations not subject to the same accountability or legal obligations as citizens.

In Sum

The proposal to reverse the OBBB’s immigration reforms would expand federal spending on unauthorized immigrants and noncitizens and shift resources away from U.S. citizens. Furthermore, by repealing the OBBB’s reforms, the proposal would also:

• Repeal work and community-engagement requirements on able-bodied, working-age adults in the Medicaid program. These requirements encourage greater independence and help states prioritize Medicaid for the most vulnerable, such as children, pregnant women, and people with disabilities.
• Fuel corporate welfare by repealing the OBBB’s key reforms that reduce states’ ability to engage in money-laundering
• Continue massive improper and fraudulent enrollment in Medicaid and the ACA by eliminating common-sense program integrity measures. These provisions would help end fraud schemes that hurt consumers, making them liable for thousands of dollars without their knowledge.
• Repeal pro-consumer provisions that give workers greater control over their own health care dollars.

The OBBB’s health policy reforms represent the most important entitlement reforms in at least a generation. Repealing them would lead to further federal deficits and interest costs, weaken integrity in Medicaid and Obamacare, and grow public resentment over benefit allocation.