Key Takeaways:

• The U.S. House-approved Republican budget bill includes penalties for states covering certain legal immigrants under Medicaid.
• States expanding Medicaid could face reduced federal funding for helping immigrants on humanitarian parole.
• Some states are considering cutting Medicaid for immigrants due to budget pressures.
• The federal bill aims to slash funding for states aiding immigrants, causing backlash from advocates.

How the Budget Bill Impacts Medicaid and Immigrants

A recent Republican budget bill passed by the U.S. House of Representatives includes a surprising twist: penalties for states that provide Medicaid to certain legal immigrants. This change could affect millions of people and has sparked concern among state officials and advocates.

The bill targets two groups: illegal immigrants and those on humanitarian parole. Humanitarian parole allows people to enter the U.S. temporarily due to emergencies or urgent humanitarian reasons. However, the bill would punish states that use Medicaid to cover these groups, even though they are in the country legally.

Under the bill, states that have expanded Medicaid and provide coverage to immigrants on humanitarian parole would lose federal funding. Currently, the federal government covers 90% of Medicaid costs for certain adults. If the bill passes, this would drop to 80%, forcing states to pay more. This same penalty applies to states that use their own money to cover illegal immigrants.

But here’s the catch: states that haven’t expanded Medicaid, like Florida, wouldn’t face penalties—even if they cover humanitarian parolees. This has critics calling the policy unfair and politically motivated.

Why Critics Call the Penalty Unfair

Experts say the bill unfairly punishes states that expanded Medicaid. “It’s wildly nonsensical and unfair,” said Leonardo Cuello, a Medicaid policy expert at Georgetown University. He argues that some non-expansion states, like Florida, also cover humanitarian parolees but avoid penalties. “It seems more about punishing expansion states than addressing immigrant coverage,” he added.

The bill has left state lawmakers anxious. West Virginia, for example, put a proposal on hold to end Medicaid expansion after being assured federal funding wouldn’t be cut. Now, the future is uncertain.

Cuello describes the penalty as “a gun to the head of the states,” forcing them into a tough choice: cut Medicaid for immigrants or pay more.

How States Are Reacting

The federal bill is still being debated in the Senate, where changes are likely. But states are already feeling the pressure.

Some are considering cutting Medicaid for immigrants due to rising costs. For example:

• Washington, D.C. plans to phase out a program covering adults regardless of immigration status, saving $457 million.
• Minnesota agreed to end coverage for illegal immigrants to avoid a government shutdown.
• Illinois will stop covering Medicaid for immigrants aged 42–64, citing a $1.6 billion cost over three years.

Advocates are fighting back. In Illinois, Sen. Graciela Guzmán, whose parents are refugees, warns that cutting coverage could force her constituents to cancel lifesaving treatments. “It’s not just a budget issue; it’s about people’s lives,” she said.

On the other hand, some governors, like Oregon’s Tina Kotek, defend covering immigrants. She argues that having everyone insured reduces costs for hospitals and keeps healthcare affordable for everyone.

The Impact on People’s Lives

There are about 1.3 million people in the U.S. on humanitarian parole, from countries like Afghanistan, Cuba, and Ukraine. While few qualify for Medicaid due to strict rules, states expanding Medicaid could still face penalties if they cover these individuals.

The Trump administration is also trying to end humanitarian parole for about 500,000 people from Cuba, Haiti, Nicaragua, and Venezuela, following a recent Supreme Court decision.

For those who rely on Medicaid, losing coverage could mean delaying essential care. Una Spenser, a spokesperson for Healthy Illinois, said, “We have time to fight for these families and ensure they keep their healthcare.”

What’s Next?

The federal budget bill won’t take effect until October 2027 if passed, giving states time to prepare. But the debate is far from over.

Advocates and lawmakers are urging Congress to reconsider the penalties. With 38 states and Washington, D.C., potentially affected, there’s growing pressure on the Senate to act.

Illegal immigration remains a divisive issue, but the inclusion of humanitarian parolees in the bill has drawn criticism from both sides. “Decision-makers shouldn’t be doing Trump’s work,” said Andrea Kovach of the Shriver Center on Poverty Law. “States should protect immigrant families who contribute to their communities.”

As the Senate debates the bill, one thing is clear: millions of lives—and billions of dollars—hang in the balance. Will Congress find a solution that balances budget concerns with compassion? Only time will tell.