Illegal Alien Medi-Cal and the Big Beautiful Bill

Thanks to the Senate Parliamentarian, California will be spared the largest fiscal impact of the Big Beautiful Bill’s Medicaid reforms, but the state’s ability to shift the cost of undocumented immigrant Medi-Cal coverage onto federal taxpayers will nonetheless face limits.

Between 2016 and 2024, the California legislature added groups of illegal aliens to the Medi-Cal rolls based on age, starting with children and finishing with adults aged 26-49. As of today, all undocumented individuals with low (reported) income qualify for Medi-Cal benefits. As of March 2025, the number of such beneficiaries reached 1.657 million. Given the Trump Administration’s crackdown on illegal immigration, it is possible that this number has now peaked as some beneficiaries are deported or leave on their own.

The House version of the Big Beautiful Bill would have penalized California and other states offering health benefits to illegal aliens. Such states would have received a lower federal match for beneficiaries in the Obamacare expansion group. Today, the federal government covers 90% of medical costs for individuals in this group, but the House bill would have reduced this rate to 80% for California and several other states providing illegal alien health benefits. With the expansion group including about five million individuals receiving Medi-Cal benefits of about $7000 each, the penalty would have amounted to $3.5 billion annually.

But the provision was removed from the Senate version of the budget reconciliation measure after Senate Parliamentarian Elizabeth MacDonough determined that it did not meet Byrd Rule requirements. Under this rule, the Senate can only pass a budget measure with a simple majority vote if it produces a non-incidental change to the federal budget. Apparently, she concluded that the penalty was inserted for policy reasons rather than simply to save money.

Another aspect of the bill that did survive parliamentary scrutiny may impact California, however. Although the federal government theoretically denies Medicaid coverage to illegal aliens, California has been taking advantage of a loophole that the reconciliation measure partially closes.

When illegal aliens without private insurance visit an emergency room, the federal government splits the cost with the state. It appears that California has been trying to get the federal government to pay 90% of the ER cost in some cases. The Big Beautiful Bill limits the federal share to 50%. The budgetary impact of this limitation remains to be seen. Unfortunately, data transparency in the state Medi-Cal program is limited, so assessing fiscal effects of policy changes is unnecessarily difficult.

Marc Joffe is President of the Contra Costa Taxpayers Association and a visiting fellow at California Policy Center.