Last week, as a government shutdown loomed, Vice President J. D. Vance posted on X that “Democrats are about to shutdown the government because they demand we fund healthcare for illegal aliens.” Vance was responding to Democrats’ insistence that Congress reverse spending cuts from this summer’s One Big Beautiful Bill Act.
Both parties have inflated a modest change into a shutdown fight. The new law only nicks at the margins of federal health-care financing for illegal immigrants while leaving the bulk of back-door subsidies intact.
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Employers often illegally hire immigrants to reduce their labor costs, typically not covering them with health insurance. American taxpayers have long resisted extending entitlements to those workers, but they pay indirectly for them to receive primary care and emergency medical services. These limited forms of assistance for mostly healthy young immigrants cost much less than, say, comprehensive benefits for seniors, but their expense has grown rapidly over recent years.
In 2023, 14 million illegal immigrants resided in the U.S., accounting for 5 percent of the population. They tended to be younger and less educated than other U.S. residents and often worked in low-wage jobs as farmworkers or long-term care aides. On an hourly basis, unauthorized immigrants earned 40 percent less than native workers, and 72 percent had annual household incomes under $40,000.
Relative to these wages, the average cost of employer-sponsored insurance ($8,951 for individuals and $25,572 for family coverage) is substantial. By hiring immigrant workers illegally, employers can also avoid the $5,010 penalty for failing to provide health insurance to Americans employed full-time. Those living in the country illegally often do informal, irregular contract work for small businesses, which rarely comes with health insurance.
U.S. voters oppose publicly funded health coverage for illegal residents by a 2-1 margin. Eligibility for Medicaid benefits is limited to U.S. citizens, immigrants who have been lawful permanent residents for more than five years, and refugees from select countries. Unauthorized immigrants are also ineligible to receive Medicare or federal subsidies to purchase health insurance from the individual market. Surveys suggest that 50 percent of illegally resident immigrants are uninsured, compared with 8 percent of U.S.-born residents.
Blue states, however, have developed workarounds to restrictions on federal funding for immigrant health care. Fourteen states supposedly use their own resources to fund comprehensive benefits for low-income children of illegal workers, while seven do so for adults. Beginning in 2024, California promised to cover all immigrants regardless of age or legal status. This effort relied heavily on indirect federal funding, laundered through the health-care industry: the state imposed a $5 billion tax on insurers covering Medicaid enrollees, for which it claimed additional federal matching funds.
States have also used waivers from Medicaid’s standard rules as a workaround. These states replace payments for medical providers to deliver specific services to individuals who are statutorily eligible for benefits, with broad grants of funding for hospital systems to serve loosely-defined “population health” objectives—often without regard to immigration status. In theory, this should not increase costs to federal taxpayers. In practice, the use of funds is hard to trace, and state claims usually go unchallenged.
Illegal immigrants can receive care indirectly in numerous ways. Since 1986, Medicare-participating hospitals have been required to screen and stabilize patients needing emergency care, for which they can charge for services rendered. The Affordable Care Act of 2010 requires tax-exempt hospitals to provide free and discounted care to low-income uninsured patients but doesn’t specify how much treatment must be provided. On average, hospitals limit bills to 20 percent of a patient’s income, without regard to immigration status. Some states require that “charity care” be made equally available to illegal immigrants.
In 2020, U.S. hospitals reported spending $43 billion on “uncompensated care” (mostly to uninsured patients), for which they obtained $49 billion in federal subsidies. On top of this, Medicaid specifically provided $9 billion in 2024 to finance “Emergency Services for Undocumented Aliens” (ESUA). Congress also made available $5 billion to support the delivery of primary care to the uninsured at 15,000 health clinics.
But these forms of assistance don’t go very far. All emergency care accounts for only 5 percent of U.S. health-care spending; primary care adds only a further 4 percentage points. Uncompensated care typically leaves the most expensive forms of medical care uncovered, such as consultations with specialist physicians, scheduled surgery, or drugs for major chronic conditions.
A study published by the Journal of the American Medical Association therefore claimed that “rather than depleting health care resources, immigrants appear to subsidize them.” The study notes that unauthorized immigrants often pay taxes but use less health care than natives because they are mostly young, able-bodied, uninsured, ineligible for entitlements, and fear deportation if they attempt to obtain uncompensated care. The study estimated that, whereas U.S.-born citizens consumed $6,511 in health care per capita in 2017, illegal immigrants each consumed only $1,075 (half through private insurance, half through uncompensated care) while contributing $5,493 in taxes and premiums.
These claims are likely substantially skewed. The legal status of immigrants was not directly recorded in the federal surveys used by the study but was imputed later by the researchers. They fail to consider that unauthorized immigrants in informal work arrangements with the shakiest immigration status are less likely to be recorded in surveys, less likely to be covered by private health insurance, and less likely to have their earnings fully declared to the Internal Revenue Service by employers. The study’s reported data imply that unauthorized immigrants spend more per capita on private insurance ($1,786) than do legally residing immigrants ($1,762).
Furthermore, expenditures have since greatly increased: States such as California and Minnesota have established broad healthcare entitlements for undocumented immigrants, while Medicaid ESUA spending rose more than sixfold from 2017 to 2024.
Both Democrats and Republicans greatly exaggerated the magnitude of the One Big Beautiful Bill Act’s health-care cuts. Though the initial House bill severely penalized blue states for using Medicaid to finance health benefits for illegal immigrants, the final legislation was more timid. Its main changes were to narrow slightly eligibility for federally funded health benefits for legal immigrants, while trimming the permitted federal matching rate for ESUA spending to align it with that for most traditional Medicaid beneficiaries. Both the capacity of hospitals to claim federal funding for general uncompensated care, and that of states to claim waivers to distribute Medicaid funding according to broad “population health” objectives, were largely undiminished.
Democrats have refused to support renewed funding for the federal government unless it cancels the cuts Congress enacted in the One Big Beautiful Bill Act. That bill does not greatly diminish the main sources of federal financing of health care for illegal immigrants—but that won’t stop either party from exaggerating the importance of this conflict.
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