Of all the fingertips and denunciations that come with the current federal shutdown, one of the most prominent factors is that the Trump administration has denounced democratic support for granting undocumented immigrants taxpayer-funded health insurance. The White House specifically called California, saying that the state exploiting legal “loop holes” to pay federal coverage, with other states following.
“Since being employed by several other states, California has used a vicious loophole to lower the federal matching fund used to provide Medicaid benefits to illegal immigrants,” the White House said Wednesday after a budget stalemate forced the US government to close.
The administration said the Working Family Tax Cuts Act, which comes into effect in October 2026, closes the loophole by prohibiting taxpayers’ money and providing medical insurance to undocumented immigrants and other non-citizens.
In the memo, the White House accused Congressional Democrats of repealing these policy reforms as a condition that they continue to run the government.
Izzy Gardon, a spokesman for Gov. Gavin Newsom, said there is nothing in the administration’s underlying claim that it found some sort of loophole that would allow California and other states to focus Medicaid money on non-citizens.
“This is wrong – CAs don’t do this,” Gurdon said in a one-line email to the LA Times.
Health policy experts agree. California has not exploited “loop holes,” said Adriana Ramos Yamoto, a senior policy analyst at the California Center for Budget & Policy, a nonprofit, nonpartisan organization studying inequality.
“The state has made a legal and transparent budget choice to invest in health insurance in its own dollars,” Ramos Yamamoto said in a statement in the Times. “These investments will improve health outcomes, strengthen our communities and reduce health costs in the long term.”
The issue is section 71,117 of the Republican-backed “One Big Beautiful Bill Act,” which places nearly $1 trillion cuts on federal Medicaid healthcare costs for low-income Americans over the next decade. This provision allows funding for non-federal lawmakers of Medicaid spending through multiple sources, including state general funds, healthcare taxes (or “provider taxes”), and local government funds.
The final results cite legal issues that appear to be nonexistent, at least not in California, analysts said.
“The so-called California loophole refers to a provision in the law that terminates the waiver of provider tax uniformity requirements, which has nothing to do with the use of federal funds for undocumented immigrant care.
“But the White House claims that California will use the money it earns from provider taxes to pay for undocumented immigrant care,” Tolbert said.
Alice Burns, another KFF analyst, adds that fact-checking the administration’s claims is even more difficult as there is no official data on how the state will spend the money collected from provider taxes. Additionally, California is one of several states that offer some degree of Medicaid compensation for all immigrants, regardless of status. And because California cannot legally reimburse the federal government for healthcare costs to people who are not in the country, those costs must be covered at the state level.
The White House memo argues that if Democrats succeed in repealing the Labor Family Tax Act provisions, the federal government must spend another $34.6 billion in taxpayer money.
According to KFF, this claim also misunderstood the facts.
“What we know is that the $35 billion savings referenced in the White House fact sheet refers to the federal government’s estimated savings. That is, the expected savings are not related to the health care of immigrants living illegally in the United States.
Political conflict aside, California’s approach to health insurance for low-income, undocumented immigrants is set to make a big difference thanks to the 2025-26 state budget provisions approved in June by the Democratic-led Congress and newspapers.
Starting January 1st, enrolling in Medi-Cal, the state’s Medicaid program, is an adult who “does not have satisfactory immigration status (SIS).” Anyone who already has this coverage can keep it and continue to renew their registration. Starting July 1st, Medi-Cal enrollees aged 19-59, undocumented and unpregnant Medi-Cal will be required to pay a monthly premium of $30 to maintain coverage.
The change drew criticism from several immigration rights groups, with the California Center for Immigration Policy describing the move as “discriminatory.”
“In light of the militarized mass immigrant attacks and arrests that create fear and chaos across California, we are disappointed that the governor and legislative leadership have chosen to adopt a state budget that will make the community even more vulnerable,” said the Center’s executive director.
All California qualifying for Medi-Cal are eligible for emergency medical and dental care, regardless of the immigration situation.
