The Trump administration is threatening to halt federal Medicaid funding to states it says are illegally using the safety-net insurance program to cover health care for undocumented immigrants. 

Under federal law, states are only allowed to use federal Medicaid funds for emergency medical services for people in the country illegally. But “some states have pushed the boundaries,” the CMS said in a press release on May 27 announcing that regulators would ramp up oversight in the area. 

That includes heightened evaluations of states’ quarterly Medicaid spending reports, reviewing states’ financial management systems and looking for ways to close loopholes in existing Medicaid eligibility rules, the CMS said. 

The agency also urged states to update their internal controls, eligibility systems and cost allocation policies to ensure Medicaid funds are being used for citizens only. 

“Any improper spending on noncitizens will be subject to recoupment of the federal share,” the CMS said. 

The announcement from the Trump administration is a warning shot across the bow for a handful of states that have used Medicaid funds to care for undocumented immigrants. 

Currently, 14 states and Washington, D.C. cover children regardless of their immigration status. Seven of those states plus D.C. cover at least some adults regardless of their immigration status. 

Those programs are not funded by federal Medicaid dollars. So, it’s unclear specifically what issue the Trump administration is trying to address. 

The CMS may be referring to a Medicaid financing loophole that allows states to draw down more federal funding by taxing providers. Critics argue the accounting maneuver unfairly inflates Washington’s Medicaid spending to the detriment of federal taxpayers. 

In a rule proposed by the CMS earlier in May to restrict the provider taxes, regulators said preventing the arrangements is necessary to stop states from spending increased federal dollars on benefits for illegal immigrants. 

“Some states have exploited these tax loopholes to take money from federal taxpayers and then simultaneously spent ‘state’ money on new benefits for illegal immigrants,” the CMS said in a fact sheet on the rule. 

On May 22, Republicans in the House passed a tax and policy megabill that would drastically reduce Medicaid through enacting new work reporting requirements for beneficiaries, among other changes to eligibility and funding. 

The bill’s Medicaid provisions would save the government $700 billion, but roughly 8 million people would become uninsured as a result, according to estimates from the Congressional Budget Office. 

The legislation would also restrict Medicaid for undocumented immigrants, including through cutting funding for states that allow immigrants without proof of citizenship to be on the safety-net insurance. Other policies would prevent a broad swath of immigrants from joining Medicare or receiving premium tax credits to purchase ACA coverage.