Hawkeye Reporter

Senator Chuck Grassley (R-Iowa), a senior member and former chairman of the Senate Finance Committee, has called on federal health officials to investigate state practices that may allow taxpayer-funded Medicaid coverage for illegal immigrants. In two letters sent to the Centers for Medicare and Medicaid Services (CMS) and the Department of Health and Human Services (HHS) Acting Inspector General, Grassley expressed concerns over how certain states use provider taxes as an indirect method to fund these programs.

Grassley wrote, “[A]ccording to reports, Connecticut, Maine, Massachusetts, New Jersey, Rhode Island, Utah, and Vermont provide Medicaid coverage to income-eligible illegal immigrant children, while California, Colorado, District of Columbia, Illinois, New York, Oregon, and Washington provide coverage to all income-eligible illegal immigrants. All of those states have some kind of provider tax in place,” addressing CMS Administrator Mehmet Oz and HHS Acting Inspector General Juliet Hodgkins.

Federal law prohibits the use of federal Medicaid funds for covering illegal immigrants. However, provider taxes are used by states like California to generate additional federal matching dollars for their Medicaid programs. This process frees up state funds that can then be directed toward providing Medicaid coverage for illegal immigrants.

Last year Grassley contacted CMS and California Governor Gavin Newsom after an HHS Office of Inspector General report revealed that California had used an outdated calculation method in determining its federal reimbursement amounts. As a result, California received $52.7 million in improper federal payments; CMS confirmed this amount was repaid by the state.

In his recent correspondence with health officials this week Grassley stated: “[T]he HHS OIG has identified impermissible state provider tax programs in the past. Thus, I am requesting that the HHS OIG investigate whether any states are indirectly using federal funds through provider taxes, including but not limited to California’s Managed Care Organization (MCO) tax, to pay for Medicaid coverage for illegal immigrants.”

Grassley is also seeking a response from CMS regarding his August 2024 letter as well as information about which states have instituted new provider taxes during Fiscal Year 2025. He has asked CMS to specify what steps it has taken to ensure that no federal dollars are being used by states to subsidize Medicaid coverage for illegal immigrants.

On the Senate floor this week Grassley spoke about proposed reforms aimed at addressing these issues within the 2025 tax bill.

The full text of Grassley's letters can be found through links provided by his office.