Oregon Rejects Federal Claims on Medicaid for Undocumented Immigrants

(OREGON) Oregon has formally rejected federal claims that it improperly spent Medicaid funds on undocumented immigrants, saying its non-citizen coverage under the Oregon Health Plan is paid for entirely with state dollars and complies with federal law. The pushback comes after federal audits identified Oregon as one of six jurisdictions allegedly using federal Medicaid money for care provided to undocumented immigrants, and as congressional Republicans advance a proposal to penalize states that insure people without legal status.

State officials say the facts are clear: Healthier Oregon, the state-funded expansion of the Oregon Health Plan that covers non-citizens who meet income and residency rules, serves about 100,000 people without drawing on federal Medicaid funds.

“The state pays for about 100,000 immigrants to be on the Oregon Health Plan using state funds only and no federal dollars,” according to the Oregon Health Authority: Oregon Health Plan.

Emma Sandoe, who directs the Oregon Health Authority’s Medicaid division, said the federal assertions are wrong and described Oregon’s approach as “antithetical to the current federal proposal,” arguing the state built Healthier Oregon to cut barriers to care for vulnerable residents while following federal funding rules.

At stake is whether Oregon must scale back or end Healthier Oregon to avoid steep financial penalties envisioned in Congress. A draft bill under discussion would reduce federal matching dollars for Medicaid in states that do not rescind programs extending comprehensive coverage to undocumented immigrants. Oregon budget officials estimate the hit at over $1 billion in the 2027–2029 biennium and more than $7 billion over 10 years if the measure becomes law, an amount that would ripple through the state’s entire health budget, which is roughly $1.5 billion for 2025.

The Oregon Health Plan, the state’s Medicaid program, is jointly financed by state and federal governments for eligible U.S. citizens and certain lawfully present non-citizens. Healthier Oregon sits alongside it, but officials stress it is a separate, state-funded commitment that does not tap federal Medicaid money for those who are not federally eligible. That distinction is central to Oregon’s rebuttal of the audits and the congressional push. Federal law already bars the use of federal Medicaid funds for undocumented immigrants, which Oregon officials say is exactly why they structured Healthier Oregon to rely on state appropriations. National advocates have backed that reading.

“Does the law close a ‘loophole’ allowing coverage of undocumented immigrants? … No, it just cuts Medicaid funding for states. Under federal law, undocumented immigrants are not eligible for Medicaid,” according to the National Immigration Law Center.

The Energy and Commerce Committee in the U.S. House, chaired by Brett Guthrie, is a key venue for the proposal. Oregon’s delegation has watched closely, with attention on Rep. Cliff Bentz, who represents the state’s 2nd Congressional District, as implications for state finances and health systems sharpen. Oregon leaders have begun quantifying what the loss of federal matching funds would mean in practice: either cut off coverage for roughly 100,000 people in Healthier Oregon or absorb a drop in federal dollars so large it would force reductions elsewhere in the Oregon Health Plan or in other health programs that support hospitals, clinics, and behavioral health providers.

Sandoe’s response captures the state’s position that the federal audits misread Oregon’s funding flows and that the legislative proposal punishes states for investing their own dollars in public health coverage. By labeling Oregon’s approach “antithetical to the current federal proposal,” she underscored a policy clash rather than a factual dispute about eligibility rules. Former Gov. John Kitzhaber, a physician who helped design earlier iterations of the Oregon Health Plan, added a moral dimension, criticizing the congressional proposals as “punitive” and “immoral,” a view shared by health administrators who warn of downstream costs if coverage is stripped.

Hospitals and insurers are bracing for the practical fallout if the federal measure advances and states scale back coverage. Oregon officials and health experts warn that eliminating Healthier Oregon would push thousands back into emergency rooms for uncompensated care, costs that hospitals would shift into higher charges and that insurers would spread across premiums. Those increases, they say, would land on employers, families buying coverage on the individual market, and even on state agencies that purchase health insurance for public employees, multiplying the effect of any federal clawback.

The numbers provide the starkest picture. Healthier Oregon covers about 100,000 people, a population that skews low-income and includes long-time residents who work in agriculture, food processing, care work, and construction. That program sits within a health budget aimed at balancing rising costs, behavioral health demands, and workforce shortages. Oregon estimates that cutting off undocumented immigrants from state-funded coverage would not erase costs but shift them to emergency care and late-stage treatment, which are more expensive and harder to manage. If Congress reduces federal matching funds instead, the state faces the prospect of filling a gap that exceeds $1 billion in a single two-year budget cycle, growing to more than $7 billion over a decade.

The audits that sparked the fight labeled Oregon among six jurisdictions where federal investigators said Medicaid funds were spent on care for people who are not eligible under federal law. Oregon flatly disputes that conclusion, saying its accounting separates state-funded claims for Healthier Oregon enrollees from federally matched Medicaid claims for eligible residents. State officials say they provided documentation to that effect and argue the audit results conflate parallel systems. The state’s assertion of compliance aligns with the federal statute, which excludes undocumented immigrants from Medicaid but does not prohibit states from creating and funding their own coverage programs with state money.

Republican lawmakers pushing the bill describe it as a way to enforce federal intent by disincentivizing state-funded coverage for undocumented immigrants. Oregon counters that the measure would not change underlying eligibility rules but would slash funds tied to care for citizens and legally present residents, effectively punishing states for spending their own money on separate programs.

“Does the law close a ‘loophole’ allowing coverage of undocumented immigrants? … No, it just cuts Medicaid funding for states. Under federal law, undocumented immigrants are not eligible for Medicaid,” the National Immigration Law Center said, framing the debate less as a legal question than a policy choice about state flexibility and federal leverage.

For families enrolled in Healthier Oregon, the stakes are direct: primary care, prescription drugs, prenatal services, and behavioral health support that the Oregon Health Plan provides through Healthier Oregon would be at risk. Providers say continuity of care for chronic conditions like diabetes and asthma would falter, and county health departments warn that vaccine access and preventive screenings would decline. State administrators stress they built Healthier Oregon to move people out of crisis care and into regular clinics, lowering long-term costs and improving health outcomes across communities. Taking away that coverage, they argue, would reverse those gains while increasing costs that ultimately show up elsewhere.

The proposed bill also includes a federal work requirement slated to take effect in January 2029, a policy addition Oregon officials say would raise administrative burdens without addressing the core dispute over state-funded coverage for undocumented immigrants. Adding paperwork and eligibility hurdles, they argue, would complicate operations for the Oregon Health Plan, strain county agencies, and risk disenrollment for eligible citizens due to procedural errors, a problem states have faced during Medicaid redeterminations in recent years.

Oregon’s political leaders, including health administrators and former officials such as Kitzhaber, have rallied around the claim that the state has followed federal law while choosing to invest its own money in Healthier Oregon. They frame the audit findings and legislative threat as attempts to override state policy decisions in an area—public health—where Oregon has long experimented with coordinated care, value-based payments, and community-driven services. The Oregon Health Authority says it will keep pressing its case in Washington, D.C., and with national health groups, while urging the state’s congressional delegation to block any measure that ties federal matching dollars to the elimination of state-funded coverage for non-citizens.

As the debate moves through the House, Oregon officials say they will keep paying for Healthier Oregon’s 100,000 enrollees with state funds and expect federal agencies to acknowledge the separation between those dollars and traditional Medicaid. They have warned hospitals and insurers to plan for uncertainty in case the federal proposal advances, even as they prepare to defend the program’s legal footing and public health value. The state argues that the choice presented by Congress—drop coverage for undocumented immigrants or absorb deep cuts to federal Medicaid matching funds—would push Oregon to either abandon a decade of work expanding access or cut elsewhere in its health system, neither of which it views as acceptable.

The Oregon Health Plan remains the linchpin of coverage for low-income residents, and Healthier Oregon is the state-funded extension that brings non-citizens into the same network of providers. Oregon has staked out a firm position that it can keep both running without violating federal law. Whether Congress forces a confrontation over financing will determine if that balance holds. For now, state officials repeat the point at the heart of their case:

“The state pays for about 100,000 immigrants to be on the Oregon Health Plan using state funds only and no federal dollars.”

More information on eligibility and benefits is available from the Oregon Health Authority: Oregon Health Plan.