Des Moines Sun

Senator Chuck Grassley (R-Iowa), a senior member and former chairman of the Senate Finance Committee, has called on federal health authorities to investigate state practices regarding Medicaid coverage for undocumented immigrants. Grassley sent letters to both the Centers for Medicare and Medicaid Services (CMS) and the Department of Health and Human Services (HHS) Acting Inspector General.

In his communication, Grassley detailed how certain states, including California, use provider taxes as an indirect method to fund Medicaid coverage for undocumented immigrants. He described this as an abuse of the federal Medicaid matching funds process.

According to Grassley’s letter: “[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.” The letter was addressed to CMS Administrator Mehmet Oz and HHS Acting Inspector General Juliet Hodgkins.

Federal law does not allow states to use federal Medicaid funds for undocumented immigrants. However, provider taxes can be used by states as a strategy to cross-subsidize these programs by freeing up other state resources.

Last year Grassley contacted CMS and California Governor Gavin Newsom after an HHS Office of Inspector General report found that California had received $52.7 million in inappropriate federal payments due to outdated calculation methods. CMS confirmed that California repaid the amount.

Grassley's recent letters request action from federal officials “to determine the scope of the problem.” In his correspondence with HHS OIG he 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 inquiry about new provider taxes instituted by states in Fiscal Year 2025. He wants details on steps taken by CMS to ensure that federal dollars are not used for these purposes.

On the Senate floor Grassley spoke about proposed Medicaid reforms included in the 2025 tax bill.