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Half a Million Will Lose Affordable Health Coverage Due to Section 71109 of OBBBA

  • Writer: Mike Rawaan
    Mike Rawaan
  • Jun 25
  • 8 min read

June 25, 2026  |  Medicaid, CMS, State-Directed Payments (SDP)

Mike Rawaan, Founder and Managing Director


3. Section 71109 — Alien Medicaid Eligibility (June 18)


In the third piece of CMS’s sweeping June 2026 policy changes, we examine Section 71109 of the One Big Beautiful Bill Act (OBBBA), which strips away affordable healthcare coverage from refugees, asylees, humanitarian parolees, trafficking survivors, battered spouses and their children, Temporary Protected Status (TPS) holders, Special Immigrant Visa (SIV) holders, and individuals with deportation withheld.


On June 18, 2026, CMS published implementation guidance for Section 71109 of the One Big Beautiful Bill Act, which rewrites eligibility rules for federally funded Medicaid and CHIP. The effective date is October 1, 2026, and it’s the next major coverage cliff on the Medicaid calendar.


Beginning October 1, 2026, federal Medicaid and CHIP funding is restricted to four categories of non-citizens: U.S. lawful permanent residents (green card holders), Cuban and Haitian entrants, and individuals lawfully residing under a Compact of Free Association covering citizens of the Marshall Islands, Micronesia, and Palau. Everyone else is out. [11, 12]

 

Who Loses Coverage

The populations losing federal Medicaid and CHIP eligibility on October 1, 2026, are not undocumented immigrants. They are lawfully present in the United States. People who arrived through legal channels, many of whom have been paying taxes, working, and contributing to their communities for years. The distinction matters because it changes the policy and economic calculus entirely.


Groups losing federal Medicaid eligibility include: [12, 13]

Refugees - individuals granted refugee status after fleeing persecution, typically among the most thoroughly vetted immigration categories in the U.S. system

Asylees - individuals granted protection after demonstrating a credible fear of persecution in their home country

Humanitarian parolees  - including many Afghan and Ukrainian nationals admitted on emergency humanitarian grounds in recent years

Trafficking survivors - individuals granted T visas as victims of human trafficking

Battered spouses and children  - individuals protected under the Violence Against Women Act whose immigration status is tied to an abusive relationship

Temporary Protected Status (TPS) holders - nationals of countries experiencing ongoing armed conflict or environmental disasters

Special Immigrant Visa (SIV) holders - many of whom are Afghan and Iraqi nationals who assisted U.S. military and diplomatic operations

Individuals with deportation withheld - people who cannot be deported due to risk of harm but have no permanent status


These groups were previously treated as “qualified aliens” under the 1996 welfare reform statute and were eligible for Medicaid either immediately or after a five-year waiting period. Under Section 71109, that eligibility ends. [3]


CHIP:  Section 71109 applies equally to CHIP. Refugees, asylees, and parolees who have been present at least one year also lose CHIP eligibility on October 1, 2026. Only U.S. citizens, certain LPRs, Cuban and Haitian entrants, and COFA citizens remain eligible. [13]

 

The Scale of Coverage Loss

The numbers are significant, and they represent real people, not abstract policy categories.

CBO estimates Section 71109 will cause approximately 100,000 people to lose Medicaid coverage and another 100,000 to lose Medicare coverage by 2034. An additional 300,000 lawfully present immigrants currently in the five-year Medicaid waiting period will also lose access. Combined with marketplace and premium tax credit restrictions, CBO projects more than 1.4 million lawfully present immigrants will lose access to affordable health coverage due to OBBBA’s immigration-related provisions. [11, 16]


Across all OBBBA health provisions, CBO projects 9.1 million more Americans will be uninsured by FY2034, with 7.8 million of those losses attributable to the Medicaid provisions alone. The American Medical Association estimates the total at 11.8 million people. [8, 10]


The state-level picture is already visible. In California, more than 86,000 immigrants without legal status left or were denied Medi-Cal in just January and February 2026  exiting at a rate six times higher than other enrollees. The program had peaked at 1.48 million enrollees in May 2025. The decline started immediately after OBBBA passed. [14]


In New York City, an estimated 725,000 Medicaid enrollees are projected to lose coverage through the combination of work requirements and more frequent recertifications. Approximately 450,000 New Yorkers, including 230,000 in New York City, are expected to lose access to no-cost care by July 2026. [22]

 

The Risk Pool Problem: Why Cutting Healthier Members Costs Everyone More

Here’s the economic reality that doesn’t make it into the CBO savings projections: removing lower-cost members from a shared insurance pool doesn’t reduce costs proportionally. It concentrates them.


Medicaid is a subsidized risk pool. The program works because healthier, lower-utilization members who pay in through taxes and generate a federal match offset the costs of sicker, higher-utilization members who remain enrolled. When you remove a large block of lower-cost enrollees, you don’t reduce spending by their proportional share. You raise the per-member cost for everyone who stays.


The data on immigrant health utilization makes this explicit. KFF analysis shows that immigrants have substantially lower per capita healthcare costs than U.S.-born citizens, $4,875 per year versus $7,277 for U.S.-born individuals. Immigrants use less care, generate fewer claims, and place less strain on the system. They are, in actuarial terms, a favorable risk population. [18]

The pool math:  Remove the members who cost $4,875/year. Keep the members who cost $7,277/year. Federal match revenue drops. Per-member costs rise. The program becomes more expensive to run per enrollee, exactly the opposite of what a savings-driven policy intends.

This is not the classic scenario where sicker people drive out healthier ones through premium increases, but a policy where regulatory action removes the lower-cost population and leaves the higher-cost population behind. The fiscal consequence is the same: the risk pool deteriorates.


McKinsey projects that Medicaid margins will continue to erode due to adverse selection and member disenrollment from policy changes through 2027–2028. General acute hospital EBITDA margins face mounting pressure, with annual EBITDA growth from 2024 to 2027 estimated at just 1% across the sector. [19]

 

The Emergency Care Compounding Effect

Section 71110, the companion provision, reduces the enhanced FMAP for emergency Medicaid services provided to immigrants from 90% to each state’s standard FMAP rate, effective October 1, 2026. CBO projects this is actually the larger fiscal driver of the two provisions and will save $28 billion over ten years. [1]


The savings accounting ignores what happens next. Under EMTALA, hospitals are legally required to provide stabilizing emergency care regardless of insurance or immigration status. That obligation doesn’t disappear when Medicaid eligibility and the reimbursement do.


People who lose Medicaid coverage don’t stop getting sick. They stop getting preventive care, primary care, and disease management, and the lower-cost interventions that keep chronic conditions from escalating. They delay care until conditions worsen. They arrive in emergency rooms sicker, requiring more intensive and more expensive treatment. The hospital absorbs that cost as uncompensated care. [24, 26]


The Commonwealth Fund is direct on this: uninsured people skip preventive care, delay routine treatment, and end up in emergency departments needing urgent intervention. This increases ER wait times for all patients and drives up uncompensated care volumes across the board. [26]


The long-term care workforce compounds the problem. More than one in four long-term care workers are immigrants. KFF survey data finds that 13% of immigrants have avoided going to work since January 2025, due to immigration enforcement concerns. That rate rises to 40% among those likely undocumented. In a sector where Medicaid is the dominant payer and workforce shortages are already severe, that chilling effect has direct operational consequences. [25]

 

How States Are Responding

States face a binary choice: absorb the coverage gap with state funds, or allow it. Most don’t have the fiscal room to fully absorb it, and the states that expanded coverage most aggressively are now the most exposed.


California is implementing a phased rollback of Medi-Cal: enrollment for undocumented adults 19+ closed in January 2026; dental benefits end in July 2026; and a $30 monthly premium takes effect for adults ages 19–59 in July 2027. Governor Newsom’s budget also proposes applying OBBBA work requirements and six-month renewal cycles to the state-funded program. [17, 20]


New Mexico allocated $40 million in state funds through HB 2 to cover lawfully present immigrant Medicaid enrollees who are no longer federally eligible. Colorado is using a Section 1332 waiver through its OmniSalud program to extend marketplace coverage with $0 premiums to residents regardless of immigration status. [17]


States that cannot or choose not to fill the gap will soon realize the downstream costs in uncompensated care, emergency utilization, and workforce disruption, which will materialize on a delayed schedule that won’t appear in CBO’s ten-year savings window.

 

What Executives Need to Do  Now


Hospital and Health System CFOs

  • Model your uncompensated care exposure under two scenarios: full Section 71109 implementation with no state backfill, and partial state coverage. The FMAP reduction in Section 71110 means even emergency Medicaid reimbursement shrinks. Understand your net revenue at risk before October 1.

  • Assess your charity care and financial assistance policies now. The population losing Medicaid eligibility will not disappear from your ERs and clinics. They will arrive uninsured. Your financial counseling and charity care application infrastructure needs to absorb the volume.

  • •Safety-net and rural hospitals face disproportionate exposure. If immigrant populations represent a meaningful share of your payer mix, this is a material financial event  not a policy footnote.


Medicaid Managed Care Plan Executives

  • Identify affected members now. Flag members whose eligibility may be affected by Section 71109. Build outreach protocols to notify them in advance and connect them to available state-funded alternatives.

  • Reassess your actuarial assumptions for the remaining risk pool. If you are losing lower-cost immigrant enrollees, your remaining book is now higher-acuity by definition. Document the impact for your next capitation rate negotiation.

  • Model the PMPM impact. Per Member Per Month costs for the remaining population will rise as lower-utilization members exit. That math needs to be in front of your finance team and your state Medicaid agency before the 2027 rates are set.


State Medicaid Directors

  • Make the state-funded coverage decision before September 1. If your state intends to use state funds to cover children and pregnant women who are lawfully present but no longer federally eligible, you need systems changes, appropriations, and eligibility worker training in place before October 1. You cannot make this decision in October!

  • Stand up member notification and transition support now. Affected enrollees are entitled to advance notice and appeal rights before termination. Build the communication campaign, call center capacity, and transition counseling resources before the deadline.

  • Engage your actuarial team on the risk pool shift. The enrollment composition of your program is changing. Your managed care capitation rates should reflect the actuarial impact of removing lower-utilization members.


Healthcare Investors and Portfolio Company Boards

  • Safety-net hospitals, FQHC networks, and community health centers are the most exposed providers. If you have portfolio exposure in these segments, conduct a rapid, uncompensated care sensitivity analysis against the October 1 implementation date.

  • The $28 billion FMAP reduction in Section 71110 is real money leaving the hospital reimbursement system. Model how much flows through your portfolio companies’ payer mix.

  • Watch state-funded coverage decisions. States that step in  California, New Mexico, and Colorado partially insulate their provider markets. States that don’t create provider-level revenue risk. Map your portfolio against state-level response strategies.

 

Sources and Citations

[8] Congressional Research Service. "Health Coverage Provisions in One Big Beautiful Bill Act (H.R. 1)." https://www.congress.gov/crs-product/R48569

[10] American Medical Association. "Changes to Medicaid, the ACA and other key provisions of OBBBA." July 3, 2025. https://www.ama-assn.org/health-care-advocacy/federal-advocacy/changes-medicaid-aca-and-other-key-provisions-one-big

[11] Commonwealth Fund. "What Recent Policy Changes Mean for Immigrant Health Coverage." October 15, 2025. https://www.commonwealthfund.org/publications/explainer/2025/oct/what-recent-policy-changes-mean-immigrant-health-coverage

[12] Medical Daily. "H.R. 1 Ends Medicaid on October 1, 2026 and Medicare on January 2027 for Hundreds of Thousands of Legal Immigrants." https://www.medicaldaily.com/immigrants-lose-medicaid-medicare-october-2026-january-2027-hr1-475767

[13] Global Refuge. "OBBBA FAQ on Health Care." July 9, 2025. https://www.globalrefuge.org/wp-content/uploads/2025/07/OBBBA-FAQ-on-health-care.pdf

[14] Public Health Watch. "When New California Laws Kicked In, Thousands of Immigrants Dropped or Lost Medicaid Coverage." May 26, 2026. https://publichealthwatch.org/2026/05/26/california-immigrants-medicaid-healthcare-uninsured/

[16] Georgetown CCF. "New Immigrant Eligibility Restrictions Coming to Federally-Funded Health Coverage." October 3, 2025. https://ccf.georgetown.edu/2025/10/01/new-immigrant-eligibility-restrictions-coming-to-federally-funded-health-coverage/

[17] KFF. "Key Facts on Health Coverage of Immigrants." June 2026. https://www.kff.org/racial-equity-and-health-policy/key-facts-on-health-coverage-of-immigrants/

[18] KFF. "5 Key Facts About Immigrants and Medicaid." August 12, 2025. https://www.kff.org/racial-equity-and-health-policy/5-key-facts-about-immigrants-and-medicaid/

[19] McKinsey & Company. "What to Expect in US Healthcare in 2026 and Beyond." January 12, 2026. https://www.mckinsey.com/industries/healthcare/our-insights/what-to-expect-in-us-healthcare

[20] California Health Care Foundation. "How Massive Federal Cuts Will Create Unprecedented Challenges for Medi-Cal Patients and Providers." March 27, 2026. https://www.chcf.org/resource/how-massive-federal-cuts-will-create-unprecedented-challenges-medi-cal-patients-providers/

[24] U.S. News & World Report. "What's Changing with Medicaid Eligibility." January 7, 2026. https://health.usnews.com/wellness/articles/whats-changing-with-medicaid-eligibility

[25] KFF. "Medicaid: What to Watch in 2026." January 23, 2026. https://www.kff.org/medicaid/medicaid-what-to-watch-in-2026/

[26] Commonwealth Fund. "What Recent Policy Changes Mean for Immigrant Health Coverage." October 15, 2025. https://www.commonwealthfund.org/publications/explainer/2025/oct/what-recent-policy-changes-mean-immigrant-health-coverage

© 2026 Covalence Health, LLC. All rights reserved. This brief is intended for informational purposes only and does not constitute legal or regulatory advice.

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