State lawmakers are divided over proposal known as “Coverage for All,” which would allow low-income undocumented immigrants to obtain free health insurance through the state-run Essential Plan.

The state Senate approved the measure on June 8, but the bill did not pass the Assembly. Advocates of the proposal insist that it would require little or no funding from the state, yet Governor Hochul has raised concerns about affordability. Advocates are pressing the Assembly to consider the bill when it reconvenes this month to wrap up its session.

A closer look at the legal framework and unusual financing of the Essential Plan provides perspective for the debate.

Recently published projections from the Health Department make clear that the Essential Plan is running a surplus big enough to cover hundreds of thousands of immigrants in the short term (see table). However, there are valid reasons for lawmakers to be cautious about financial uncertainties in the future.

Launched in 2015, the Essential Plan is New York's version of a basic health program, an optional benefit under the Affordable Care Act. Under this provision, states can opt to establish a government-sponsored insurance plan for people up to 200 percent of the poverty level, with the federal government chipping in aid equal to 95 percent of the ACA tax credits and other subsidies that enrollees otherwise would have received for buying commercial coverage.

With premiums of no more than $20 a month – which were recently eliminated – the plan has proven to be popular, and enrollment soared to more than 1.1 million during the pandemic. 

Unexpectedly, the Essential Plan's federal funding has turned out to be more than enough to pay the full cost of the program's coverage. This has resulted in annual surpluses approaching $2 billion per year and an accumulated surplus of about $10 billion held in a special trust fund.

The program has been a windfall for state finances in another way – because it is open to a subset of immigrants known as the Aliessa population. These are people who are in the country lawfully but not eligible for federal Medicaid funding – often because they have held a green care for less than five years.

Under a state court ruling known as Aliessa v. Novello, the state was obliged to pay the full price of Medicaid coverage for immigrants in the country lawfully but federally ineligible.

With passage of the ACA, however, most of this lawful immigrant population became eligible for federal insurance subsidies – and, by extension, for the Essential Plan. Shifting Aliessa immigrants to the Essential Plan from Medicaid has saved the state hundreds of millions of dollars per year.

Unlawful or undocumented immigrants are normally ineligible for federal help under the ACA. However, the Biden administration has used an ACA waiver program to effectively bypass that restriction. States such as Colorado and Washington have established state-operated insurance plans that are open to a mix of citizens and immigrants – and federal officials have agreed to help finance those programs with money that otherwise would have subsidized the citizen portion of the enrollment.

In a recent letter to New York State Senate Health Chairman Gustavo Rivera, D-Bronx, the director of the Centers for Medicare & Medicaid Services, Chiquita Brooks-LaSure, signaled that her agency would be open to a similar waiver involving Essential Plan funds.

She said the money already in the plan's trust fund must only be used for coverage of ACA eligible enrollees, but then added:

We note, however, that there is no prohibition on using section 1332 waiver pass-through funding to fund state affordability programs (such as state subsidies) under the waiver plan for health insurance coverage for individuals not lawfully present, so long as the waiver plan meets the section 1332 statutory guardrails.

Technically, under the Coverage for All proposal, New York would no longer be operating a basic health program. Instead, it would ask the federal government to provide the money it already has been – making the waiver budget neutral – and then use that pot of money to cover a broader group of enrollees, including undocumented immigrants.

The Essential Plan's hefty surplus would make it possible for New York to cover many more people with the federal funding it currently receives – as is clear from projections in a separate waiver application submitted this year by the Health Department. (This application sought to expand eligibility from 200 percent to 250 percent of the federal poverty level, but did not include undocumented immigrants.)

As shown in the chart, New York expects to receive $9.4 billion in federal funding to operate the Essential Plan in 2024, but to spend only $7.4 billion on coverage. At the currently per-enrollee cost of just under $7,000, the resulting surplus of almost $2 billion would be enough to cover an additional 280,000 people.

Experts estimate there are 245,000 undocumented immigrants in New York who would qualify under Coverage for All, only some of whom would be likely to apply. This math suggests that an approved waiver program could absorb the undocumented population at no extra cost to the state – at least in the short term. 

The state also stands to save money on "emergency Medicaid," which provides back-stop coverage for short-term, low-income immigrants in need of emergency medical care.

That said, the factors making Coverage for All appear financially viable could shift in unpredictable ways over time.

There's no good reason that a program like the Essential Plan should be running a surplus, and Congress could decide to change the ACA formula to scale back its funding. A future administration could reverse policy on waivers and bar any use of federal funds for undocumented immigrants.

Given the rising cost of health care generally, the expenses for operating the Essential Plan could escalate faster than its funding. The population of undocumented immigrants is inherently hard to measure – and might well be rising, given the recent surge in border crossings – which could lead to higher-than-expected enrollment.

At a news conference on Tuesday, Hochul expressed concern about the financial risk to the state:

It's not just saying that $2 billion will be there forever, because it won't be. If the federal government wishes to give us more to complement that, supplement that, give us $13 billion, that makes it a lot easier on the state. But I have to look at everything holistically, and the impact on our state finances, before I make a decision.

There are also non-financial policy issues to be considered.

Supporters of the proposal make the case that shutting immigrants out of the health-care system is bad for public health generally and puts a financial burden on hospitals and other providers who are obliged to treat them whether they have insurance or not.

Critics argue that the state should not be subsidizing people who flouted immigration laws – and should put citizens first in allocating government funds.

Another issue is equity: In part because of the program's surplus, the Essential Plan generally pays better fees than Medicaid – and more providers are willing to accept it. If Coverage for All becomes law, the immigrants who enroll would arguably be receiving better coverage than the almost 8 million New Yorkers on Medicaid.