Undocumented Workers in Level Funded Industries: The Coverage Boundary Nobody Discusses

LFP-06.09 | Sharp Analysis | Series 06: The Populations

Construction, landscaping, food processing, agriculture, and hospitality are industries where level funded adoption is growing and where undocumented workers represent a significant share of the labor force. These workers are ineligible for ACA marketplace coverage. They are ineligible for Medicaid in most states. They are excluded from employer plans by documentation requirements that are partly statutory, partly employer policy, and partly administrative practice.

This article maps the boundary analytically. It does not argue policy. It establishes the economic reality of a coverage boundary that the level funded market operates within but rarely acknowledges.

The Workforce Composition

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The Pew Research Center’s August 2025 report on the unauthorized immigrant population, using augmented American Community Survey data, found that the unauthorized immigrant population in the United States reached a record 14 million in 2023. According to the same Pew analysis, approximately 10 million unauthorized immigrants participated in the U.S. labor force in 2023. The distribution across industries is not uniform.

The industries with the highest shares of unauthorized immigrants in their workforce in 2023 were construction at 15%, agriculture at 14%, leisure and hospitality at 8%, other services at 7%, and professional and business services at 7%. The occupations with the highest shares were farming at 24%, construction at 19%, and service occupations at 9%. These are the same industries where level funded adoption is accelerating. The overlap is not coincidental. Both phenomena are driven by the concentration of small employer establishments in these sectors.

The geographic concentration intensifies the overlap. Unauthorized immigrant shares of the workforce are highest in Nevada, Florida, New Jersey, Texas, and California. Within these states, employment concentrates further in metropolitan areas with large service economies. Employers offering level funded plans in Dallas, Houston, Miami, Los Angeles, and Phoenix are operating in labor markets where unauthorized workers are a material share of the workforce in construction, landscaping, food service, and hospitality.

One additional data point sharpens the picture: Pew research finds that immigrants account for approximately 43% of home health care aides nationally. Home health care is one of the fastest-growing sectors for level funded adoption. The employer that offers a level funded plan to its workforce may be operating alongside a significant undocumented workforce that is administratively and legally excluded from that plan.

The Legal Boundary

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The coverage exclusions are legally clear at multiple levels.

The Affordable Care Act explicitly excludes unauthorized immigrants from marketplace coverage. Section 1312(f)(3) of the ACA states that an individual shall not be treated as a qualified individual if the individual is not lawfully present in the United States. Unauthorized immigrants may not purchase coverage on the federal or state exchanges, even without subsidies. They are not eligible for premium tax credits or cost-sharing reductions under any circumstance.

Medicaid eligibility is restricted at the federal level. Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, unauthorized immigrants are ineligible for federal Medicaid benefits. Emergency Medicaid is the exception: states must provide coverage for emergency medical conditions regardless of immigration status, but this covers only emergency stabilization, not ongoing care for chronic conditions.

State-level variations exist. California through Medi-Cal, New York, Washington, Colorado, Illinois, and Oregon have expanded eligibility to some unauthorized adults under different parameters. The majority of states provide no coverage pathway for unauthorized adults outside emergency Medicaid.

Employer-sponsored coverage operates under a different legal framework, but documentation requirements create exclusions in practice. ERISA does not explicitly require immigration status verification for plan eligibility. A level funded plan document could theoretically cover all employees regardless of documentation status. In practice, enrollment typically requires a Social Security number for claims processing, benefits administration, and tax reporting. Employees who cannot provide one may be de facto excluded regardless of formal eligibility language. The I-9 employment eligibility verification requirement, while separate from health plan enrollment, establishes the underlying employment relationship that plan eligibility is predicated on.

The result is a boundary that is partly statutory, partly regulatory, and partly administrative. It is also porous in practice: some employers in industries with high unauthorized worker populations do not rigorously verify enrollment documentation. The boundary is clear in law and variable in application.

The Economic Consequences

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The cost of an uninsured population working in physically demanding industries with occupational injury exposure is not borne by employers or plans. It is externalized to the hospital system, to public payers, and to the community.

The American Hospital Association reports that U.S. hospitals provided nearly $745 billion in uncompensated care between 2000 and 2022. America’s Essential Hospitals, whose member institutions disproportionately serve uninsured and underinsured populations, reported total uncompensated care of $41.4 billion in 2023 alone. These figures do not break out costs by patient immigration status, but the mechanism is direct: uninsured patients, including unauthorized workers who cannot access private coverage or Medicaid, present at emergency departments for conditions that insured populations address in primary care. The cost is absorbed by the hospital system and cross-subsidized by other payers.

The National Academies of Sciences, Engineering, and Medicine’s comprehensive 2017 analysis of immigration’s fiscal impact found that unauthorized immigrants contribute to the tax base through payroll taxes, sales taxes, and property taxes, while consuming fewer public benefits than native-born citizens due to eligibility restrictions. Healthcare was identified as a notable exception, with significant state and local costs for emergency Medicaid and uncompensated care attributable to unauthorized immigrant populations.

The employer economics follow directly. A landscaping company with 30 employees, 10 of whom are unauthorized, pays level funded premiums covering the 20 workers who satisfy documentation requirements. The healthcare costs of the 10 unauthorized workers are borne elsewhere. The employer’s labor cost structure is built on this externalization, whether the employer acknowledges it analytically or not.

The Boundary as a Structural Feature

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This article does not argue for or against changing the boundary. It establishes that the boundary is a structural feature of the market in which level funded operates.

The level funded market operates alongside a population that is employed in level funded industries, that performs labor for level funded employers, and that exists outside the coverage system entirely. The TPA that administers a level funded plan for a construction company in Texas is operating in a labor market where construction is 15% unauthorized by workforce share. The plan covers some workers. The plan does not cover others. The boundary is drawn by law, by policy, and by practice.

What the boundary reveals for the series’ analytic purposes is a sixth assumption embedded in level funded plan design: the assumption that the workforce the plan serves is the entire relevant workforce. In industries where unauthorized workers are a meaningful share of employment, this assumption fails. The plan covers the documented workforce. The healthcare needs of the undocumented workforce are externalized. The coverage map for a level funded employer in construction or agriculture is not a map of the whole workforce. It is a map of a portion of it.