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The rapid growth of the immigrant population in the U.S., along with changes in the demographics and the political landscape, has often raised questions for understanding trends of inequality. Important issues that have received little scholarly attention thus far are excluding immigrants’ social rights through decisive policy choices and the distributive consequences of such exclusive policies. In this paper, we examine how immigration and state policies on immigrants’ access to safety net programs together influence social inequality in the context of health care. We analyze the combined effect of immigration population density and state immigrant Medicaid eligibility rules on the gap of Medicaid coverage rates between native- and foreign-born populations. When tracking inequality in Medicaid coverage and critical policy changes in the post-PRWORA era, we find that exclusive state policies widen the native-foreign Medicaid coverage gap. Moreover, the effect of state policies is conditional upon the size of the immigrant population in that state. Our findings suggest immigrants’ formal integration into the welfare system is crucial for understanding social inequality in the U.S. states.