This effectively will force states that are pro-illegal immigration to fund the illegals themselves since Medicaid funding beyond a certain point will flow to the state. It's easy to oppose an open border when cost to subsidize illegals is buried, but once you actually have to pay for it, opinions and practices change.
It's targeted and similar in philosophy to what Trump did with limits on state and local tax deductions in his last term. You'll recall that the Trump administration capped deductions for state taxes because blue states tend to tax their citizens at a higher rate and by doing so deprive the Federal government of tax revenue on the state tax dollar. By capping deduction for local taxes, it forces the heavy tax states citizens to make a choice between paying state taxes with Federally non-deductible dollars or holding their politicians accountable.
Gotta hit 'em in the pocket book.
Link: Coming for you illegal types