The NY Times wrote about this a while ago.
But the guidelines include a significant ambiguity: "An individual who is already enrolled in Medicaid will remain eligible if he or she showed a good-faith effort to present satisfactory evidence of citizenship and identity, even if this effort takes longer than 45 days." The administration says that "beneficiaries will not lose benefits as long as they are undertaking a good-faith effort to provide documentation."
States have a strong incentive to enforce the requirements. If they fail to do so, they can lose federal Medicaid money.
The guidelines say states should help people document citizenship, especially if they are homeless, mentally impaired or physically incapacitated and have no one to act on their behalf.The guidelines list four categories of documents that can be used as evidence of citizenship, from the most reliable to the least trustworthy. The best evidence, they say, is a United States passport or a certificate of naturalization. The next category includes state and local birth certificates and State Department documents issued to children born abroad to United States citizens.
The third category consists of nongovernment documents showing place of birth. These include medical records from doctors, hospitals and clinics; nursing home admission papers; and records from life and health insurance companies.
The fourth category includes affidavits, which can be used "only in rare circumstances when the state is unable to secure evidence of citizenship" from other sources.
http://www.nytimes.com/2006/06/05/washington/05medicaid.html?ei=5088&en=726c5cd163482d83&ex=1307160000&partner=rssnyt&emc=rss&pagewanted=print But yes, this is a significant change and it could adversely affect thousands of people.