By Bill Hammond
Senior fellow for health policy, Empire Center for Public Policy
New York Stateâs Medicaid program has ballooned to an unprecedented scale over the past decadeâand so, too, has its long-standing dysfunction.
Enrollment has surged to cover more than a third of the stateâs population and almost half of New York Cityâs. Its budget has soared to more than $90 billion, a 76 percent increase in 10 years, as shown in Figure 1.
Much of this growth occurred before the coronavirus pandemic, a period when unemployment was generally low and poverty was declining. In effect, the state stretched what was meant to be a safety net for the poor and disabled to cover people further up the income scale, many of whom were able-bodied and gainfully employed. As of 2019, in fact, New Yorkers above the federal poverty level accounted for more than half of Medicaid enrollment.1Bill Hammond, âMedicaidâs metamorphosis: How one in three New Yorkers landed in a âsafety netâ health planâ (Albany, N.Y.: Empire Center for Public Policy, Dec. 7, 2021).
The programâs broadening scope has magnified the effects of its pre-existing structural flaws. Its practice of paying substandard fees now compromises access and care quality for millions more of the stateâs residents. Its vulnerability to inept management, fraud and political manipulation puts billions more of the publicâs money at risk.
Medicaidâs massive growth has introduced a new danger of mission creep. The burgeoning cohort of non-poor and non-disabled recipients are now competing in Albany for Medicaidâs money and attention. That will inevitably distract from care for the needier individuals, who ought to be top priority.
The growing challenge of running Medicaid is also a distraction from the Health Departmentâs other duties, such as inspecting hospitals and nursing homes, regulating the quality of drinking water and monitoring the spread of infectious diseases. As the departmentâs Medicaid-related staffing climbed over the past decade, the number of personnel devoted to public health functions shrank2Bill Hammond, âNew Yorkâs shrinking budget for public health deserves more attention (blog post)â (Albany, N.Y.: Empire Center for Public Policy, Feb. 24, 2021).âwhich helps to explain why the state was so ill-prepared for the coronavirus pandemic (see Figure 2).
Meanwhile, the state contributes to the demand for government-funded health coverage through heavy regulation and taxation that drive up New Yorkâs commercial premiums, which are the highest in the continental U.S.3Bill Hammond, âNew Yorkâs health insurance affordability problem gets worse (blog post)â (Albany, N.Y.: Empire Center for Public Policy, July 27, 2022). Especially counterproductive is New Yorkâs practice of financing Medicaid in part through billions in surcharges on commercial health plansâan approach that exacerbates the problem itâs meant to solve.
In a better-balanced health-care system, the state would repeal its insurance taxes, roll back regulations and otherwise work to make basic medical coverage as affordable and accessible as possible. More New Yorkers would be enrolled in commercial insurance that pays market-based fees, improving the bottom lines of providers who treat them.
As Medicaid gets smallerâand refocuses on its neediest recipientsâthe state could reinvest a portion of its savings to pay more competitive fees, boosting reimbursement for safety-net caregivers. The Health Department could devote more resources to public health functions, and the programâs overall pressure on state finances and taxpayers would be relieved.
Beyond Medicaid, other aspects of the stateâs oversight of health care need attention:
- The stateâs pandemic defensesâwhose critical weaknesses were exposed by COVID-19âshould be repaired and strengthened based on a thorough study of recent events. Although Governor Hochul has announced the hiring of a consultant for an after-review, that task would be better assigned to a special commission of independent healthcare and health policy experts insulated from political interference.
- The average rankings of New Yorkâs hospitals consistently fall near the bottom of major quality report cards.4Bill Hammond, âNew Yorkâs hospital industry ranks near the bottom of two quality report cards (blog post)â (Albany, N.Y.: Empire Center for Public Policy, May 3, 2021). The Health Department should be studying why this happens and pushing the industry to do betterâby gathering and publishing data on hospital performance and identifying and promoting best practices.
- The stateâs âcertificate of needâ lawâwhich regulates the creation or expansion of hospitals, nursing homes, clinics, and other health-care facilitiesâis one of the most restrictive in the U.S.5Matthew D. Mitchell and Anne Philpot, âThe state of certificate-of-need laws in 2020â (Arlington, Va.: The Mercatus Center at George Mason University, Feb. 19, 2021). This process inhibits marketplace competition that can broaden consumer choice, control cost, and encourage better quality of care.
THE STATUS QUO
The governor administratively oversees a Medicaid system that has grown dramatically over the past decade, both in size and cost, on top of what were already high levels relative to other states. Since 2012, enrollment has risen 49 percent to 7.3 millionâabout half of that during the pandemicâand spending has increased 76 percent to $93 billion.6Authorâs analysis of figures from the New York State Division of the Budget.
Other statesâ Medicaid programs were also expanding rapidly during this period, as President Obamaâs Affordable Care Act gave them an incentive to adopt broader eligibility standards, similar to what New York had been using before the ACAâs passage. Yet New York remained at the top in terms of spending, with per-capita Medicaid expenditures 69 percent above the national average and 9 percent higher than the No. 2 state, New Mexico.7Authorâs analysis of figures from the U.S. Centers for Medicare & Medicaid Services.
New Yorkâs No. 1 status is not readily explained by demographic or economic factors. Among the 50 states, it ranks 19th for poverty,8âPercentage of people in poverty by state using 2- and 3-year averages: 2017-2018 and 2019-2020 (table)â (Washington: U.S. Census Bureau, 2021). 25th for median age9âStates ranked by percent of population 65 or older, 2020 (table)â (Washington: Population Reference Bureau, 2021). and 37th for the share of its population with a disability.10âPercentage of people with a disability as of 2020, by state (table)â (Washington: U.S. Census Bureau, 2022).
In fact, New Yorkâs poverty rate was declining as enrollment surged, leading to a profound shift in the programâs makeup: As of 2019 half or more of its enrollees were living above the poverty level.11Op. cit., Hammond, âMedicaidâs metamorphosis.â What began as a âsafety netâ health plan for the indigent and disabled has evolved into an increasingly mainstream form of insurance for people who are able-bodied and employed.
Compounding this trend is the federal governmentâs âcontinuous enrollmentâ policy during the pandemic, which has required states to keep people on their Medicaid rolls regardless of changes in employment or income. Before COVID, New Yorkâs enrollment was hovering around 6 million or 30 percent of the stateâs population. As of July 2022, those figures had surged to 7.6 million and 37 percent.12Enrollment figures from the New York State Department of Health.
When the federal emergency endsâwhich is expected in 2023âofficials in New York and other states face the challenge of conducting millions of backlogged eligibility reviews even as they handle routine enrollments and dis-enrollments, a process that could take a year or more.
Unusually expansive enrollment is not the only driver of the New Yorkâs high Medicaid spending. It also spends more on a per-enrollee basis than all but five other states. This is due in part to relatively generous benefits, including exceptionally high and rapidly rising expenditures on personal assistanceâwhich provides non-medical support, such as help with bathing, eating, and housekeeping, to disabled enrollees in their homes.
âDishingâ out supplemental money
Another stand-out feature of New Yorkâs Medicaid program is heavy use of supplemental funds that are distributed to providers as grants rather than compensation for care. Much of this money flows through Medicaidâs Disproportionate Share Hospital program, or DSH, which was originally designed to compensate facilities that treated a disproportionate number of Medicaid patients. Because allocations to states have been effectively frozen since 1992, and because Albany officials had aggressively exploited the program earlier in its history, New York receives more DSH funding that any other stateâalmost $2 billion a year, or $3.9 billion with state and local matching money included. That $2 billion is 15 percent of the federal total, when New York has six percent of the nationâs population.13âChapter 3: Annual Analysis of Disproportionate Share Hospital Allotments to the Statesâ (Washington: Medicaid and CHIP Payment and Access Commission, 2022), table 3A-1.
Need-basedâor not
As with the federal allocations to states, the stateâs distribution to hospitals is not consistently related to need. Nominally, the state distributes about half of this money based on the amount of âcharity careâ hospitals provide to uninsured, indigent patients. However, the formula caps how much each facilityâs grant can change from year to year, resulting in significant distortions. Some hospitals providing relatively little charity care receive disproportionately large grants, while some of the true safety-net hospitals are short-changed.
The fraud issue
Fraud is a chronic problem in New Yorkâs Medicaid program. The true cost of fraud is inherently hard to measure, but it has likely grown along with its overall size and budget. Despite this risk, New Yorkâs anti-fraud efforts in some areas have been relatively weak. From 2012 to 2015, for example, the stateâs Medicaid Fraud Control Unit conducted only 21 investigations of personal care fraudâ0.3 percent of the national totalâeven though New York accounted for a third or more of Medicaid spending on that benefit.14âMedicaid Fraud Control Units: Investigation and Prosecution of Fraud and Beneficiary Abuse in Medicaid Personal Care Servicesâ (Washington: U.S. Department of Health and Human Services Office of Inspector General, December 2017).
Meanwhile, state lawmakers are debating a measure that would weaken enforcement by the Office of the Medicaid Inspector General by restricting how much restitution it can require from providers based on auditing a sample of claims.15Assembly bill no. 7889A of 2022.
Despite heavy spending, the coverage provided by Medicaid is substandard. Based on the Empire Centerâs analysis of New York hospital data from 2015, Medicaid paid rates that averaged five percent lower than Medicare and 43 percent lower than commercial insurance.16Bill Hammond and Chris Pope, âThe Impact of Single-Payer on New York Hospitalsâ (Albany and New York: Empire Center for Public Policy and Manhattan Institute, November 2018). Providers that treat large numbers of Medicaid patients typically have less money to pay staff, buy equipment or maintain facilities, which tends to undermine their quality of care and threaten their financial viability.
The reimbursement disparity compromises access to care. A study of medical records from 2014 to 2017 found that only 63 percent of New Yorkâs physicians were accepting new Medicaid patients, the fifth-lowest rate in the U.S.17âPhysician Acceptance of New Medicaid Patients: Findings from the National Electronic Health Records Surveyâ (Washington: Medicaid and CHIP Payment and Advisory Commission, June 2021).
The role of Obamacare
Medicaidâs transformation from narrow safety-net to a broad catch-all insurance programâand the resulting spike in enrollment and spendingâwas largely a byproduct of the Affordable Care Act, President Obamaâs signature health-care reform law, which passed Congress in 2010 and took effect in 2014.
The law aimed to move toward universal coverage with a combination of two basic strategies: expanding Medicaid for the poorest group of the uninsured and subsidizing commercial coverage for a swath of middle-income Americans who lacked employer-sponsored health benefits.
The law called for states to lift their Medicaid eligibility threshold to 138 percent of the poverty level, with the federal government initially covering 100 percent of the cost of newly eligible enrollees, phasing down to 90 percent after five years. This was more generous than Medicaidâs traditional formula for federal matching aid, which ranged from 50 percent to 80 percent of a stateâs costs. (The ACA originally required states to expand Medicaid. A Supreme Court ruling later made it optional.)
When the law was enacted, New York was one of a handful of states whose Medicaid programs already covered most of the target population. For those states, the ACA provided enhanced federal matching aid for a portion of their previously eligible adult enrollees.
For people with incomes just above the Medicaid thresholdâfrom 138 percent to 400 percent of the poverty levelâthe ACA offered tax credits and other subsidies that limited the cost of coverage to 9.5 percent of their annual income. To qualify for credits, consumers had to purchase standardized plans offered through government-operated insurance exchanges.
The law initially included an âindividual mandate,â meaning that people without insurance were obliged to obtain coverage or face possible tax penalties. These penalties were later reduced to zero by Congress.
New York established its insurance exchange, known as the New York State of Health, as a unified portal for both public and private coverage options. After the system went into effect, an unexpectedly large number of applicants flowing through the exchange were determined to be eligible for Medicaid. Although poverty was declining and New Yorkâs Medicaid enrollment was already large by national standards, the program grew by more than 900,000 or 18 percent over the first two years. Less than half that number, or 415,000, signed up for commercial coverage through the exchange.18â2015 Open Enrollment Reportâ (Albany, N.Y.: New York State of Health, July 2015).
Enrollment gradually rose to about six million and stayed there for several years, even as the poverty rate declined. By 2019, the Census Bureau estimated that the number of non-elderly New Yorkers living below 138 percent of the poverty level had dropped to 2.9 million, or less than half of Medicaidâs enrollment, as shown in Figure 3.19Figures from the U.S. Census Bureauâs Small Area Health Insurance Estimates.
The reasons for this disparityâamong the widest in the U.S.âdeserve an official investigation. One factor may be that Medicaid eligibility extends above 138 percent of poverty for certain targeted groups, such as pregnant women and new mothers. Also, the ACA threshold is based on âmodified adjusted gross income,â drawn from tax law, while the Census Bureau uses a broader definition of income. At the same time, the disparity might mean ineligible applicants are slipping through the stateâs screening process at a greater rate than previously known.
Exceptionally âessentialâ
The reach of government-funded coverage surged further in 2016 when New York launched its Essential Plan, an optional benefit under the ACA that was exercised by only one other state, Minnesota.
Under this option, states can establish government-operated Medicaid-like plans for residents up to 200 percent of the poverty level. To finance these plans, the federal government supplies 85 percent of the money it otherwise would have spent on insurance tax credits and other subsidies for the enrollees. This formula has proven to be unexpectedly generous, consistently providing more than aid than necessary to cover the programâs entire cost.
As of June 2022, the Essential Plan trust fund had built up a surplus of more than $8 billion.20Bill Hammond, âThe Essential Planâs surplus balloons to $8 billion, with no fix in sight (blog post)â (Albany, N.Y.: Empire Center for Public Policy, Sept. 8, 2022). The state initially charged a portion of the programâs enrollees a modest $20 a month, but those premiums were eliminated in 2021. More predictably, the offer of free or nearly-free health coverage has been popular with eligible consumers. As of this year, its enrollment has risen to almost one million.21âHealth Insurance Coverage Update: Impact of ARPA Subsidiesâ (Albany, N.Y.: New York State of Health, July 2022).
The Essential Plan is technically separate from Medicaid and the state is responsible only for administrative costs, which are about 1 percent of its budget. Like Medicaid, however, it pays substandard fees to providers and diverts potential consumers out of the commercial marketplace.
The mandates of the ACAâand its drive towards universal coverageâmeshed with Albanyâs long-standing tendencies with respect to Medicaid. Hospitals, nursing homes, and unionized health-care workers are some of the Capitolâs biggest spending and most influential interest groups, and most lawmakers of both parties are eager to win their favor. Many lawmakers have come to view Medicaid as way of drawing federal aid to the state, where it benefits their favored constituents and generally boosts the health-care economy. For every $1 the state spends, they reason, the stateâs health-care system collects $2 or more. Elected officials who oppose spending more on Medicaid run the risk of being accused of putting peopleâs health at risk.
Governors have sometimes tried to rein in the program, notably including former Governor Andrew Cuomo during his first term. However, Cuomoâs focus on taming Medicaid dissipated over time and the program returned to a pattern of rapid spending growth, leading to multi-billion-dollar budget overruns before the pandemic arrived in the middle of his third term. During her first year in office, Governor Hochul has promoted or acceded to expensive Medicaid rate increases, worker bonuses and wage hikes while putting little emphasis on trimming rolls or containing costs.
High-cost private health insurance
Another factor behind Medicaidâs sprawl is the unaffordability of commercial insurance in New York, which is due in large part to policies set by Albany.
According to a federal survey, New Yorkers and their employers pay the highest premiums in the continental United States. In 2021, the average premium for single coverage in New York was almost $1,200 or 16 percent above the national normâthe widest gap since the survey began in the mid-1990s.22Op. cit., Hammond, âNew Yorkâs health insurance affordability problem gets worse.â
The state directly adds to premium costs by imposing unusually heavy taxes on insurance through a law called the Health Care Reform Act. The lawâs two surcharges raise $5.2 billion a year,23New York State Division of the Budget. making them the stateâs third largest source of revenue after income and sales taxes and adding hundreds of dollars to a typical familyâs premium.24Bill Hammond, âHooked on HCRA: New Yorkâs 24-year health tax habitâ (Albany, N.Y.: Empire Center for Public Policy, March 11, 2020).
Albany also makes insurance more expensive by continually imposing additional coverage mandates without a sober analysis of costs and benefits. A recent example, enacted in 2019, requires large group plans to cover at least three cycles of in vitro fertilization, a costly procedure for inducing pregnancy.
âRedesignâ and relapse
The prelude to Medicaidâs expansion over the past decade was former Governor Cuomoâs Medicaid âredesign,â an unusually sweeping and aggressive effort to contain the program that unfolded during his first term.25This account of Governor Cuomoâs Medicaid redesign is adapted from Bill Hammond, âBusting the cap: Why New York is losing control of its Medicaid spending againâ (Albany, N.Y.: Empire Center for Public Policy, Oct. 9, 2019).
As Cuomo took office in 2011, the state faced a $10 billion projected budget gap, much of which he attributed to Medicaid.
The stateâs finances were still suffering the effects of the Great Recession, but extra federal Medicaid money that Washington had forwarded to states as a temporary relief measure was phasing out. Albanyâs share of the Medicaid budget was due to jump by $6 billion in a single year
Cuomo proposed a combination of immediate spending cutsâincluding the elimination of automatic âtrend factorsâ that annually boosted provider feesâalong with a set of structural reforms, all of which were approved by the Legislature. His reforms included:
- Imposing a âglobal capâ on the state share of Medicaid spending, limiting the rate of annual growth to the 10-year rolling average of the medical inflation rate.
- Appointing a 25-member Medicaid Redesign Team of state officials and industry stakeholders to find the savings necessary to live within the cap.
- Empowering the health commissioner to unilaterally cut provider fees if cost-cutting fell short and the program began to go over budget.
Taken together, these steps transformed the political dynamics surrounding Medicaid. The cap brought a measure of restraint to spending growth, especially in the context of rising enrollment. The redesign team provided a calmer, more collaborative venue to hash out the complexities of Medicaid reformâa contrast to the politicized annual stand-offs in the Legislature, which often led to late budgets while achieving limited progress. The commissionerâs additional budget powers, although never invoked, gave industry officials an incentive to collaborate on finding savings.26Ibid.
The redesign team agreed on 79 proposed changes to the program, nearly all of which were formally approved by the Health Department and the Legislature. The most significant involved outsourcing more recipients into private health plans, a system known as Medicaid managed care. Enrollment in this program became mandatory for nearly all recipients, including groups that had previously been exempted, such as nursing home residents and people with lifelong mental or physical disabilities.
A second major reform added prescription drugs to the set of benefits overseen and reimbursed by Medicaid managed care plans. Pharmacy claims had previously been directly paid by the Health Department. After adoption of this pharmacy âcarve-in,â the average cost per Medicaid prescription plunged by one-fifth in two years.27Bill Hammond, âThe cost of cures: analyzing the surge in New Yorkâs Medicaid drug spendingâ (Albany, N.Y.: Empire Center for Public Policy, April 10, 2018).
In 2012, Cuomo and the Legislature agreed to freeze the Medicaid contributions paid by New York City and the 57 other county governmentsâleaving the state to absorb any increase in the non-federal share of Medicaid costs going forward. That freeze took full effect in 2015.
In another significant development of Cuomoâs first term, the state won an additional $8 billion in federal funding over five years to establish the Delivery System Reform Incentive Payment program, or DSRIP. This money was allocated to regional consortiums of hospitals and other health-care providers and social service groups, who were tasked with improving the coordination of services for Medicaid patients and reducing avoidable hospital visits.
For several years, Cuomoâs redesign showed signs of working as intended to contain costs. Overall Medicaid spendingâwhich historically had risen faster than inflationâstayed virtually flat until fiscal 2014-15, when the advent of the ACA caused enrollment to spike. Even then, a surge of additional federal aid tied to the ACA kept the stateâs share of expenses in relative check.
Eroding discipline
Towards the middle of Cuomoâs second term his administrationâs focus on Medicaid cost control began to wane.
The governor and Legislature weakened the global cap by adding loopholes, the most significant of which exempted the costs of a 2016 hike in the stateâs minimum wage, which lifted the rate from $9 to as high as $15 an hour over the ensuing three years. The state committed to reimburse providers for their minimum wage-related expenses, which mushroomed much faster than officials initially estimated and quickly rose into the billions. The stateâs share alone is now estimated at $2.2 billion per year,28New York State Division of the Budget. an amount which is added on top of the inflation-based increases authorized under the cap.
In the middle of the last decade, the state also began to see explosive growth in Medicaidâs spending on home-based care for the elderly and disabledâespecially in the category known as personal care, which refers to non-medical services such as help with eating, bathing, shopping and housekeeping.
New Yorkâs spending on this optional benefit has long been exceptionally highâamounting to $3.2 billion, or one-quarter of the national total, when Cuomo took office in 2011. By 2016, the tab had risen to $5.6 billion or 40 percent of the national totalâand over the next five years it nearly doubled to $11.4 billion.29Bill Hammond, âA Medicaid benefit doubles in 4 years (blog post)â (Albany, N.Y.: Empire Center for Public Policy, Feb. 11, 2020). Although recent nationwide figures are not readily available, itâs likely that New York is currently spending more on personal care than the other 49 states combined.
As of 2019, the last year for which comparable data are available, New Yorkâs per capita Medicaid spending on personal care was an outlier at almost eight times higher than the average for the 40 states offering the benefit (see Figure 4, above).
The recent surge appears to have been sparked by the Medicaid redesign and its shift of long-term care patients into managed care, under which plans have an incentive to sign up as many potential clients as possible and thereby collect monthly premiums from the state. Another factor has been the rapid proliferation of the âconsumer-directedâ form of personal care, which allows patients to bypass traditional home care agencies and directly hire the caregiver of their choice, which can be a friend or family member. Hundreds of companies devoted to supporting this program, known as fiscal intermediaries, have sprung up across the state.
The state has proposed some efforts to contain personal care costs, such as attempting to tighten regulation of fiscal intermediaries, but it has run into well-organized and heated opposition from the industry, its disabled clientele and their supporters in the Legislature. After dipping during the pandemic, demand for personal care has bounced back to its previous levels and beyond.
The goal of containing Medicaid costs was further undermined by raw politics. As Governor Cuomo approached his third term re-election campaign in 2018, he used Medicaid to finance an expensive deal with New York City-area hospitals and nursing homes and their major labor union, 1199 SEIU. The deal began with the governor extracting $2 billion from the sale of non-profit Fidelis Care health plan, which was controlled by the stateâs Catholic bishops, to for-profit Centene Corp. The money was deposited in a newly created Health Care Transformation Fund, which the governor could effectively spend on any health-related purpose without further consulting the Legislature.30Bill Hammond, âFollowing the money (blog post)â (Albany, N.Y.: Empire Center for Public Policy, Jan. 21, 2019). See also J. David Goodman, âAfter Hospitalsâ Donation to New York Democrats, a $140 Million Payoutâ (New York: The New York Times, Oct. 3, 2019).
Shortly before Election Day, the governor quietly allocated a portion of that fund to finance Medicaid rate hikes for hospitals and nursing homesârate hikes the Greater New York Hospital Association had sought to finance its membersâ labor contract with 1199. It was later revealed that the hospital association had contributed more than $1 million to the state Democratic Party, which was controlled by Cuomo, in the months before the governorâs unilateral action.31Ibid.
Even before that rate hike, Medicaid spending had begun chronically running over its budgetâand administration officials failed to raise an alert about the problem or invoke their authority to cut spending under the global cap. Instead, they papered over the shortfall by secretly delaying $1.7 billion in Medicaid payments from March to April 2019, shifting the spending from one fiscal year to the next. This threw the newly passed state budget immediately out of balance, yet officials did not notify the Legislature or the public until May.32Bill Hammond, âCuomoâs self-inflicted crisisâ (Albany, N.Y.: Empire Center for Public Policy, Nov. 22, 2019).
The governor eventually acknowledged that the maneuver had triggered a $2.2 billion deficit and in January 2020 delegated the job of closing it to a reconstituted Medicaid Redesign Team.
That process was still unfolding when the coronavirus began sickening and killing thousands of New Yorkers in March 2020.
The COVID complication
The coronavirus pandemic disrupted Medicaid in complicated and conflicting ways.
On one hand, the crisis prompted the federal government to boost Medicaid funding for statesâsending an extra $3 billion per year to New York on top of billions in other emergency relief. The earlier phase of the crisis also slowed demand for medical care across the board, causing a rare dip in Medicaid spending in the 2020-21 fiscal year and temporarily easing pressure on the stateâs finances.
On the other hand, the extra Medicaid money from Washington came with strings attachedâfederal âmaintenance of effortâ rules that bar states from routinely disenrolling recipients who lose eligibility or making certain other cost-cutting moves.
In Albany, this has prevented the Cuomo and Hochul administrations from fully implementing some of the second Medicaid Redesign Teamâs proposed reforms. The pandemic-induced economic crisis also triggered a surge of new enrollment in Medicaid as people lost their jobs and employer-based health benefits.
After the brief slowdown in 2020-21, Medicaid costs have bounced back at ferocious rates. Since then, overall spending has jumped 23 percent and the projected state share is up 48 percentâfrom $22 billion to $33 billion in just two years.33Authorâs analysis of figures from the New York State Division of the Budget.
Given the very real pressures and sacrifices much of the health-care system has experienced during the crisis, the governor and lawmakers emphasized catering to the industryâs requests and perceived needs rather than squeezing it for budget savings.
In her first full year as governor, Hochul for the most part` positioned herself as the health-care industryâs ally in Albany. She pushed through Medicaid-financed pay bonuses for a large swath of health-care workers, authorized rate hikes for hospitals, nursing homes and other providers, agreed to a $3 hike in the minimum hourly wage for home care workers, further weakened the âglobal capâ on spending, and committed herself to the dubious goal of growing the health-care workforce by 20 percent over five yearsâin a state that already has 28 percent more health-care workers per capita than the national average.34Bill Hammond, âAnswers needed on Governor Hochulâs health-care budget (blog post)â (Albany, N.Y.: Empire Center for Public Policy, Jan. 24, 2022).
Looking ahead, the state is likely to face a fiscal reckoning on Medicaid. When President Biden formally ends the federal pandemic emergency, which is expected in 2023, that will mark the end of extra Medicaid funding that has been flowing to New York at the rate of almost $3 billion a year.35New York State Division of the Budget.
On top of filling that budget hole, the governorâs financial plan must also address the effects of a slowing economy, which has weakened revenue forecasts and created billions in projected deficits for the years ahead.
Meanwhile, the minimum wage for home health workers is due to increase by $2 an hour this October and another $1 next yearâa hike approved in this yearâs budget that is projected to cost Medicaid an estimated $7.7 billion over the next four years.36Ibid.
MOVING FORWARD
The overarching goal of Medicaid reform should be a rebalanced health-care systemâwith a smaller, more efficient Medicaid program that delivers higher-quality care for the truly needy, combined with a larger commercial insurance market thatâs affordable and accessible to everyone else.
An immediate priority is to slow the growth of the stateâs share of Medicaid spending, which spiked by 18 percent in fiscal 2023 and is on track to balloon by another 20 percent over the next four years.
The usual solution of across-the-board cuts to provider payments should be avoided, because it would further widen the unhealthy gap between Medicaid reimbursements and market rates. Instead, the state should look for systemic reforms that make the program more efficient and sustainable, perhaps by reinvigorating the Medicaid Redesign Team process.
As a minimum first step, officials should expeditiously follow through on cost controls that lawmakers adopted in 2020 but were put on hold during the pandemic emergency. These include tighter medical and financial eligibility limits on home-based personal care for the elderly and disabled.
In other areas of health policy, New York leaders should develop state-of-the-art systems to detect and contain future pandemics, push to improve the low average quality of New Yorkâs hospitals, and foster consumer-friendly competition in the health-care industry by rolling back the âcertificate of needâ law.
The list of needed reforms starts with the following priorities:
- Tighten income-screening procedures. This will help ensure that existing Medicaid eligibility standards are consistently enforced. In addition:
- Crack down on the legal maneuvers that allow people to conceal or shield substantial assets when applying for benefits.
- Strengthen the âglobal capâ by tying it to a need-based benchmark, closing loopholes and following through with consistent enforcement.
- Restructure the managed long-term care program to ensure that participating health plans are incentivized to control spending.
- Tighten eligibility for personal care benefits. Establish personal care as a discretionary benefit rather than an entitlement, allowing officials to target services to the neediest individuals.
- Strengthen controls on consumer-directed personal care to assure that patients are getting necessary services and to prevent fraud.
- As Medicaid rolls decline, use a portion of the savings to boost provider payments closer to the market standard.
- Reduce or eliminate supplemental grants and reallocate the money to pay for services rendered.
- Make commercial coverage more affordable and accessible. Essential steps towards realizing this goal would include eliminating taxes on health insurance under the Health Care Reform Act; establishing a commission to review all insurance coverage mandates, both existing and proposed; repealing or rejecting mandates that are not clearly cost-effective and supported by independent medical research; and considering the establishment of state-based consumer and employer subsidies to supplement the federal tax credits available through the Affordable Care Act.
- Improve the stateâs public health system. This can start with establishment of an independent pandemic review commission to investigate strengths and weaknesses of the stateâs COVID-19 response, study best practices in other states and countries, and design defenses that best protect the state from future outbreaks.
- Further improvement steps would include:
- Replenishment of funding and personnel for public health functions.
- Promotion of improved quality of care in hospitals and other health-care facilities through improved oversight, including gathering, analyzing and publicly reporting on performance benchmarks.
- Consideration of a plan to reorganize the Health Department to separate its public health functions from the management of Medicaid.
- Roll-back or elimination of the âcertificate of needâ law, to make it easier to establish or expand health facilities and to promote competition that responds to consumer demand, improves quality and controls costs.
- Further improvement steps would include:
Bill Hammond is senior fellow for health policy at the Empire Center for Public Policy.