March 13, 2025

As we noted earlier in the week (after one house budget bills were released), the Senate and Assembly bills both funds ($200M by the Senate and $16.5M by the Assembly for children’s mental health, based on a rate reform proposal we took on 3 years ago alongside partners from HealthyMinds, HealthyKids (hosted by Citizens Committee for Children in NYC) a dozen or so other associations and coalitions that advocate for children, families and youth, and a powerful youth coalition that has been incredibly effective at highlighting the plight of young people with mental health concerns, here in New York.  The proposal impacts OMH Article 31, OASAS Article 32-822, CFTSS and HCBS services provided to children, youth and families.  Remember:  At the present time this is just a proposal.

For better or worse, the Assembly bill re-programs the proceeds of the MCO Tax that the Governor proposed to appropriate to hospitals and nursing homes (in her executive budget proposal released in January) such that $16.5 would go to children’s mental health, and the Senate proposes appropriating $200M without explanation as to where the money would come from (see below).  The Senate Resolution says they are adding it to ‘all funds spending’ with no mention of the MCO tax or where they found the money to pay for it. 

All this to say, after 2.5 years of advocacy for the children’s rate reform proposal, we are all gratified to see the prioritization of the children’s outpatient proposal in both legislative proposals, and we thank the members of the Assembly and Senate for hearing our concerns.  It is unclear how or where this will land, and it is complicated by the fact that at least some of the spending proposed in the one-house bills is based on the MCO Tax that would generate additional revenue for NYS for just two-years if it is implemented at all.  

The federal government has the MCO Tax and other ‘provider taxes’ that allow states to maximize the federal match, on a list of actions the feds are likely to take to help the Trump administration save money by closing the loophole that allows for states to do this. In reality, NYS sought approval for the MCO Tax under the Biden administration, and received formal approval in December (before the new administration came in). 

Here’s the appropriation located in the Senate one-house bill:

Aid to Localities (Bill # S.3003-B)
* The Senate modifies the Executive All Funds recommendation of $3.3 billion by adding $267 million for a total of $3.5 billion as follows:

o The Senate adds $200 million ($100 million State-share) for the Medicaid Rate Increase for Children’s Behavioral Health.

On a related note, the NYS Council will be working with several association partners to push for 25% of proceeds from the MCO Tax to be set aside for the community-based mental health and substance use disorder systems of care.   The Senate and the Assembly one-house budget bills both reprogram the Governor’s proposal re: how to use the proceeds from the Tax and they expand the list of Tax beneficiaries to include provider types beyond hospitals and nursing homes. When funds are finite and you expand the group of providers that would benefit from them, you also alter the allocations that would be available to any of the beneficiaries.  This could turn out to be quite a food fight and the precarious nature of the Tax makes it that much more controversial as the article below depicts. 

State lawmakers float Medicaid increases in ‘reckless’ budget proposal

Amanda D’Ambrosio, Crain’s Health Pulse, 3/13/25

State lawmakers are proposing to increase funds for hospitals and nursing homes in next year’s financial plan, adding pressure to the state’s already-tight Medicaid budget.

Hospitals and nursing homes lauded budget proposals from Hochul and state lawmakers this week, welcoming the influx of Medicaid dollars as the federal government threatens to cut their funding down the road. Both the Senate and Assembly proposed higher Medicaid spending than the governor in one-house budget proposals released on Tuesday, signaling that the state’s health budget will grow again next year. But further Medicaid growth could be a tough pill to swallow if the federal government moves forward with large-scale spending cuts, experts say.

“It’s reckless, even if Washington wasn’t touching a dime from New York state,” said Bill Hammond, senior fellow for health policy at the right-leaning think tank Empire Center for Public Policy. “If [the hospitals] can’t find anything to complain about, that’s a dangerous sign for taxpayers.”

Hochul’s executive budget proposal increases Medicaid spending by at least 14%, but likely closer to 17%, according to an analysis by Hammond. A large share of the state’s proposed Medicaid budget comes from the managed care organization, or MCO, tax, which takes advantage of a federal loophole that allows New York to tax health plans and draw down roughly $3.7 billion in federal funds over the next few years. The governor proposed to use $1.4 billion of those funds next year to increase Medicaid rates to hospitals, nursing homes and other providers, leaving $500 million remaining to fill budget gaps.

The legislatures follow Hochul’s lead to boost funding for hospitals and nursing homes. However both houses propose to spend more money from the MCO tax on payments to providers, which would leave less excess tax revenue to fill budget gaps, Hammond said. The Senate rejected Hochul’s plan to use $500 million in tax revenue to cover budget deficits, instead boosting payments to hospitals and nursing homes.

The Senate suggested allocating $355 million to hospitals and $245 million to nursing homes, while the Assembly proposed $405 million and $250 million, respectively. The legislatures proposed a greater increase compared to Hochul, who allocated $300 million to hospitals and $200 million to nursing homes from the MCO tax.

Ken Raske, president and CEO of the Greater New York Hospital Association, said in a memo to members that his organization is “pleased that both houses build on Governor Hochul’s strong proposed budget and further support New York’s financially struggling hospitals and nursing homes amid ongoing federal threats to Medicaid funding.”

Because MCO tax revenue is a one-time payment, it is dangerous to increase reimbursement rates to hospitals and nursing homes using that money, Hammond said. He added that the revenue from the tax is uncertain, as the Trump administration could move to revoke approval for the tax as it searches for budget cuts – which could leave New York on the hook for reimbursement rate increases.

Both the Senate and the Assembly also restored funding for financially distressed hospitals that Hochul did not include in her budget. The legislatures proposed $500 million to the Vital Access Provider Assurance Program, a state fund that supports financially distressed hospitals, while the Assembly added $75 million extra to support nursing homes.

John Kaehny, executive director of the watchdog group Reinvent Albany, said “it’s completely irrational” to massively expand Medicaid spending in the face of what could be tremendous federal cuts.

“But what’s fiscally irrational could be politically sensible,” Kaehny said, pointing to the pushback elected officials incur from hospitals, nursing homes and labor unions for cutting Medicaid funds. “Why not blame Trump in a year instead of getting blamed right now?” he said.

Hammond said the state has little to show for the generous budget it offers hospitals and nursing homes. New York has one of the most expensive health systems in the country, yet many hospitals face chronic fiscal stress, nursing homes are being investigated by the state for neglect and fraud and emergency room wait times are through the roof, he said.

“If this budget goes through, the cumulative increase would be 60% over four years,” Hammond said. “What are we getting for that?”