The Medicaid Budget Battle

April 3, 2024

For those who are hard wired to consider the politics as well as the policy this is a good read.

Inside the battle over New York’s next Medicaid budget

The Legislature’s pursuit of higher Medicaid rates underscores the influence of the Greater New York Hospital Association and the health care union.


NEW YORK — State lawmakers remain at odds with Gov. Kathy Hochul over how much money to pour into Medicaid as part of the overdue state budget.

And they are uncertain about how much money they even have to spend.

Legislators have yet to reach an agreement with the Hochul administration on a new $4 billion tax on managed care organizations, a type of health insurer. The fate of the proposal will almost singlehandedly determine the direction of Medicaid reimbursement rates and the extent of state support for financially distressed providers.

“Everything hinges on the [managed care organization] tax and if the governor’s going to be receptive to that proposal, and we haven’t heard anything definitive yet,” Assemblymember Ed Braunstein, a Queens Democrat and member of the chamber’s health committee, said in an interview.

A Hochul administration official, who was granted anonymity to discuss internal deliberations, said the governor is pursuing the tax proposal in conversations with the federal government. However, anticipated revenue from the tax might not be included in the upcoming 2024-25 budget, since the state would first have to apply for and receive federal approval.

Top Democrats in the Legislature involved in the negotiations acknowledge the revenue’s uncertain timing poses a challenge for the budget-making process. The state’s fiscal year started Monday.

“How do you build a budget on what you believe you will get based on the conversations with the federal government? That’s one of the things we’re trying to figure out,” Assembly Speaker Carl Heastie, a Bronx Democrat, told reporters Tuesday.

Dueling Medicaid proposals

Hochul’s executive budget demanded roughly $1.2 billion in Medicaid savings initiatives in the upcoming year, resulting in a slight year-over-year decrease in state spending on the program. Then, the Senate and Assembly set the stage for the current Medicaid debate with their one-house budgets.

Legislators almost entirely rejected Hochul’s slate of cuts and laid out near-identical proposed rate increases. Both chambers called for an across-the-board hike of 3 percent for all health care institutions and services — plus even larger increases for hospitals, nursing homes and assisted living facilities.

But those hikes hinge on the Legislature’s tax proposal, which was initiated by the Assembly and echoes a similar policy the Centers for Medicare and Medicaid Services begrudgingly approved for California in December.

Under the proposal, New York would levy a $4 billion tax on Medicaid managed care organizations, which the state pays a monthly fee per member to handle enrollees’ care, as well as non-Medicaid managed care organizations, which would be taxed at a significantly lower rate. The state would then use the resulting revenue to pay back the Medicaid plans through higher monthly per-member rates.

Those higher payments would unlock additional federal matching funds for Medicaid that the state would use to pay for the Legislature’s proposed rate hikes for health care providers, restore Hochul’s various Medicaid cuts and provide new capital funding for health facilities.

Assuming the state takes on 40 percent of the cost to reimburse managed care plans and the federal government pays 60 percent, the $4 billion tax could ultimately generate over $6 billion in additional revenue for the Medicaid program, according to an analysis by Paul Francis, who served as former Gov. Eliot Spitzer’s budget director and ex-Gov. Andrew Cuomo’s deputy secretary for Health and Human Services.

It’s unclear precisely how much the tax would raise, since that depends on its exact structure.

It’s also unclear whether the Centers for Medicare and Medicaid Services would even approve New York’s application, given that agency officials say they plan to close the loophole California used. Even if the state does succeed in nabbing a waiver, the tax is expected to be valid for only a couple years, until tighter federal regulations make their way through the rulemaking process.

For that reason, fiscal watchdogs warn against using the proceeds for recurring expenses like increased Medicaid reimbursement rates.

“It’s a big risk for the state,” Patrick Orecki, director of state studies for the Citizens Budget Commission and a former Medicaid budget specialist for the state, said in an interview. “One-time money should only be used for one-time purposes.”

Orecki said the money would be better spent on more targeted investments for health care institutions that face urgent funding needs and dire budget deficits.

Democratic lawmakers say they plan to spread the tax revenue out over a six-year period to lower the height of the potential fiscal cliff.

At the same time, Hochul’s Commission on the Future of Health Care, which launched in November, is studying permanent solutions to curb increased spending on Medicaid, which costs the state more than $30 billion a year and covers about 1 in 3 residents. It’s the state’s second-largest expense after school aid.

“We want to take in the billions of dollars that we can now, but we also know we need a long-term plan as well,” Senate Majority Leader Andrea Stewart-Cousins told reporters last week.

The Legislature also has to contend with opposition from the health insurance industry, given the cost to non-Medicaid managed care plans.

“This is a bit of a ticking time bomb,” Lev Ginsburg, executive director of the New York State Conference of Blue Cross and Blue Shield Plans, said. “It’s a tremendous amount of unknowns with a huge price tag. And that price tag falls on the people who pay premiums.”

An 8-figure influence campaign

The Legislature’s dogged pursuit of more money for Medicaid underscores the influence of the Greater New York Hospital Association and the health care union 1199SEIU. They are waging an expansive, eight-figure lobbying campaign for higher Medicaid rates for hospitals through an initiative dubbed New York Alliance for Healthcare Justice.

GNYHA and 1199SEIU leaders are urging the state to bring Medicaid reimbursement rates in line with hospitals’ costs to deliver those services over four years, or an increase of roughly 7.5 percent per year. Closing the gap all at once would cost the state roughly $2.7 billion, according to the hospital association’s estimates.

“We knew that you couldn’t correct the problem in one year,” Kenneth Raske, GNYHA’s president, said in an interview.

The Assembly proposed a 7.5 percent bump for hospitals, and the Senate floated a 7 percent hike on top of the 3 percent across-the-board Medicaid rate increase included in both chambers’ budget proposals, which Raske said would be a sufficient down payment for the four-year plan.

GNYHA officials say their proposal is based on hospitals’ average Medicaid revenue and expenses as detailed on cost reports submitted to the federal government, which show that the program pays about 30 percent less than it costs hospitals to care for Medicaid recipients, but have repeatedly rebuffed POLITICO’s requests for the figures underpinning their calculations.

While Medicaid costs do exceed revenue at many New York hospitals, the shortfall varies greatly depending on the facility, according to a POLITICO analysis of 2021 data compiled by the Empire Center.

The largest gaps are at NYC Health + Hospitals facilities and hospitals in more rural areas of the state, such as Cuba Memorial Hospital in Allegany County. White Plains Hospital in Westchester County and St. Francis Hospital and Mercy Medical Center, both in Nassau County, also have among the highest Medicaid shortfalls.

In contrast, large private hospitals like Northwell Health’s Long Island Jewish Medical Center see much slimmer shortfalls, the analysis shows.

For that reason, Orecki and leaders in the health care industry argue lawmakers should be taking a more targeted approach to first help the facilities with the greatest need.

The proposed rate hikes have been a particularly bitter pill for community health centers, which provide primary care to Medicaid recipients and other low-income New Yorkers. Last year’s record Medicaid rate increase, frequently touted by Hochul as she resists another hike this year, benefited hospitals and long-term care facilities but left out other providers, including community health centers.

California, for one, is using its tax revenue to raise Medicaid rates specifically for primary care, maternity care and non-specialty mental health services.

“Nobody has been able to explain the rationale for why they’ve been giving them larger increases. They got increases that we never got,” Neil Calman, CEO of the Institute for Family Health, one of the state’s largest community health centers, said in an interview.

“I don’t understand why they keep leaving the primary care folks out of the system. Maybe it’s the power of their advocacy, their politics — I don’t know. But it’s demoralizing to the primary care system to have us be ignored like that.”