Even with that maneuver, revealed in a recent report from the Budget Division, the state says it still needs to cut its share of Medicaid expenses by $1.5 billion, or about 7 percent of the annual total, before the end of the fiscal year on March 31.
With federal matching aid factored in, this would entail a $3 billion reduction in Medicaid spending over the next four months. Meanwhile, another round of payment delays would add to the gap in the fiscal year 2021 budget, which is currently projected at $4 billion.
The worsening situation was described in an update to the state’s Annual Information Statement on Oct. 17. It was also highlighted in a budget report from Comptroller Thomas DiNapoli on Tuesday:
The scope of such delayed payments and the prospect of additional, even larger deferrals raise troubling questions as to whether the State may return to historical practices of allowing operating deficits to recur, and potentially increase, from year to year. Further concerns arise from the lack of detailed information about the causes of the imbalance and whether actions to fully address it will be identified and implemented during the current fiscal year or upon enactment of the SFY 2020-21 budget. The Executive should provide details on the specific causes of the imbalance, and clarify the State’s expected response, as soon as possible.
The administration acknowledges using payment delays to “manage” Medicaid overspending since 2014, a fiscally imprudent tactic that was first revealed to the public this May and didn’t become widely known until July. The amount started small at $50 million, but snowballed to a total of $1.7 billion – or about 8 percent of state Medicaid spending – that was postponed from late March to early April this year.
That delay was not factored into the budget for fiscal year 2020, as approved by the Legislature in March, leading to a current-year deficit that the Cuomo administration estimates at between $3 billion and $4 billion.
To date, the state has had enough of a financial cushion to absorb the extra spending in April – a solution that will stop working if tax revenue falters or the size of payment delay continues to grow.
Under a Medicaid “global cap” pushed through by Governor Cuomo in 2011, growth of state spending on the program is supposed to be limited to the 10-year rolling average of the medical inflation rate, currently about 3 percent.
At the governor’s urging, lawmakers have exempted a growing share of Medicaid spending from the cap – including, notably, some $1 billion in costs associated with a major minimum wage increase in 2016.
The health commissioner and budget director are authorized to enforce the cap by imposing across-the-board cuts when Medicaid spending runs over budget. When excess spending started to mount in the summer and fall of 2018, however, the administration refrained from invoking those “super powers” – and, in fact, authorized a Medicaid rate increase for hospitals and nursing homes last fall.
In the Oct. 17 report, the administration signaled that it will use those powers to manage at least part of the current deficit:
In FY 2020, it is expected that, to the extent practicable, management actions will be taken to limit Medicaid spending in FY 2020 to avoid piercing the Global Cap. It is expected that up to $2.0 billion in FY 2020 savings will be realized from adjusting the timing of payments consistent with contractual terms and past practice, leaving an imbalance in the range of $1.5 billion. Other actions to limit spending under the Global Cap in the current year may include, but are not limited to, the imposition of statutorily-authorized cost controls, including across-the-board reductions in rates paid to providers and health plans and reductions in discretionary payments.
More detail is expected in a mid-year budget update that is currently overdue.
UPDATE: It’s worth pointing out that the burgeoning Medicaid deficit is entirely driven by higher-than-expected spending, not a shortfall of revenue.
As budgeted, total state-share Medicaid spending was due to increase by 4.6 percent (about one-and-half times the medical inflation rate), from $23.4 billion in fiscal year 2019 to $24.5 billion in 2020.
Adjusting both years for delayed payments, the actual year-to-year growth is heading from $25.1 billion in 2019 to as high as $26.9 billion in 2020. That’s a 7 percent increase, more than double the medical inflation rate.