cash-pile-notes-1792301Here’s another health care cut that Albany can stop worrying about: Despite losing $1 billion in federal funding, the state’s Essential Plan is actually expected to run a hefty surpluswhich the Cuomo administration is using to plug budget holes.

The surprising numbers are contained in a fact sheet that the Health Department is circulating among legislators and industry officials. They project that the loss of one stream of federal funding, known as cost-sharing reduction, will be mostly offset by strong growth in a second stream tied to premium tax credits.

Meanwhile, the department is both cutting its payments to insurers who participate in the program and demanding refunds for 2016 and 2017, having determined that rates for those years were too high.

With those savings and other maneuvers, DOH says it can not only make up for the shortfall of federal aid, but generate a surplus of $565 million. The governor proposes to use that extra money to pay for other health programs currently financed through Medicaid, thus helping to close a $4 billion budget gap.

The fact that the Essential Plan is operating a half billion in the black further undercuts the idea, as promoted by Governor Andrew Cuomo and some lobbying groups, that New York’s health care system faces a crisis due to cutbacks in Washington. In fact, Republican efforts to reduce federal spending on Medicaid and other programs have so far died in Congress, and nearly all of the feared cuts to other programs have been reversed.

One program that did take a hit was the Essential Plan. It turns out not to have needed the missing $1 billion after all, which implies that it would have been significantly overfunded had that cut not been made.

The Essential Plan, with 710,000 enrollees, is an optional benefit under the Affordable Care Act that only New York and Minnesota chose to implement. New York’s version covers adults earning up to 200 percent of the federal poverty level, or $24,280 for an individual, and offers comprehensive medical coverage for a premium of either $0 or $20 a month, depending on income.

To finance the program, the state receives 95 percent of the federal subsidies that enrollees would have received had they enrolled in commercial plans through the state’s insurance exchange. Those subsidies take two forms: tax credits for enrollees to offset their premium costs, and “cost-sharing reduction” payments to insurance plans to reduce copayments and deductibles for low-income members.

Taken together, these federal payments are covering 97 percent of the program’s costs for fiscal year 2018—compared to 50 percent for the state’s Medicaid plan.

In another fiscal upside, the state has used the Essential Plan to cover about 250,000 legally present immigrants—who were formerly enrolled in Medicaid with no federal support. That has been saving the state about $1 billion a year.

In October, the Trump administration stopped payments under the cost-sharing reduction program—both to insurance plans and to New York and Minnesota—citing a court ruling that the funds had never been properly appropriated by Congress.

At the same time, however, the Essential Plan’s tax-credit-based funding has been rising—because the credits’ value is tied to premiums for benchmark “silver” plans, which have seen double-digit hikes. As a result, New York has ended up with more than enough money to keep its program going.

The plan outlined in the Health Department fact sheet faces potential pitfalls. Insurance plans are likely to object to rate cuts and refunds. The plan’s funding for fiscal year 2020 depends on a 22 percent increase in tax-credit funding—which implies that the state is banking on a 22 percent increase in silver premiums, and that the Department of Financial Services would be willing to approve hikes of that magnitude.

Senate Health Committee Chairman Kemp Hannon (R-Long Island) is also warning that federal officials could reject the plan’s proposed use of Essential Plan funds for other programs, such as subsidies for safety-net hospitals, which could result in the state being forced to refund the money.

“I simply disagree with the process,” Hannon told Health Commissioner Howard Zucker at a budget hearing on Monday. “I don’t think it has long-term sustainability. I think at some point the feds are going to throw the red flag on it.”

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

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