Albany’s Self-Inflicted Medicaid Crisis

by Bill Hammond |  | City Journal

In 2020, the biggest headache facing Albany will be Medicaid, the state-run health plan that covers more than 6 million lower-income and disabled New Yorkers. As revealed last month, Medicaid is running 16 percent over budget—opening a $4 billion deficit in the state’s current financial plan and contributing disproportionately to a $6.1 billion gap for the fiscal year that begins April 1.

This latest crisis is entirely self-inflicted by Governor Andrew Cuomo and the state legislature. Cuomo blames surging health-care costs—and they are indeed rising at unsustainable rates—but he should take a closer look at his own policy choices. His failure to acknowledge or address costs is what gave birth to the deficit. This pattern culminated with his administration’s unannounced decision to delay $1.7 billion in payments from late March to early April 2019—shifting expenses to the next fiscal year and throwing the state’s budget out of balance before it even passed.

These moves destabilized the state’s second-largest program (after school aid) and subverted important checks and balances in state government. Before the recent spike, the state’s Medicaid program was already costly, thanks to broad eligibility rules, generous benefits, and high spending per recipient. As of 2016, New York’s per-capita Medicaid spending, at $3,236 per resident, was the nation’s highest—and 79 percent above the national average.

Things had looked promising in 2011, when Cuomo established a “global cap” limiting the growth of state Medicaid spending, based on the medical inflation rate, and empowering him to cut costs as necessary to stay under the capped amount. Through Cuomo’s first five years in office, the policy seemed to work—holding spending growth to 17 percent, even as the onset of the Affordable Care Act pushed enrollment up 31 percent. New York took an important turn in the wrong direction, though, when the state raised its minimum wage from $9 an hour to as high as $15, beginning in 2017. Albany promised to reimburse Medicaid providers for additional labor costs associated with this hike, but this decision has proved much costlier than expected, with the state now projecting that its share of Medicaid minimum-wage expense in the current fiscal year will be $1.5 billion—more than three times the original estimate.

Another rapidly rising expense for Medicaid: home-based care for the elderly and disabled, especially the category known as “personal care,” which includes non-medical services such as bathing, cooking, and housekeeping. New York was already an outlier in this area when Cuomo took office. In 2011, for example, spending on personal care totaled $3.2 billion, representing more than 23 percent of Medicaid’s national tally for that benefit. By 2016, that line item had soared to $5.5 billion, or 40 percent of the national total. The number of long-term care enrollees—most of whom receive personal care—has continued climbing at double-digit rates.

Due to these costs, Medicaid began exceeding its budgeted spending allotment in the spring of 2018. As of September 30 of that year—the midpoint of the fiscal year—the overage stood at $762 million. The Cuomo administration neither raised alarms nor invoked its cost-cutting authority under the “global cap.” Instead, it moved to increase spending. On October 31, 2018, with no advance notice or public debate, the state ordered Medicaid rate increases of 2 percent for hospitals and 1.5 percent for nursing homes—a move that will eventually cost hundreds of millions. As the New York Times later reported, that decision came two months after the Greater New York Hospital Association—a powerhouse lobbying group that also represents nursing homes—contributed more than $1 million to the state Democratic Party, which supported Cuomo’s reelection campaign.

By the end of 2018, New York’s Medicaid deficit had ballooned to $1.4 billion. Cuomo didn’t bother mentioning it in his January 2019 budget proposal or in his budget negotiations with the legislature over the next three months. Instead, he quietly postponed a full month’s worth of Medicaid payments—8 percent of the annual total—from late March to early April, not letting legislators know about it until after they had finalized the budget for the 2019–20 fiscal year.

The newly enacted budget was immediately unbalanced in two ways. First, it was unexpectedly saddled with $1.7 billion in unpaid bills from the previous year. Second, it didn’t factor in the higher spending rate that had caused the program to go over budget in the first place. Thus, Cuomo’s stalling tactics effectively turned a $1.7 billion problem into a $4 billion problem.

The legislature’s now all-Democratic leadership shows no sign of wanting to hold Cuomo accountable. The Democrats seem inclined to accept the governor’s rationalizations—including the idea that delaying the March payments was a matter of complying with the Medicaid cap. But had Cuomo properly enforced the cap by curtailing costs before they got out of hand, the Medicaid program wouldn’t have spent that $1.7 billion in the first place.

Meantime, the state’s health-care industry is preparing to argue that virtually any cuts to its reimbursements will be devastating—even though its collective Medicaid funding has soared by 20 percent over the past four years. Among those taking the industry’s position to heart is Assembly Speaker Carl Heastie, who has said that he would rather fill the gap by hiking taxes on high-income New Yorkers. For his part, Cuomo has laid out a plan to slash $1.8 billion from the current year’s Medicaid budget, permanently reschedule $2.2 billion in payments from March to April, and then find another $3 billion in Medicaid savings in fiscal year 2020–21.

But Cuomo’s plan is only about slowing spending growth, not cutting spending in real terms. Even if the governor succeeds in making all these cuts—and that seems doubtful—New York’s Medicaid program will still cost about $26 billion next year, a new all-time high. The current course of unrestrained spending will either bankrupt the state or result in even higher taxes on a beleaguered taxpayer base.

© 2019 City Journal