The state’s Essential Plan has amassed a nine-figure surplus due to unexpectedly generous federal funding, records from the Office of the State Comptroller show.

Since the program was launched in fiscal year 2016, the quarterly balance in the Essential Plan Trust Fund has averaged $625 million and sometimes approached $1 billion. Despite a major cut in federal aid last last year, the balance stood at $376 million as of March 31. That equates to about 9 percent of the program’s $4 billion budget.

What created the surplus is a flawed funding formula in the Affordable Care Act that generates more money than necessary to pay for the plan, which provides free or near-free health coverage for 739,000 low-income New Yorkers.

With Congress showing no sign of adjusting the formula, Governor Cuomo has begun dipping into the surplus for pay for other health-related programs, such as subsidizing financially weak hospitals.

The Essential Plan was created under the ACA’s Basic Health Program, an optional benefit that was exercised only by New York and Minnesota. In New York, it offers comprehensive coverage for people with incomes up to double the federal poverty level (or $24,280 for an individual), with premiums of either $20 or $0 per month, depending on income.

To pay for that coverage, the federal government provides aid equivalent to 95 percent of the the tax credits and other subsidies that Essential Plan enrollees would have received if they bought commercial coverage through the ACA exchange.

State officials had projected that federal aid would offset about 85 percent of the program’s cost, leaving 15 percent to be paid out of state funds. Even so, the program was expected to be a money-saver for the state budget.

This is because officials were able to use the Essential Plan to cover some 250,000 lawfully present immigrants who, under state court rules, were entitled to Medicaid coverage without federal assistance. By shifting those immigrants from Medicaid to the Essential Plan, the state is saving about $1 billion per year.

As the program got running, however, the state has found that it needs to chip in not 15 percent, but only 2 percent—mostly to cover administrative costs that are not eligible for federal funding. Federal aid has more than covered the program’s medical costs, resulting in hefty surpluses.

Last year, the Trump administration halted an ACA subsidy program known as cost-sharing reduction, citing a federal court ruling that the money had not been properly appropriated by Congress. This reduced the flow of federal aid for the Essential Plan by about one-quarter, or more than $1 billion annually.

New York joined multiple lawsuits to restore that funding, arguing in one that the state might have to cut other programs “to avoid jeopardizing coverage” for Essential Plan enrollees.

In fact, just the opposite is true: The state is using excess Essential Plan money to finance other programs.

In a memo circulated this spring, the Cuomo administration said it would boost the program’s cash balance by claiming refunds from Essential Plan insurance providers it had overpaid in the past and reducing their fees going forward. It would then allocate $564 million of the surplus to pay for an existing program that subsidizes financially struggling hospitals. That effectively freed up half a billion dollars to balance the overall state budget.

The state is apparently proceeding with this plan, despite a warning from Senate Health Chairman Kemp Hannon that it could trigger a federal audit and financial penalties.

Meanwhile, New York and Minnesota reached a settlement of their lawsuit against the Trump administration over reduced subsidies. The two states received $169 million in partial reimbursement for what they lost in the first quarter of 2018, and the Department of Health and Human Services agreed to reconsider its decision to cut the funding.