The state’s Medicaid spending is becoming increasingly volatile from month to month and quarter to quarter, a warning sign of fiscal trouble ahead.
According to the latest budget report, expenditures on “DOH Medicaid” – the bulk of the state’s outlays for the safety-net health plan – surged to $9.4 billion through the first three months of the 2024 fiscal year, which began in April. That was up 80 percent from the previous quarter and 43 percent from the same period in fiscal 2023 (see chart).
Yet Budget Division projections show DOH Medicaid dropping to just $3.5 billion in the fourth quarter of 2024, which would be the biggest dollar swing the program has seen in a single fiscal year – and a possible symptom of dubious bookkeeping.
These gyrations are an echo of Medicaid's last major fiscal crunch – in 2019 and 2020 – and could presage a similar reckoning in the near future.
The spending fluctuations are not driven by the costs of care for Medicaid enrollees, which are relatively stable from month to month. Rather, they are a byproduct of cash-flow maneuvers that began in the middle of the last decade, during former Governor Andrew Cuomo's second term.
Faced with Medicaid spending overruns that were throwing the state budget out of balance, the Cuomo administration began delaying a portion of payments from late March to early April – effectively shifting the expense from one fiscal year to the next. This made the books appear to balance while creating a hidden deficit that snowballed over time.
By the time officials disclosed the practice, in the spring of 2019, the payment delay had ballooned to $1.9 billion – and opened a $4 billion hole in the state budget. Cuomo reconvened his Medicaid Redesign Team to find cost savings, a process that was still under way when the coronavirus pandemic struck in March 2020.
The final gap-closing plan included about $2 billion in cost-saving policy changes, but it also repeated the postponement of about $2 billion in Medicaid payments from March to April. This became a routine part of the state's fiscal calendar, although the dollar amount has not been consistently disclosed.
The practice makes it difficult for outside observers to discern whether Medicaid is staying on budget or not. The quarterly "DOH Medicaid" figures also omit contributions from agencies other than the Health Department, such as the offices for mental health and developmental disabilities, which amount to 18 percent of the state share.
During the pandemic, Medicaid's spending gyrations were more understandable, given the state's emergency maneuvers to manage cash flow as well as a temporary drop in routine health-care delivery and an influx of federal emergency aid.
But that turmoil is now largely over, and the swings in Medicaid outlays have only become more pronounced – mirroring a pattern of low spending in the fourth quarter followed by spikes in the first quarter that was associated with the crisis of 2019.
In effect, the state is counting on its ability to limit Medicaid expenditures in the final quarter to offset high spending earlier in the year. If that doesn't work – or if officials resort to postponing more payments – it would compound a fiscal crunch already looming next year.
The state recently forecast a $9 billion gap in the 2025 budget due next March, which could easily grow if the economy softens and tax receipts further erode. The state is also facing unexpected expenses – in particular, the multi-billion-dollar cost of housing, educating and providing health care to newly arrived immigrants being bused to New York by the thousands.
In June, the Hochul administration also revealed that it will have to find another $1.3 billion to finance promised bonuses for health care workers after the state's application for Medicaid matching funds was rejected by federal officials.
Governor Hochul inherited a Medicaid program that already spent the most per capita of any state, and she has allowed it to grow bigger and costlier. The budget she signed in April included major fee increases for hospitals, nursing homes and other providers and projected that the state's Medicaid contribution – one of the largest line items in the state budget – would increase almost 13 percent, far faster than the norm of the previous decade. Total spending on the program, including federal aid and state-mandated payments from local governments, is expected to break $100 billion for the first time.
Those expensive commitments are now on a collision course with the state's worsening fiscal condition. Other than vaguely alluding to a health-care reform commission she has yet to appoint, Hochul has made no obvious effort to change course.
Medicaid is a huge and important program relied upon by millions of vulnerable New Yorkers and a large swath of the state's health-care industry. Keeping the its costs in reasonable check can be logistically challenging and politically fraught. Yet it's clear from what happened in 2019 – and from the many other Medicaid crises in Albany history – that putting off the pain will only make it worse.