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.

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

You may also like

How a Medicaid Program To Improve Nursing Home Care Ended Up Paying for Union Benefits

New York State's budget-making process sometimes works like a closed loop, as interest groups on the receiving end of state spending reinvest a portion of their proceeds to lobby Albany for still more money. Read More

How Eliminating the Medicaid ‘Gap’ Would Perpetuate Inequity in Hospital Funding

A change in Medicaid reimbursement currently being pushed by New York's hospital industry appears likely to benefit high-end hospitals proportionally more than safety-net institutions, a review of hospitals' financial repor Read More

Hochul’s ‘Straight Talk’ on Medicaid Isn’t Straight Enough

Arguably the biggest Medicaid news in Governor Hochul's budget presentation was about the current fiscal year, not the next one: The state-run health plan is running substantially over budget. Read More

Despite Lingering Shortages, New York’s Health-Care Workforce Is Bigger Than Ever

The state's health-care workforce is recovering unevenly from the pandemic, with persistently lower employment levels in some areas and robust growth in others. This mixed pattern c Read More

The Wacky Math of New York’s Essential Plan

Thanks to an absurdly wasteful federal law, New York's Essential Plan is expected to continue running billion-dollar surpluses even as state officials more than double its spending over the next several years. Read More

In a Tight Budget Year, New York’s Hospital Lobby Shoots for the Moon

As Governor Hochul calls for spending restraint next year, influential hospital lobbyists are pushing what could be the costliest budget request ever floated in Albany. In a , the G Read More

Putting the Mission in Hochul’s Health Commission

Last week Governor Hochul answered one big question about her Commission on the Future of Health Care – the names of its members – but left a fundamental mystery unresolved:  W Read More

Medicaid Drug ‘Carve-Out’ Led to Double Payments

The state's Medicaid program has effectively been double-paying for prescription drugs for the past six months due to a glitch with the roll-out of its pharmacy "carve-out." Since A Read More