Before the Assembly Health Committee
November 1, 2021
Thank you, Chairman Gottfried and members of the Health Committee, for calling this timely hearing about the future of Medicaid in New York.
The past decade saw significant change in Medicaid, so the time is ripe for rethinking and course correction.
The discussion should start with the recognition that New York’s Medicaid program is by no means austere by national standards. Relative to Medicaid programs in other states, it is characterized by expansive eligibility standards, broad enrollment, generous benefits and, above all, high spending.
Former Governor Cuomo made successful efforts to control and even cut costs during his early years in office, but he loosened and later effectively dropped the reins after his first term.
From 2011 to the beginning of last year, enrollment was up 1.3 million or 29 percent, and spending was up $22 billion or 41 percent. Both numbers spiked further during the pandemic.
The Affordable Care Act’s Medicaid expansion encouraged other states to adopt eligibility rules and benefit packages similar to what New York already had – which might have been expected to close the gap between New York and the national norm. Yet New York’s Medicaid enrollment jumped along with the rest of the country’s – and its per capita spending remained by far the highest of any state and roughly double the national average.
The Medicaid global cap, which Cuomo instituted in 2011, nominally limits growth of the state’s share of the program to the 10-year rolling average of the medical inflation rate. Due to the addition of loopholes and a lack of enforcement, however, Medicaid’s actual spending has grown substantially faster than inflation – and faster than the state budget as a whole.
Lax enforcement of the cap – and a failure to produce the monthly reports it calls for – contributed to the program’s fiscal crisis of 2019, which led to a round of cost-cutting moves in March 2020. Had the cap’s structure been adhered to, the spectacle of trimming the Medicaid budget in the middle of the pandemic could have been avoided.
Although the cap has been portrayed as unnecessarily austere, it allowed state Medicaid spending to grow more than twice as fast as the overall budget, which Cuomo held to about 2 percent per year. In this sense, it became a license for spending rather than a restraint.
Between the fiscal years 2017 and 2020, for example, the average annual rate of medical inflation was 3.2 percent, the average growth of state Medicaid spending was 4.6 percent and average growth of total Medicaid spending (including federal aid) was 5 percent.
Preferential treatment given to the budget’s two largest programs – Medicaid and school aid – put a squeeze on everything else. From 2017 to 2020, the remainder of the budget (minus those two big-ticket programs) shrank by an average of 0.3 percent per year.
Among the areas crowded out were non-Medicaid programs within the Health Department itself, such as inspecting nursing homes and monitoring for outbreaks of infectious disease. The department’s Wadsworth Laboratories – which played a key role in COVID-19 testing – was operating with half the budget and one-third of the staff that it had when Cuomo took office. This may have contributed to the state’s lack of preparedness for the coronavirus pandemic.
Medicaid managed care was another strategy Cuomo used to control costs in the early years of his administration. Over time, however, the plans’ effectiveness has been compromised by coverage mandates and pass-through subsidies for providers. The pending carve-out of the pharmacy benefit – with prescription claims to be directly paid by the state – will further undermine the ability of plans to control costs and coordinate care.
A surprising change of the past decade relates to Medicaid’s demographic profile: The state’s poverty rate has thankfully declined since 2013 – meaning that the program’s enrollment growth has been driven by an influx of people above the poverty line.
Judging by census data, in fact, people above the poverty line accounted for the majority of New York’s Medicaid recipients as of 2019. While these data do not perfectly measure Medicaid enrollment, they make clear that the program is reaching into the ranks of the able-bodied and employed – people with at least some means to contribute toward their own health coverage.
This trend puts the indigent and disabled in competition with millions of others for Medicaid’s attention and resources – and too often the indigent and disabled are left behind.
Medicaid now covers one in three New Yorkers, making it an increasingly mainstream part of the broader health system. Yet it continues paying the substandard fees of a program designed to be a smaller-scale safety net. On average, Medicaid pays hospitals 5 percent less than Medicare and 43 percent less than commercial insurance, according to an analysis of hospital cost reports from 2015.
The more Medicaid recipients a provider serves, the less money it generally collects – and quality of care inevitably suffers. In this way, Medicaid engenders a two-tiered health-care system of haves and have-nots.
Hardest hit of all are institutions serving the disabled – such as nursing homes and caregivers for the developmentally disabled and mentally ill –- which are largely or entirely dependent on Medicaid fees for their revenue.
The state compounds this burden by misallocating Medicaid’s supplemental funds, such as the Disproportionate Share Hospital or DSH program. The indigent care pool, for example, often subsidizes wealthier hospitals without regard to their actual level of charity care. Other grants are used to prop up hospitals that are losing money not just because of low Medicaid fees, but because they aren’t attracting enough consumers of any kind to be viable.
Medicaid also burdens private insurance – and the consumers and employers who pay premiums – through the indirect effects of cost-shifting by providers as well as the direct effects of taxation.
The state partially finances Medicaid with a pair of taxes on health insurance that generate $5 billion a year. These levies are the state’s third-largest source of revenue after income and sales taxes, and they help to explain why New York consumers and businesses pay the second-highest employer-sponsored premiums in the U.S.
The Medicaid program is charged with fulfilling one of state government’s highest responsibilities – which is providing for the health and well-being of those who are too disabled or too poor to provide for themselves.
In allowing the program to expand so far beyond its original purpose, the state has prioritized quantity of Medicaid coverage over quality. This has had negative consequences for taxpayers, the health-care system and the program’s neediest enrollees.
Rather than continuing on this unsustainable path, the state should pursue policies that increase the share of New Yorkers who can afford insurance on their own – and thereby reduce dependency on Medicaid.
This would start by fostering the affordability and availability of private insurance: rolling back heavy taxes on insurance, easing excessive coverage requirements that drive up costs and, where appropriate, incentivizing and subsidizing employer-sponsored coverage.
The state should also tighten enrollment procedures to minimize the high rate of errors and fraud that have been repeatedly documented in federal audits.
As enrollment and total spending decline, lawmakers could use the savings to lift Medicaid fees closer to industry norms while scaling back supplemental payments.
Medicaid money would follow patients to the doctors, hospitals, nursing homes, clinics and group homes they actually use – stabilizing the finances of safety-net providers and improving the care of recipients for whom Medicaid is the only option.
A recording of the full hearing can be found here.
 See “Busting the Cap,” Empire Center, October 9, 2019. https://empirecenter.org/wp-content/uploads/2019/10/Busting-the-Cap-Final.pdf
 See “New York Has Widened Its Lead in Per-Capita Spending on Medicaid,” Empire Center, July 31, 2020. https://empirecenter.org/publications/new-york-has-widened-its-lead-in-per-capita-spending-on-medicaid/
 See “New York’s Shrinking Budget for Public Health Deserves More Attention,” Empire Center, February 24, 2021. https://empirecenter.org/publications/new-yorks-shrinking-budget-for-public-health/
 See “The Pending Pharmacy ‘Carve-Out’ Could Increase Medicaid Costs Rather than Controlling Them,” Empire Center, December 23, 2020. https://empirecenter.org/publications/history-suggests-the-pharmacy-carve-out/
 Analysis of the Census Bureau’s Small Area Health Insurance Estimates, available at https://www.census.gov/programs-surveys/sahie.html
 Bill Hammond and Chris Pope, “The Impact of Single-Payer on New York Hospitals,” Empire Center and Manhattan Institute, November 13, 2018. https://empirecenter.org/publications/the-impact-of-single-payer-on-new-york-hospitals/
 See “Indigent Carelessness: How Not to Subsidize Hospital Charity Care,” Empire Center, September 18, 2017. https://empirecenter.org/publications/invincible-indigence/
 See “Hooked on HCRA: New York’s 24-Year Health Tax Habit,” Empire Center, March 11, 2020. https://empirecenter.org/publications/hooked-on-hcra-new-yorks-24-year-health-tax-habit/