(This post has been updated to correct errors.)

Albany’s newly enacted budget appears to increase the state share of Medicaid spending by $4.2 billion or 13 percent, continuing a trend of explosive growth for the safety-net health plan in the aftermath of the pandemic.

Governor Hochul’s initial proposal in January had called for an unusually large increase of $2.9 billion or 9 percent. Her final deal with the Assembly and Senate – approved this week – would add another $1.3 billion, according to projections in a “scorecard” prepared by the Budget Division.

Overall spending on Medicaid, including federal aid and funding from New York City and the 57 counties, is expected to break $100 billion for the first time in the year ahead.

The program’s outlays dropped during the pandemic’s first wave in fiscal 2021, but bounced back sharply after that – in part because of a big increase in enrollment during the public health emergency (see chart). The state’s share is on track to be 53 percent higher in 2024 than it was in 2019, which compares to 10 percent growth in the five years before 2019.

 

This trend has pumped billions more into what was already a costly health-care system by national and international standards. New York spends more per capita on Medicaid – and on health-care generally – than any other state.

Here are some of the key Medicaid- and health-related provisions of the new budget:

Across-the-board rate increases: The bulk of the added spending will go toward higher fees for various groups of providers that treat Medicaid recipients.

Hospitals are due to receive bumps of 7.5 percent for inpatient care and 6.5 percent for outpatient care, which will cost the state an estimated $395 million in the first year.

Nursing homes and assisted living providers were allocated a 6.5 percent increase, at a cost of about $217 million, with the option of a 7.5 percent increase if approved by the health commissioner, the budget director and federal officials.

The budget also includes a 5 percent cost-of-living adjustment for workers in group homes and other facilities funded by the Office of Mental Health and the Office for People with Developmental Disabilities.

Distressed hospitals: The final deal added back $500 million in supplemental funding for financial distressed and safety-net hospitals, partially restoring a $700 million reduction in Hochul's original proposal.

Pharmacy 'carve-out': After three years of delay, the final budget allows the state to move ahead with a restructuring of Medicaid's pharmacy benefit that was approved in 2020.

Under this so-called "carve-out," which took effect April 1, prescription drug costs will be directly reimbursed by the Health Department rather than by the insurance plans that process most other claims under Medicaid managed care.

The state expects this will save $410 million, mostly through additional rebate payments from drug manufacturers. However, most of that savings is to be paid back out to safety-net providers – to compensate them for lost revenue they have been generating through a federal drug-discount program called 340B. 

Cost-shift to counties: Lawmakers agreed to phase out an aid-sharing arrangement that reduces the Medicaid tab for New York City and the other 57 counties – effectively ending a freeze on the local contribution that has been in place for eight years.

As a result, the city and counties will pay $219 million more in this fiscal year, rising to an estimated $808 million by 2027.

For counties outside New York City, that additional cost is equivalent to 4 percent of their property tax revenues in 2021.

Home health compensation: In an unexpected last-minute provision, the budget calls for cutting wage supplements for downstate home health aides by $1.55 per hour.

At the same time, a $1 hike in the enhanced minimum wage for home health aides, which was due in October, would be replaced by a $1.55 hike in January. In New York City, Long Island and Westchester County, that would precisely offset the $1.55 cut to the wage supplement – meaning the downstate workers' total minimum compensation would stay flat in the new year.

The wage supplements, instituted in 2016, require that downstate home health aides receive extra compensation on top of the minimum wage which can be provided either in the form of benefits, such as health insurance, or as straight wages.

The hourly amounts are currently $4.09 in New York City and $3.22 in Nassau, Suffolk and Westchester counties, and would drop to $2.54 and $1.67, respectively, as of Jan. 1.

This change was backed by the union 1199 SEIU because part of the savings would go to a subsidy for home health agencies that offer health insurance for their workers. This would mean more revenue for an 1199-operated benefit fund that has been losing money for several years.

However, most aides currently receive all or most of the supplements in the form of wages rather than benefits – and the policy change amounts to a net reduction for the affected workers as a group.

Over the first two years, the state projects that it will save $584 million on wage supplements while allocating just $157 million for enhanced subsidies – for a net reduction of $427 million compared to the baseline. The total impact for workers would be larger, because the reduction in wage supplements affects their compensation from all payers, including Medicare and private sources.

Health-care capital grants: The budget allocates another $1 billion for capital grants to health-care institutions – allowing hospitals, nursing homes and other providers to expand or renovate their facilities at taxpayer expense.

Lawmakers have previously approved similar pots of money seven times over the past 10 years – allocating a total of $5.4 billion, less than half of which has been spent.

Extension of HCRA taxes: In what has become a routine step, the budget extends a pair of multi-billion-dollar taxes on health insurance for another three years, to March 2026. 

The taxes have been levied under the so-called Health Care Reform Act since 1996. Together, they bring in about $5.2 billion per year, making them the state's third-largest source of revenue after income and sales taxes.

They also add hundreds of dollars per year to the cost of health insurance for the average family – which is one reason New York has some of the highest premiums in the contiguous United States.

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

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