This year’s state budget came with a hidden asterisk: In the final throes of negotiations with legislative leaders, Governor Cuomo quietly postponed a month’s worth of Medicaid payments from the last week of March to the first week of April – shifting $1.7 billion in spending from one fiscal year to the next.
The maneuver, which wasn’t made public until weeks later, appears to throw the new budget out of balance – unless the Cuomo administration can squeeze an extra 8 percent in savings from the Medicaid program.
It also muddies Albany’s fiscal picture. Last year’s state-funded Medicaid spending, which was officially booked at $21.7 billion, would have been $23.4 billion had the March payments been made on schedule – and would have far exceeded the statutory “global cap” on the program’s growth.
Total state operations spending for 2018-19, listed at just over $100 billion, would have been higher by the same $1.7 billion, and thereby exceeded Cuomo’s self-imposed 2 percent cap by almost two points.
Also thrown in doubt are the projected numbers for Medicaid spending and total spending in fiscal year 2020 – which do not appear to have been revised upward to reflect the last-minute shift.
The first public notice of the delay came in May, on page 37 of the Budget Division’s 271-page “Enacted Budget Financial Plan.” It was also highlighted in a budget analysis released last week by Comptroller Tom DiNapoli.
The move is reminiscent of budget gimmicks used in the past, including by the current governor’s father, such as lagging the state payroll and “selling” Attica prison to the state Urban Development Corp. – the difference being that those steps were taken in the heat of fiscal crises and promptly announced to the public.
The recent Medicaid postponement was not driven by a shortage of money. According to cash reports from comptroller’s office, the state ended the fiscal year with a state-funds balance of more than $12 billion.
Rather, the payment delay of three business days “was done to limit spending to the Global Cap indexed rate for FY 2019,” the Budget Division said. It attributed the excess spending to “growth in managed care enrollment and costs above projections, as well as certain savings actions and offsets that were not processed by year-end.”
First enacted in 2012, the global cap mandates that state Medicaid spending be held to the 10-year rolling average of the medical inflation rate. If spending is on track to exceed the cap, the health commissioner has unilateral authority to cut Medicaid fees as necessary – authority that was not exercised in this case.
To the contrary, the administration chose last fall to grant temporary Medicaid rate increases to hospitals and nursing homes – a previously unbudgeted step that’s projected to cost the state $500 million over three years.
In its Annual Information Statement, dated June 12, the Budget Division gave this explanation of how the additional expense of $1.7 billion will be managed within the 2019-20 budget:
The Financial Plan assumes Medicaid spending in FY 2020 will comply with the Global Cap. As such, DOB and DOH will continue to develop options to reduce spending within the Global Cap and/or continue to manage the timing of payments, which may include a deferral to FY 2021 if spending is not reduced to levels that adhere to the Global Cap. Options to reduce spending include the execution of the statutory powers granted to the Commissioner of Health to limit spending.
In other words, the state will either squeeze an extra $1.7 billion in savings from Medicaid – by invoking the authority it chose not to use last year – or it will simply push payments further into the future.
Of course, complying with the global cap will be that much harder this year. To do so, the Health Department must both slow the rate of ongoing spending compared to last year while also absorbing the unpaid bills from March, which by themselves equate to almost 8 percent of state funding for the program. Counting federal matching aid, an 8 percent cut would translate to a loss of $3.4 billion or more in revenue for hospitals, nursing homes and other Medicaid providers.
The Medicaid cap has been increasingly weakened in recent years, as the governor and lawmakers modified it to exclude certain expenses – most notably, the impact of a minimum wage hike on labor costs for Medicaid providers.
Outside-the-cap spending was on track to be 9 percent of the Medicaid budget for last year. If the $1.7 billion had been paid on schedule, the combined overage would have been 17 percent.
The governor has also increasingly skirted his self-imposed 2 percent cap on state spending growth. Last year, the Citizens Budget Commission calculated that the actual growth rate in the 2018-19 budget was 4.47 percent. If the full amount of Medicaid spending is factored in, last year’s growth rate jumps to more than 6 percent.
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