New York’s health-care industry stands to lose billions of dollars in federal funding under the major budget bill being debated in Washington – a rare and jarring turn of events for a sector accustomed to steadily increasing government support.

Judging by estimates from the Hochul administration, however, combined spending by the state’s two major health programs – Medicaid and the Essential Plan – would remain high compared to even one year ago.

A mid-May analysis by the Health Department found that the House budget would reduce federal health-care aid by $10.1 billion while obliging the state to spend an additional $3.3 billion – which was summarized as a total impact on the state of $13.5 billion.

From the point of view of the health system, however, the additional state spending would partially offset the lost federal aid. This would result in a net reduction in Medicaid and Essential Plan spending of $6.8 billion or 5 percent (see table).

If that amount were deducted from the fiscal year 2026 budget for those two programs, they would still be left with $117 billion, which would be more than their combined 2025 spending of $116 billion (see chart).

Federal aid for the two programs, even after a cut of $10.1 billion or 14 percent, would still be higher than it was in 2023.

These numbers suggest that cutbacks on the table in Congress, though significant, would not be enough to “decimate” or “gut” New York’s health care system, as Governor Hochul and other elected officials have contended.

This is partly a matter or timing: The debate in Washington follows a period of unusually rapid growth in New York’s spending on its two major health programs.

In just the past four years, Medicaid spending has surged by 33 percent and Essential Plan spending has soared by 138 percent. The House budget bill would roll back about one-fifth of those combined increases.

As explained in a previous post, the bulk of the pending budget cuts would affect the Essential Plan, a Medicaid-like program established under an optional provision of the Affordable Care Act that covers 1.7 million people. Due to the ACA’s dysfunctional funding formula, the plan has generated more federal aid than necessary to cover its costs, causing a multi-billion-dollar surplus to build up in its trust fund.

The plan’s enrollment includes 730,000 legally present immigrants who lose their eligibility for federal health subsidies under the House budget bill. That would cost the state $7.6 billion in federal revenue. Under a 2001 court ruling, the state would be obliged to pay the full cost of Medicaid coverage for about 500,000 of those immigrants at a cost of $2.7 billion.

That would leave the plan with almost 1 million enrollees and $5.6 billion in remaining funds – which is roughly where it stood in 2022.

Other key provisions of the House bill would:

• Remove about $1 billion in federal aid as a penalty for New York’s policy of allowing certain undocumented immigrants to enroll in Medicaid at state expense.
• Cancel about $1.6 billion in funding the state was expecting through its MCO tax, a gimmick for drawing extra federal money.
• Tighten various screening requirements, which the state estimates would add almost $600 million in administrative costs.

The Health Department’s analysis did not fully account for all effects of the House budget bill – including, for example, its requirement that non-disabled adults document 80 hours per month of employment, education or other “community engagement” in order to continue receiving Medicaid benefits. 

The state estimated that this provision would cause 1.2 million people, or almost one fifth of current Medicaid enrollees, to lose benefits – but did not discuss the fiscal impact.

Based on the state’s average spending for similar enrollees, an enrollment drop of that size would likely reduce Medicaid spending by about $9 billion, including $7.6 billion in federal aid and $1.4 billion in state money.

Even with a funding reduction of that size, New York would likely spend more per resident on Medicaid than any other state. 

And even with an enrollment reduction of 1.2 million, the state would still be providing free coverage to about 36 percent of its population, which is 12 points higher than the national average.