Governor Hochul is releasing the brakes on Medicaid, allowing state spending on the safety-net health plan to increase more than twice as fast as it typically did during the Cuomo administration.

Hochul’s budget proposal for fiscal 2024 calls for the state share of Medicaid to rise by 9 percent or $2.9 billion, following a 14 percent jump in fiscal 2023. That compares to an average growth rate of 4 percent from 2011 to 2022 (see first chart).

The state’s forecasts for future years are also rising. Compared to January 2022 estimates, spending is expected to be almost $2 billion higher in 2024 and almost $10 billion higher over the next four years. These additions come on top of what are already the highest per-capita Medicaid expenditures of any state. 

These higher costs are driven in part by pandemic-related disruptions, but also by Hochul's policy choices – including higher reimbursement fees for hospitals and nursing homes, more subsidies for financially struggling providers, and wage hikes for home health aides.

Medicaid is a safety-net health plan aimed at the poor and disabled which is jointly financed by the federal, state, and local governments. The state's total contribution for fiscal 2023, at $31.5 billion, outstripped school aid as the single largest item in the state budget – which is probably a first.

In another historic milestone, the financial plan projects that total Medicaid spending – including federal, state and local contributions, along with other funds not normally shown in state reports – will break $100 billion in 2024.

To help pay for this elevated spending, Hochul is proposing to intercept an estimated $642 million or more in federal aid that has previously flowed to New York City and county governments, to offset part of their Medicaid costs. This would effectively reverse a freeze on the local share that has been in place since 2015 – which was one of more important Medicaid reforms of recent history.

Previous governors have generally sought to keep a lid on Medicaid spending, especially early in their tenures, recognizing that uncontrolled growth would inevitably throw the state's finances out of balance, especially during economic downturns.

During his first term, former Governor Andrew Cuomo pushed through a "global cap" which limited growth of most state Medicaid spending to a rolling average of the medical inflation rate. That kept the program's budget relatively stable for most of his administration – until 2019, when loopholes and fiscal gimmicks triggered cost-overruns that Cuomo and the Legislature were scrambling to rectify when the pandemic arrived.

In her first budget last year, fiscal 2022, Hochul and Legislature agreed to loosen the global cap by switching to a different benchmark – a federal projection of nationwide Medicaid costs – which more than doubled the allowable growth rate.

Hochul has tried to push forward with some cost-cutting measures left over from the Cuomo era, with limited success. But she has proposed few of her own – seemingly choosing to avoid fights with politically powerful health-care interests, such as hospital associations and labor unions.

Medicaid's recent history has been complicated by the pandemic. Costs plunged during fiscal 2021 as the state ordered a shutdown of elective procedures and consumers avoided using the health-care system when they could.

Health-care spending generally bounced back as restrictions eased in 2022. Medicaid got an extra jolt from two emergency measures in Washington – one that increased federal matching aid for the program, and another that required states to keep current recipients on their rolls regardless of changes in income – which has caused enrollment to temporarily spike nationwide. New York's rolls are expected to peak at 7.9 million, or 40 percent of the state's population, in June.

Under federal legislation passed in December, the "continuous coverage" requirement is due to expire in March, and states are expected to gradually prune their rolls over the ensuing 12 months. Meanwhile, the extra Medicaid funding that Washington provided during the emergency – which has been worth about $3.6 billion per year – will phase out by December 2023. 

State officials project that enrollment will drop by 1.2 million or 16 percent over the next two years – dropping close to its pre-pandemic level. Yet the governor's budget shows the state Medicaid budget continuing to climb through the foreseeable future – adding 18 percent over the following three years.

It's worth remembering that a governor's proposals are the starting point for negotiations with the Legislature. Lawmakers and interest groups are already signaling that they will push for additional significant increases in Medicaid fees and wages.

Unless Hochul imposes restraint – which is the governor's traditional role – New York's Medicaid spending is likely to spiral even faster than she has planned.