Arguably the biggest Medicaid news in Governor Hochul’s budget presentation was about the current fiscal year, not the next one: The state-run health plan is running substantially over budget.

Confirming warning signs that emerged in the comptroller’s cash reports last fall, Hochul revealed that state Medicaid spending is exceeding projections by $1.5 billion.

That means the program, which was budgeted for a generous 12 percent increase, is on track to jump 15 percent in a single year and 62 percent over the past three. That’s on top of what was already the highest per capita spending of any state.

The overrun points to the need for tighter management of the massive program – and also for better reporting of Medicaid’s finances, so that the lawmakers and the public can be alerted to problems sooner.

By flagging the Medicaid imbalance now, at the start of the budget-writing process, Hochul has at least avoided repeating the fiasco of 2019.

That was when then-Governor Andrew Cuomo, faced with a similar Medicaid overage, chose to keep it under wraps during budget negotiations – then tried to paper it over by delaying $1.7 billion in bill payments from one fiscal year to next.

Thanks to that maneuver – and the budget crisis it triggered – Cuomo and the Legislature found themselves paring back funding for the health-care system just as the coronavirus pandemic struck.

Hochul did her duty by disclosing the problem sooner rather than later. She and her budget team also deserve credit for highlighting uncomfortable truths about New York’s health-care system – noting, for instance, that its Medicaid spending rate is the highest in the U.S. while the quality grades of its hospitals are among the lowest. These are realities the Empire Center has highlighted for years.

Still, Hochul’s account of the Medicaid situation – and her budget team’s disclosure of the underlying facts – left plenty of room for improvement.

For example, Hochul’s budget briefing book said “Department of Health Medicaid spending” would increase by $3 billion or 11 percent in fiscal 2025, even after $1 billion worth of cost-cutting – a statistic echoed by the governor herself on Tuesday.

But so-called DOH Medicaid represented only part of the picture. New York’s Medicaid budget also includes money from six other agencies, primarily the Office for People with Developmental Disabilities and the Office of Mental Health. With those funding streams included, Hochul’s budget projected that the overall state share would go down, not up, by $700 million or 2 percent.

 

The program’s total spending – including the federal and state shares and $8.6 billion from local governments – is projected to decline by $3.5 billion or 3.5 percent.

These drops are mostly due to one-time anomalies – a $1.1 billion “loan” repayment from certain hospitals that is to be delayed from fiscal 2024 to 2025, and the expiration of temporary federal aid during the pandemic.

The declines also depend on the Legislature approving Hochul’s budget proposals, which is far from guaranteed. Some lawmakers are already raising objections to her cost-cutting proposals affecting hospitals, nursing homes and home health wages.

Even under Hochul’s plan, the long-term outlook shows New York’s Medicaid costs tracking upward at worrying rates.

All that said, it was confusing and misleading for Hochul to focus on a line item that’s ballooning by 11 percent when her budget anticipates the overall program will shrink 3.5 percent.

Contributing to the confusion were Budget Division disclosures that were incomplete and unnecessarily complicated.

The division’s quarterly financial plans used to provide a multi-year table of all sources of Medicaid funding – including federal, state and local shares – but that stopped after Hochul took office. The plan released this week gives an all-in total for fiscal 2025 but not 2024, offering no indication of the year-to-year decline for that benchmark – nor its future increases.

Some of that information could be gleaned from detailed tables at the back of the financial plan. But the Medicaid budget is spread across line items in seven agencies – none of which is explicitly identified as such. Instead, they have nondescript labels such as “OMH – other” or “OPWDD – other.” The tables also omit the more than $8 billion paid in by New York City and the 57 counties.

As it has done in the past, the Budget Division covered this year’s $1.5 billion in cost overruns through the “OPWDD – other” line. As a result, the summary tables and cash-flow projections that rely on the DOH Medicaid figure showed no sign of the unexpected spending.

The state’s reporting on the Medicaid budgets also lacks any breakdown of spending by provider type or enrollment category – failing to distinguish, for example, between spending on hospital care for able-bodied adults versus nursing home care for the elderly and disabled.

Hochul’s briefing brook declared: “Managed long term care enrollment is projected to increase by 10 percent in FY 2025, and spending is expected to increase by 20 percent. Both of these trends are unsustainable.” These general trends are clear from other sources. Yet the state’s budget reports did not provide enough of the underlying facts for policymakers or average citizens to track what’s happening for themselves.

If Hochul wants to make good on her promise of “straight talk” about Medicaid – the state’s costliest and most important program – here are some basic steps she and the Budget Division should take:

  • Use total state share rather than “DOH Medicaid” as the primary benchmark
  • Provide a unified table of all Medicaid funding streams, including the local share
  • Clarify the labeling of Medicaid line items in all agency budgets
  • Include up-to-date information about payments from local government
  • Provide breakdowns of spending by provider type and enrollment category
  • Give more timely notification of spending overruns

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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