The extraordinary cash bonanza associated with New York’s Essential Plan – which has generated billions more than state officials were able to spend – would come to a crashing end under the budget bill advancing in Congress.

The House bill would bar federal health subsidies for a cohort of legally present immigrants who make up almost half of the Essential Plan’s enrollment.

If that change were to become law, New York’s health budget stands to lose $7.6 billion in federal revenue for the Essential Plan while incurring $2.7 billion in Medicaid costs to cover displaced enrollees, according to estimates released Monday by the Hochul administration.

The combined hit would account for $10.3 billion of the bill’s estimated $13.5 billion impact on New York’s health budget, according to the state assessment.

Other fiscal effects identified by the state include:

• $1.6 billion in lost revenue from the state’s newly imposed tax on Medicaid managed care organizations. The “MCO tax” exploits a loophole in Medicaid’s funding system that both Congress and the Trump administration are planning to close.
• A reduction in federal aid of almost $1 billion as a penalty for New York’s policy of covering certain undocumented immigrants.
• Increased administrative expenses of $570 million to enforce tightened eligibility rules, including a proposed work requirement for non-disabled adults.

The state stands to realize some offsetting savings if, as expected, work requirements cause Medicaid rolls to shrink. Officials estimated that enrollment would drop by 1.2 million when the requirements take effect, currently proposed in 2029, but did not put a figure on the resulting dip in Medicaid outlays.

The Essential Plan’s bizarre finances have made it a seemingly obvious target for federal budget cutters. Yet the House bill does not target the program directly. Instead, it seeks to exclude a swath of legally present immigrants from eligibility for insurance tax credits under the Affordable Care Act – credits that are the basis for calculating the Essential Plan’s funding stream.

Some of the immigrants in question are fully document green-card holders who have been in the country less than five years. Others fall into an in-between category known as “permanently residing under color of law,” or PRUCOL. They may have crossed the border illegally or overstayed visas, yet they have some form of official permission to stay in the country. They include people covered by President Obama’s Deferred Action for Childhood Arrivals program, which declared that federal authorities would not seek to remove immigrants who arrived as minors accompanying their parents.

Immigrants in these categories have long been ineligible for federal matching funds under Medicaid, and most states have excluded them from enrollment. In New York, however, a 2001 court ruling known as Aliessa v. Novello declared that New York has a constitutional obligation to provide health coverage for legally present immigrants, regardless of the availability of federal money. Under that ruling, the state formerly paid the full cost of Medicaid coverage for hundreds of thousands of immigrants in the so-called Aliessa population.

That changed with the advent of the Essential Plan in 2015. The plan was established under an optional provision of the ACA exercised to date by only three states, New York, Minnesota and Oregon. This option authorized the creation of state-run health plans for resident just above 138 percent of the federal poverty level, which was the income cutoff for Medicaid. To finance these plans, the federal government would pay the state 95 percent of what it would otherwise spend on tax credits and other subsidies for enrollees.

Since Aliessa immigrants were eligible for ACA tax credits, New York initially saved about $1 billion by shifting that population from Medicaid to the Essential Plan. The offer of free or nearly free coverage also proved popular with citizens, and the plan grew quickly..

Within a few years, it became apparent that the funding formula for the Essential Plan was generating more money than the state needed to pay the medical bills of enrollees. A trust fund established to hold the federal revenue built up a multi-billion-dollar surplus which by federal law could be spent on no other purpose. The balance in that fund currently stands at $8.9 billion, according to the state comptroller’s office.

To take advantage of the windfall, state officials found ways to spend more – including increasing reimbursements for hospitals to 225 percent of the amounts paid by Medicaid. In 2024, the state also expanded the upper limit of eligibility from 200 percent to 250 percent of the federal poverty level.

It also allowed a benefit fund affiliated with the labor union 1199 SEIU to shift its lower-income members into the Essential Plan as a way to save money and close a deficit.

Spending by the plan almost doubled over the past two years – from $6.3 billion in fiscal 2023 to $12.4 billion in 2025 – and federal aid has ramped to cover the whole amount.

This decade-long oddity – a health plan with more money than it needs – appears to be on the brink. If the current version of the House budget bill becomes law, some 730,000 of the Essential Plan’s immigrant enrollees would lose their eligibility for tax credits and, therefore, for the federal revenue that keeps the plan running.

State officials said they expect the plan to lose $7.6 billion in federal revenue, or about $10,300 per enrollee, which is more than half its current budget of $13.2 billion.

Under the Aliessa ruling, the state said it would be legally obliged to provide Medicaid coverage to 506,000 of those former enrollees at a cost of $2.7 billion. Another 224,000 immigrant enrollees would be left without state-provided coverage. They could still purchase insurance on their own, but without the help of ACA tax credits to mitigate the expense.

As a side effect, hospitals would lose the benefit of the Essential Plan’s elevated reimbursement fees, costing them an estimated $633 million. The would also see more uninsured patients, incurring charity care costs that the state pegged at $737 million.

The Hochul administration has made clear that it opposes the House budget plan, and some its estimates appear to have been exaggerated for political effect.

Assuming that the state and its health-care system do stand to lose the full $13.5 billion, however, it’s worth putting that amount in context.

First, New York starts from an extraordinarily high level of spending on government-funded health care. Its per capita Medicaid spending in 2023 was 21 percent more than any other state and 82 percent higher than the national average. Even if $13.5 billion had been cut out of its 2023 Medicaid budget, its per capita spending would still have been the highest of any state’s.

Second, three-quarters of the House bill’s expected funding impact derives from the collapse of the Essential Plan’s overly rich funding scheme, which was working in a way that the framers of the ACA could never have intended – and which state officials have taken as a license for excessive spending.

It’s fair to criticize Congress for summarily cutting off legally present immigrants from the benefits of the ACA. But fairness to those enrollees is not a rationale for allowing the Essential Plan’s dysfunction to continue.