New York State’s budget-making process sometimes works like a closed loop, as interest groups on the receiving end of state spending reinvest a portion of their proceeds to lobby Albany for still more money.

A stark example of this cycle can be found buried in disclosures by the state’s largest health care union, 1199 SEIU.

Over the past decade, the union’s filings show, a quarter-billion dollars in Medicaid funds earmarked to improve nursing home care have instead flowed to a pair of benefit funds providing health coverage for 1199 members.

Meanwhile, the terms of 1199 contracts diverted a “surplus” from one of those benefit funds to other purposes. Some of the money went to the 1199-affiliated Healthcare Education Project, which is currently sponsoring a multi-million-dollar TV ad campaign in support of higher Medicaid funding for hospitals.

In effect, Medicaid dollars have indirectly financed lobbying for more Medicaid dollars.

The web of transactions also raises questions of propriety: The Medicaid money received by 1199 benefit funds originated from the Health Department’s Advanced Training Initiative, which was supposed to teach nursing home workers to spot early signs of trouble in patients under their care.

Was the department aware the money had been repurposed to pay the medical bills of 1199 members? Was this arrangement okayed by officials in Washington, who authorized federal matching funds for the program?

The Advanced Training Initiative was not specifically approved by the Legislature. Instead, the Health Department conceived the program under statutory authority granted in 2014 to adjust Medicaid rates for various purposes, including “to protect or enhance the quality of care.”

The description of the initiative in the state’s 2015 application to the federal government made no mention of medical coverage for workers. Instead, it focused on training:

To reduce avoidable hospital admission for nursing home residents, New York will incentivize and encourage facilities to develop training programs aimed at early detection of patient decline. … The goal of such training programs would be to rein in the high costs of avoidable hospitalizations, improving the quality of life for New York’s nursing home residents.

The program had an annual budget of $46 million, which the department began distributing in 2015 to hundreds of nursing homes across the state. Some facilities used the money to buy training for their employees, and 1199 offers a course. However, homes with 1199 labor contracts agreed in collective bargaining to forward their share of the Advanced Training Initiative money to health benefit funds for union members, in exchange for reduction in what the employers were otherwise obliged to pay for health benefits.

This deal was described in an auditor’s report attached to a federal filing from the 1199 SEIU Greater New York Benefit Fund, which covers some 20,000 mostly downstate nursing home workers.

Effective June 1, 2015, the New York State Department of Health (DOH) implemented a new nursing home Advanced Training Initiative (ATI) program aimed at teaching direct caregivers to detect early changes in a resident’s status that could lead to health declines and/or hospitalization. A $46 million State budget has been approved for this program for the next two State Fiscal Years (SFYs), in which several non-participating employers are also recipients of this funding. The Fund is projecting to receive approximately $19 million in SFY 2015-16 and SFY 2016-17, respectively, for a total of $38 million for the two years. [Emphasis added.]

Effective July 1, 2015, the [Memorandum of Agreement] provides for certain employers to receive a reduction in their contribution rate for two years of approximately three percentage points, provided they agree to pool any and all funding received from the DOH ATI Retention Money over the two annual funding cycles, which sums should be contributed into the Fund. 

The note indicates that the funds are being used for “retention” of employees rather than training.

The Trustees [of the National Benefit Fund] recognize that the parties to the MOA intend that the ATI Retention Money will enable employers to enhance the retention of bargaining unit employees, thus creating opportunities for continuous care and improved patient outcomes. 

A similar note was attached to the filing for the 1199 SEIU National Benefit Fund for Health & Human Service Employees, which covers about 150,000 hospital and nursing home workers in the New York City area. The note said that fund, known as the National Benefit Fund, had received $15 million from the Advanced Training Initiative over the first two years.

According to the same filings for subsequent years, the two funds collected $195 million from the Advance Training Initiative from 2015 through 2022, plus another $24 million from an “Enhanced Advanced Training Initiative” launched by the Health Department in 2022.

A third 1199-affiliated benefit fund, which covers 20,000 home health aides, received $49 million in 2022 from a Health Department program called the Quality Incentive Vital Access Provider Pool.

In total, the three benefit funds received $267 million in Medicaid subsidies over eight years.

During this same period, the National Benefit Fund played an important but little-known role in state politics.

The last five contracts between 1199 and the League of Voluntary Hospitals, a consortium of New York City-area institutions, have included side letters regarding what the parties referred to as the “National Benefit Fund surplus.” In those letters, the union and management agreed to divert money from the health benefit fund to other purposes, including 1199-affiliated pension and training funds.

Starting with a contract signed in 2018, the list of recipients included the Healthcare Education Project, a lobbying organization jointly operated by the union and the Greater New York Hospital Association. The organization is known in Albany for sponsoring ad campaigns in favor of higher Medicaid spending, which often attack governors who resist the hospitals’ agenda.

Its current campaign is urging lawmakers to close what it says is a 30 percent gap between Medicaid hospital fees and the costs of care – a change that would cost the state billions of dollars per year.

The most recent two-year contract extension, signed in 2023, said $80 million would be diverted from the National Benefit Fund to four other funds, including the Healthcare Education Project. It did not specify how much the latter would receive, but in recent years the group has spent between $2 million and $8 million per year on Albany-related ad campaigns and lobbying.

The contract language notwithstanding, the National Benefit Fund has not consistently shown a surplus.

To the contrary, in 2018 – the year “surplus” funds were first allocated to the Healthcare Education Project – the National Benefit Fund reported a deficit of $229 million, followed by a $198 million loss in 2019.

In 2019 and 2020, the auditor said a pattern of negative cash flow raised “substantial doubt about the Fund’s ability to continue as a going concern.” 

The fund ultimately returned to fiscal balance by increasing the contribution rates from its member employers – and by securing continued subsidies from the state.