As a budget deal nears in Albany, reining in spiraling Medicaid costs seems to be the last thing on anyone’s mind.

Governor Cuomo is advancing only modest belt-tightening measures, and some are ill-conceived. His financial plan would still allow total spending on Medicaid and the Essential Plan to jump 9 percent to $91.6 billion, an increase that’s three times the medical inflation rate.

With their respective counter-proposals, the Assembly and Senate are pushing for further expansion of what’s already the most expensive Medicaid program in the country while weakening or rejecting virtually all of Cuomo’s money-saving moves.

Complicating the picture is an influx of several billion dollars in federal relief funding earmarked for Medicaid. If lawmakers take this temporary extra cash as license to increase health-care spending, they will be deepening the fiscal cliff that awaits when the aid expires.

Here are some of the issues to be decided in the Medicaid and health-care portions of the budget:

Repealing the Medicaid global cap: Both houses are proposing to end Cuomo’s “global cap” on Medicaid spending, which nominally limits the growth of core state-share Medicaid spending to the 10-year rolling average of the medical inflation rate. The current policy empowers the administration to cut spending as necessary to stay under the cap and mandates monthly progress reports by the Health Department.

Although it worked effectively during Cuomo’s first term, the cap has been increasingly weakened and disregarded in recent years. Abolishing it completely would be a final blow for what was once a guide rail of fiscal discipline.

Hiking taxes on insurance: In the name of funding “early intervention” services for disabled children, the Assembly is proposing to hike the covered lives assessment, a tax on health insurance, by $40 million or 4 percent. This would add to New York’s unusually heavy taxation of health insurance, which is one reason the state has some of the highest premiums in the U.S. The tax is collected in a wildly uneven way, meaning it hits New York City residents 19 times harder than Utica residents.

Subsidizing malpractice coverage: New York’s physicians face exorbitant liability costs because of a dysfunctional system for litigating malpractice lawsuits. Instead of fixing those issues, the state has responded by providing doctors with supplemental insurance coverage—effectively subsidizing the incomes of generally high-paid professionals. In keeping with a recommendation of his Medicaid Redesign Team, the governor has proposed cutting that unwarranted subsidy in half, but the Assembly and Senate struck that language from their versions of the budget.

‘Carving out’ the pharmacy benefit: Under a change approved last year, the Cuomo administration is preparing to remove drug coverage from the package of benefits controlled by Medicaid managed care plans and have the Health Department reimburse pharmacies directly. This plan seems likely to backfire, because it would reverse one of the more successful Medicaid reforms of the governor’s first term, a pharmaceutical “carve-in” that significantly reduced per-prescription costs. The change is opposed by a coalition of safety-net providers who would lose the benefit of federal drug discounts that have become a significant source of their income. The Assembly would exempt safety-net providers from the carve-out, and the Senate would cancel it completely.

Financing home care: As part of an attempt to contain spiraling home-care costs, which have doubled over the past four years, the Health Department has tried to cut down the number of “fiscal intermediaries” involved in the Consumer Directed Personal Assistance Program, which enables disabled people to choose their own caregivers, including friends and family members, and have Medicaid pay them a wage. The Senate’s budget bill would require the Health Department to redo its selection process for fiscal intermediaries and contract with at least two entities in each county with 200,000 residents or more.

The Senate proposal would also mandate that home care aides be paid at least 12 percent more than the minimum wage—at an estimated additional cost of more than $600 million to Medicaid.

Although advocates portray home care funding as chronically beleaguered, New York’s spending on this benefit is an extreme outlier. As of 2016, New York accounted for 40 percent of nationwide Medicaid spending on personal assistance, a major category of home care, even though it has 6% of the population. Since then, the state’s personal care spending has doubled.

Reconfiguring the Essential Plan: New York’s Essential Plan, established under the Affordable Care Act, provides free or low-cost health coverage for state residents up to 200 percent of the federal poverty level as a well as a portion of undocumented immigrants who do not qualify for Medicaid. Cuomo has proposed to abolish the $20 monthly premium currently charged to some recipients, which would encourage more people to sign up. Both houses accept that proposal, but add a provision that would extend coverage to currently ineligible undocumented immigrants whose families have been infected with COVID-19.

Because the Essential Plan is almost entirely financed with federal aid—and is running a multi-billion surplus—these changes are likely to cost the state nothing.

Cuomo also wants to use the Essential Plan to finance $620 million in existing subsidies for health-care providers. This also would come out of the surplus, but might run afoul of federal law, which requires that the money be used only for the medical care of eligible recipients.

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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