The health care bill now moving through Congress could heap significant added costs on New York State.  But the Heritage Foundation is offering a provocative idea on how New York could turn the tables on the feds and save at least $47 billion on Medicaid over a six-year period.

The idea, in brief, is to end New York’s voluntary participation in Medicaid, retaining a state-financed long-term care program and leaving the rest of the state Medicaid caseload to the new federally subsidized health insurance plan.  Money grafs from the Heritage Web Memo:

Congress clearly fears that with the creation of the new entitlement, states would respond by lowering Medicaid eligibility. Hence, both the House and Senate attempt to prevent such state action by imposing “maintenance of effort” (MOE) requirements on the states.

If all states withdraw from Medicaid, their collective savings would be $725 billion over the 2013-2019 period, but they would exceed $1 trillion over 10 years. This assumes that states will continue to spend at least 90 percent of what they spend now on Medicaid long-term care services with state-only dollars. On a state-by-state basis, every state except North Dakota would come out ahead financially by leaving Medicaid but continuing long-term care spending with state-only dollars. Of course, if North Dakota reduced its long-term care spending, it too would come out ahead.

The cost to the federal government to replace the state share of Medicaid, however, would be greater than $1 trillion as the entire Medicaid population would become eligible for the new, more expensive federal subsidies for premiums and cost-sharing. Moreover, the states would no longer pay for Medicare cost-sharing or the state “clawback” for Medicare prescription drugs.

A state-by-state rundown of savings from federal fixcal year 2013 through 2019 is here; note that New York’s savings would climb to $59.7 billion if it also reduced its long-term care costs by 10 percent during the period.

The lead author of this idea is Dennis G. Smith, a Heritage senior fellow and former director of the federal Center for Medicaid and State Operations.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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