A billion-dollar Medicare windfall for upstate hospitals has turned into a crisis for upstate health insurers that’s threatening to disrupt coverage for millions of New Yorkers.

The state’s congressional delegation is scrambling to push through a legislative fix before the New Year, when a change in party control of the Senate will cost Chuck Schumer his title as majority leader and diminish New York’s influence in Washington.

The snafu relates to the Medicare Wage Index, which adjusts the fees paid to hospitals based on the cost of labor in each region of the country. In 2023, officials increased the indexes for upstate New York by 20 percent or more. The index for the Capital Region rose by 43 percent, which the Times Union found was the second-highest amount nationwide after rural Pennsylvania.

These changes were expected to generate an extra billion dollars in revenue for upstate hospitals – which hailed the news along with Schumer and other elected officials.

However, the adjustment also created a financial crunch for Medicare Advantage plans, in which commercial health insurers offer coverage to Medicare recipients in return for premium payments from the federal government. Those plans faced sharply higher costs for hospital care but did not receive a corresponding increase in federal funding – which has thrown some insurers into the red.

Although the hospital rate increases took effect in October, federal payments to plans will not be adjusted until 2025 at the earliest – and even then they are unlikely to cover the full costs due to restrictions in the funding formula.

Latham-based CDPHP, for example, has said it projects losing $150 million over the next two years. To manage the crunch, the not-for-profit insurer has unilaterally withheld millions of dollars’ worth of payments to hospitals.

“While we support the additional funding being provided to our local hospitals, these funding changes have left to the future of our great health plan – and the 65,000 seniors who entrust us with their care – in jeopardy,” CDPHP President and CEO Brian O’Grady said in a news release in July.

In response, the region’s largest hospital network, Albany Med Health System, has filed suit against CDPHP, lodged a complaint with state regulators and threatened to stop accepting all of CDPHP’s customers – on Medicare and otherwise – in 2025.

Rochester-based Excellus BlueCross BlueShield has estimated that it stands to lose $431 million on Medicare Advantage over the next four years. Without additional federal funding, the company said it will have to consider scaling back its Medicare Advantage plans, narrowing its provider networks, reducing or eliminating optional benefits such as coverage for dental care and transportation, or increase customers’ out-of-pocket costs.

Excellus, CDPHP and other upstate plans have rallied behind a legislative fix proposed by U.S. Rep. Claudia Tenney, R-New Hartford, which is cosponsored by upstate Congress members of both parties. The bill would authorize the U.S. Centers for Medicare & Medicaid Services to make adjustments to Medicare Advantage payments in regions where the wage index was increased by 20 percent more.

Supporters are hoping the measure will be included in a continuing resolution that Congress is due to pass by Dec. 20 to head off a government shutdown. This is likely to be the last opportunity before Schumer loses his clout as majority leader.

If not, insurance customers across New York will face the likelihood of fewer choices and higher costs – the unintended side effects of rate boost for hospitals that officials approved without thinking through the consequences.