Gov. Kathy Hochul’s executive budget plan estimates large increases in the state Medicaid program, a measure that some fiscal watchdogs say is not sustainable.
Hochul’s $252 billion budget proposal, released on Tuesday, allocates $35.4 billion for the Health Department’s Medicaid budget, a 14% increase from last year. However, the state’s financial plan lacks accompanying policies to tamp down ballooning Medicaid costs, running the risk that those costs will run the state into a deficit.
“There’s a ton in new spending, but not a ton in new policy,” said Patrick Orecki, director of state studies at Citizens Budget Commission, a nonprofit watchdog that analyzes fiscal policy. He said that the governor’s proposed budget lacks a previously promised savings plan to address Medicaid spending, adding that cost reductions will most likely come from limiting eligibility.
Persistent growth in Medicaid spending is largely driven by increased enrollment in public health insurance programs, State Budget Director Blake Washington said in a briefing on Tuesday. There are approximately 7 million New Yorkers enrolled in Medicaid, which is 900,000 more than from before the Covid-19 pandemic. Along with enrollment in other public insurance plans such as the Essential Plan and Child Health Plus, New York covers approximately 9 million people, Washington said.
High costs within the managed long-term care sector – which includes home care – have also fueled high Medicaid costs, Washington said. The state has tried to mitigate long-term care spending by consolidating the Consumer Directed Personal Assistance Program, a home care program that allows recipients to hire and train their own caregivers. But managed long-term care enrollment is still projected to grow 12% in the coming year, adding pressure to the state budget, Washington said.
The state plans to ease some of its health budget challenges with revenue from a new tax on health insurance companies that’s expected to bring in $3.7 billion. New York’s managed care organization, or MCO, tax was approved by federal health officials late last year and allows the state to take advantage of a tax loophole that drives up federal reimbursements. Hochul said that the state will spend the $3.7 billion over three years to enhance rates for hospitals and nursing homes, offset spending increases and fund a program to help safety-net institutions.
Orecki said that using the MCO tax revenue on recurring expenses such as rate increases or budget gaps is “concerning,” as the funds are temporary and don’t do anything to address the root causes of Medicaid spending increases. “Eventually, you are going to run out of that MCO tax money,” he said.
Funds for safety-net hospitals
Hochul’s budget proposal includes more than $1 billion in new funding for safety-net hospitals, which make up 29% of the state’s hospital landscape. Her proposal increases funding for the safety-net transformation program, an effort launched in last year’s budget that aims to incentivize wealthier hospitals to form partnerships with financially distressed institutions to improve their businesses.
The governor proposed a $1 billion allocation for capital projects and $300 million for operating improvements within the safety-net transformation program, the latter of which will come from MCO tax revenue.
The budget also includes $450 million for SUNY Downstate’s University Hospital in East Flatbush, building on an agreement with the legislature last year to devise a plan to ensure the state-run teaching hospital remains financially sustainable. Hochul also allocated $200 million to SUNY Upstate in Syracuse to make capital improvements.
Mental health investments
Following Hochul’s commitment to expand hospitalization for people with mental illnesses last week, the governor proposed to increase beds in state-run psychiatric facilities by allocating $160 million to build a new 100-bed psychiatric forensic unit on Wards Island.
To accompany the shift, Hochul has proposed to change state law to make it easier for police officers and mental health clinicians to involuntarily commit people with behavioral health conditions to psychiatric hospitals, including the bill language in her budget. The governor also allocated $16.5 million to help county governments implement assisted outpatient treatment programs under Kendra’s Law, which requires court-ordered mental health treatment in community settings.
