Cuomo’s multibillion-dollar headache

State budget season has not even begun, but Gov. Andrew Cuomo already faces a $4 billion structural gap in the state Medicaid program. This shortfall reached $1.7 billion last year and is hovering at about $2 billion this year. It will reach $6 billion in the coming fiscal year that begins on April 1, 2020. Not only does this affect the long-term viability of the state program that provides health insurance to millions of people, but it also affects the state’s finances more broadly.

The upcoming budget season will test the appetite that Cuomo and the state Legislature have for addressing the problem. The state is facing its largest projected budget deficit in nearly a decade and Medicaid is largely to blame, according to the state’s mid-year financial update released in November. To plug this hole, the Cuomo administration plans to seek $1.8 billion in savings while shifting $2.2 billion more into the next fiscal year by delaying one month’s worth of Medicaid payments – just as he did earlier this year with last fiscal year’s $1.7 billion gap.

Such budgetary sleights of hand may balance the books, but they do not solve the underlying problem of Medicaid costs exceeding budgetary allocations. Upcoming budget talks between Cuomo and lawmakers may explore funding cuts, tax increases, a repeal of the cap on Medicaid spending growth or even the establishment of a task force like the Medicaid Redesign Team that Cuomo created in 2011 to help deal with the state’s shaky finances. Whether or not the state budget for the coming fiscal year will be able to avoid future delays in Medicaid payments remains a formidable challenge considering the state’s reliance on that tactic in recent years.

The state has put off payments from one year to the next since 2014, $50 million in the first year and now $1.7 billion from last year – or 8% of the state’s Medicaid spending. All options appear to be on the table for dealing with what Cuomo called a “major problem” a few weeks ago. “We are developing a plan that will fix the structural imbalance while also continuing high-quality care for more than 6 million New Yorkers,” said Freeman Klopott, a spokesman for the state Division of the Budget, in a statement to City & State. Funding for the state Medicaid program is split among the federal, state and local governments, with the state paying about one-third. The program cost the state Department of Health $11.9 billion in 2011 – its share of the total cost has risen about 0.5% to 1% each year since – and the state has now budgeted to pay $22 billion of the $74.5 billion state program in fiscal year 2020.

Lawmakers and health care providers are feeling pessimistic about the situation. “We are in for a massive round of pretty nasty Medicaid cuts,” said Assemblyman Richard Gottfried, chairman of the Health Committee.

Medicaid requires the state to provide health services to anyone who qualifies, but the state could trim around the edges to reduce costs for supplemental programs and the reimbursement rates to providers that contract with the state. The state has already tried to cut funding for nursing homes by $352 million, a move recently blocked after a state judge issued an injunction in response to a lawsuit filed by providers. The leaders of several nonprofits told City & State that they operate on tight margins that could require them to deliver services without getting fully reimbursed by the state if Medicaid cuts materialize. “I remain exceedingly worried,” said Jeffrey Farber, president and CEO of long-term care provider The New Jewish Home. “It is sort of like getting blood from a stone.”

The reasons behind the state’s Medicaid deficit are complicated. To some degree, the state is a victim of its own success in increasing the percentage of the population who now have health insurance. About 95% of New York’s 19.5 million people have health insurance nearly 10 years after the passage of the federal Affordable Care Act. Enrollment in the state Medicaid program has jumped by about 50% over the past decade to about 6.3 million people in 2019. This expansion in health care services, however, has pushed Medicaid expenses beyond its budgetary limits following the implementation of a “global cap” that ties spending increases, more or less, to the rate of inflation.

In the past year, the presumption that the state is in fact keeping spending growth under the cap is more about style than substance, according to Bill Hammond of the Empire Center for Public Policy. “This was not a near-miss. State-funded Medicaid expenses, which were budgeted to grow by 4%, had actually grown by 12%,” he wrote in October. A rapidly aging population is only pushing Medicaid further into the red. “A lot of babies were born in the late 1940s and are now consuming large amounts of health care, including long-term care,” Gottfried said.

The Cuomo administration argues that there are several reasons that it has struggled to keep spending below the cap. For starters, increases in the minimum wage have increased labor costs. The federal government has decreased its financial support to the state while enrollment in a state long-term care program has grown at a rate of approximately 13% per year. The spending cap has also decreased from about 4% to 3% in recent years because of changes in the 10-year rolling average of the Medicaid consumer price index that determines the cap. Health care expenditures meanwhile are growing nationally at about 5.5%. The state also increased its support to financially distressed hospitals by 27% to about $770 million.

Politics also appear to play a role. The state authorized the first increase since 2008 in Medicaid reimbursements to hospitals after the Greater New York Hospital Association, an industry group, donated more than $1 million to the state Democratic Party, which Cuomo effectively controls, The New York Times reported in October.

State Senate Majority Leader Andrea Stewart-Cousins said in a recent appearance on “The Capitol Pressroom” that she wanted her chamber to be involved on the issue. But like Cuomo, she has remained vague on how to deal with the deficit. “Hopefully, we’ll be able to address it without causing a lot of pain,” she said. In budget negotiations, however, the governor has the most power and lawmakers will have to follow his lead. In a sense, the current Medicaid deficit even adds to Cuomo’s leverage because he can urge fiscal restraint on budget priorities that he does not share with lawmakers by pointing to the Medicaid deficit.

At this point, it is impossible to predict how political and economic dynamics will affect efforts to address Medicaid funding during the upcoming budget season. The release of the mid-year financial update has offered policymakers a glimpse of the state’s financial situation, but it could change, for better or worse, just as last year’s unexpected $2.3 billion shortfall showed the volatility of the state’s finances. The implosion of a proposed deal to bring an Amazon headquarters to Queens underscored how political developments can suddenly complicate the relationship between the governor and lawmakers in unexpected ways.

The bottom line, though, is that something will have to happen by the state budget deadline of April 1 to deal with the Medicaid deficit, or else the state may sink further into a financial hole. Only the Cuomo administration has any sense of where negotiations on this issue will start in January, but the broad strokes are already obvious. Health care providers say it is not a matter of if cuts are coming, but just a matter of what will fall on the chopping block. “The state has to look at what they’re spending, and in the short term, they have to make some decisions about what they’re going to continue funding and what they’re not going to fund,” said Bea Grause, president of the Healthcare Association of New York State, a hospital and nursing home industry group. “That’s what we’re in the dark about.”

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