Medicaid cuts make the state budget, with some tweaks

Early Friday morning, New York passed a $177 billion budget that included a slate of Medicaid changes meant to help close a $6 billion budget hole the state faced even before the new coronavirus pandemic. But, in order to protect the state’s access to billions of dollars in federal aid, it will allow those cuts to Medicaid spending to be delayed. Gov. Andrew Cuomo said the measures were necessary to pass a balanced budget, and he lambasted the federal coronavirus relief bill that prevents states from changing their Medicaid programs during the COVID-19 emergency if they accept federal Medicaid money included in the stimulus package. Cuomo even threatened to forgo $6.7 billion in emergency Medicaid dollars from the federal government, in order to implement the changes to the state program, arguing that the recurring savings were more important than a one-time influx of cash.

Ultimately, Cuomo did not make good on his threat, even though the final spending plan includes the Medicaid cuts and restructuring. Instead, the budget language allows the state to delay any provisions that might make the state eligible for the short-term federal aid. And although many progressive Democrats argued against any cuts to health care spending, health care budget experts said the state needed to rein in costs and handled the federal dilemma the best way it could.

About $4 billion of the state budget gap from before the pandemic came from Medicaid, the result of years of unchecked growth from generous benefits and, experts say, some waste and fraud fraud. Last year, the state deferred a $1.7 billion payment by three days to push it into the next fiscal year. 

In order to help address the issue, the governor convened the Medicaid Redesign Team II to identify $2.5 billion in cost-saving measures. In the end, they identified about $1.6 billion through a variety of proposals, most of which made it into the budget, including cutting payments to hospitals.

It’s not currently clear where the additional savings needed to balance the budget came from. 

Despite the cuts, Cuomo still touted 3% growth in Medicaid spending as part of the budget, representing about a $500 million increase. Bill Hammond, director of health policy at the conservative-leaning think tank the Empire Center, suggested this is because the proposed cuts are meant to slow the otherwise rapid growth in Medicaid spending, which means an increase is still possible. 

Among the most contentious of the Medicaid Redesign Team’s proposals that made it into the budget was $400 million in reduced payments to hospitals, including $138 million in cuts for New York City’s public hospital system Health + Hospitals. Many Democrats opposed to the cuts said that it doesn’t make sense to reduce any hospital spending during a pandemic. Cuomo defended the cuts by pointing to the money hospitals will receive under federal coronavirus relief packages. 

However, thanks to the option to delay cuts, the major reductions in hospital payments may not occur until after the crisis has resolved. According to an analysis done by the Citizens Budget Commission, two of the three changes that would lead to cuts to hospitals – changes to the Indigent Care Pool distributions, which helps hospitals cover the costs of low-income patients, and new efficiency measures for Health + Hospitals – are questionable under the federal coronavirus bill. That means that some of the most contentious cuts – those to hospitals – may not happen while hospitals are struggling to contend with a surge in COVID-19 patients.

Patrick Orecki, a senior research associate at the Citizens Budget Commission who authored the analysis, also told City & State that a large chunk of the hospital cuts reduce payments to financially sound hospitals, a reform he said has been needed for years. And Hammond said that there’s a new fund to help safety-net hospitals, like the city’s public network, to steel them against negative impacts from cuts. State Sen. Gustavo Rivera, chair of the Senate Health Committee, counted that fund as a minor victory among what he called the “misconceived proposals” in a statement. 

Hammond also pointed out that the cuts to hospitals represented a small fraction from one program that provides funding to hospitals. He said that while some may always be against cuts of any kind, it’s important to remember that New York spends among the most of any state in the country on Medicaid.

The other major area that the budget is cutting Medicaid costs is in managed long-term care – which contracts with private insurers to provide home aides for the elderly and chronically ill – the area of the program that has seen the most rapid growth. That can be at least partly attributed to recommendations from the original Medicaid Redesign Team, convened in 2011, and likely from mismanagement as well that led to the state getting billed by insurers for services never provided.

Orecki said that one recommendation that would have eliminated something called spousal refusal – allowing a spouse to decline to pay nursing home costs and shift it to Medicaid – was left out of the final budget. Rivera said this was also a victory in a successful “fight back against the most dangerous cuts.” However, the program elimination only would have accounted for $2 million in savings, a tiny amount of the $715 million in cuts and reforms to long-term care, the majority of which are the budget and a large chunk of which would likely be allowed by the federal coronavirus aid bill, according to the Citizens Budget Commission. 

Progressives such as Rivera and Assembly Health Committee Chair Richard Gottfried opposed the cuts, calling for new taxes on the wealthy and increases in health care funding, rather than cuts to Medicaid, to balance the budget. But both Orecki and Hammond said that the Medicaid Redesign Proposals are necessary to control Medicaid spending that has been ballooning past budgeted caps for years. They said that the language allowing delays in the enactments of the reform represent a smart move by the state, enabling much-needed reform and balancing the budget, without forfeiting short-term emergency funds. 

Hammond said he’s sympathetic to the viewpoints of progressives, but said that anyone who supports government services should support their efficient management, which the state Medicaid program is lacking in places. “It doesn’t mean writing a blank check for every possible health care need that somebody could imagine,” Hammond said. “You have to be realistic, you have to live within your means.”