February 12, 2020
Bad Medicine: Arbitrary Caps and Cost Shifts Won’t Heal Medicaid
By James Parrott
New York State’s Medicaid-induced $6.1 billion budget gap for the coming year stems from Governor Andrew Cuomo’s budget approach and practices more than anything else. His reliance on rigid spending caps has led to various fiscal smoke-and-mirror maneuvers to try to project an appearance of smart and disciplined spending control.
Instead, gimmicks such as moving some spending forward by a few days into the next fiscal year, as was done the past two years with Medicaid, served to mainly obscure the steady rise in Medicaid spending and pushed a reckoning down the road. That reckoning is no longer avoidable.
Six million New Yorkers are enrolled in Medicaid, roughly one in every three state residents. In New York City, 3.5 million persons rely on Medicaid. Enrollments surged beginning in 2011 with the implementation of the federal Affordable Care Act, cutting New York State’s uninsured rate in half to a historic low of 5.4 percent. In part, the State’s heavy reliance on Medicaid results from the fact that many low-paying employers do not provide health insurance to their employees. Sixty-one percent of adult Medicaid enrollees in New York State are working.
In recent years, while enrollments have leveled, per-enrollee spending has grown due to the aging of the population and increasing costs for long-term care and personal care services for home-bound recipients.
In 2013, the State began phasing in a takeover of the growth in the local share of Medicaid spending, something necessary and long overdue since New York requires localities to pay a greater share of Medicaid costs than any other state. Generally, compared to other states, New York funds a much smaller share of combined total State and local government expenditures (see the graph below). The State should take over even more of the local share, not less as now proposed by Governor Cuomo.
Source: NYS FY 2020 Executive Budget, Economic and Revenue Outlook, p. 157
New York City officials argue that the governor’s proposed Medicaid cost-shifting could saddle the City with as much as $1.1 billion in new Medicaid expenses annually. The governor wants counties and New York City (which is a consolidation of five counties – the five boroughs) to cover any annual growth in the local share of Medicaid costs that exceeds three percent. New York City would shoulder such a large shift in part because the governor seeks to penalize localities where annual property tax levy growth exceeds the State’s two percent local property tax cap, even though the cap does not apply to New York City.
When the State began phasing in a higher minimum wage in 2016, Medicaid costs went up further, since tens of thousands of Medicaid-funded home health aides and personal care aides are low-paid. These workers deserve at least $15 an hour, if not more, given that they provide essential services that enable the elderly and the infirm to stay in their homes, saving taxpayers since institutionalized care is generally far more costly.
By far the bulk of Medicaid spending growth is driven by increased payments for long-term and personal care services, which is where Medicaid costs need to be better managed. The governor is right in calling for a reprise of the kind of Medicaid redesign measures that were a major feature of his early years in office. But there also needs to be attention to rethinking “charity care” payments to large private hospitals that no longer function as safety-net hospitals. Some of the large private New York City hospitals have annual surpluses in the hundreds of millions of dollars. And to the extent that real cost savings aren’t sufficient to close the Medicaid gap, then new revenues may be needed.
Arbitrary spending caps are the wrong medicine when spending needs legitimately grow in the service of an important public priority such as expanding health coverage.
The obvious place for New York to look for additional revenues is the corporate profits tax. Despite record profits and stock buybacks in recent years, the State corporate tax share of New York’s economy is far lower than it has been in decades. Changes advanced by the governor in 2013-14 resulted in a continued downward trend in corporate taxes relative to the size of the state economy. From six-tenths of a percent of gross state product during and immediately after the 2008-09 Great Recession, New York corporate taxes are now only four-tenths of a percent of the state economy.
Source: NYS Department of Taxation and Finance statistical summary, and U.S. Bureau of Economic Analysis
New York’s giant corporations and banks also reaped an enormous windfall from the 2017 federal tax cuts. Restoring New York’s corporate tax levies to where they were a decade ago would raise $3.5 billion a year. Some of this revenue could be used to reduce some of the State’s problematic health care taxes and fees, such as the employer health insurance surcharge, which distort the medical payments system.
Hopefully, the State Legislature will reject the governor’s attempt to force localities to clean up his budget mess. New York needs better budgeting that stops shifting costs. If anything, the State needs to be taking over even more Medicaid costs from local governments. It’s also time for corporations to be put back on the hook for paying a fair share to support the Empire State and its people.