Faced with rising Medicaid enrollment and a lack of funding across New York's health care system, Democrats in Albany have adopted a gambit that claims the state can generate billions of dollars a year out of essentially nothing. I'm thinking of doing it.
The proposal exploits a loophole in the Medicaid reimbursement process that allows states to bill billions of dollars from the federal government.
Here's how it works: New York state could create a tax targeting managed care organizations like Aetna and United Healthcare, forcing them to pay a hypothetical $1 billion into the state treasury. The state would then repay insurance companies through Medicaid, using $500 million in state funds and another $500 million in matching federal funds, leaving another $500 million in the state budget.
Because everything states spend on Medicaid is reimbursed by the federal government, this loophole creates the potential for a legal shell game in which Medicaid insurers are evenly matched, with states making money and the federal government losing.
Variations of this technique have been around for years, with 18 states using some form of tax money on managed care organizations to increase their share of federal reimbursement. But last year, as California faced a huge budget shortfall, state leaders pushed for an aggressive version of the system that would barely extract money from Medicaid insurers and make a profit, resulting in billions of dollars' worth of revenue. A dizzying cycle of trading occurred.
Now, New York Democrats are eyeing California's move, seeing it as an easy way to inject billions into the state's health care costs as they negotiate the state's overall budget.
According to the Centers for Medicare and Medicaid Services, New York spends more per capita on health care than any other state in the country, and that amount is expected to continue rising due to enrollment growth and demographic changes. .
Gov. Kathy Hochul is proposing to cut $1.2 billion from the state's health budget, with the majority of it coming from long-term care and related programs in the executive budget, but it would still increase health spending by about $3 billion. I will do it.
Democrats in Congress fiercely oppose these cuts, as do the powerful New York University Hospital Association and its labor allies, which have spent hundreds of thousands of dollars on recent lobbying and public awareness campaigns. are doing.
Hospitals are seeking higher Medicaid reimbursement rates to shore up the safety-net hospital crisis and ensure Medicaid patients receive better care.
It's not clear how exactly New York State intends to use the money from the Medicaid plan. Assembly Speaker Carl E. Heastie (D) said the money would be used for “medical purposes” and suggested some of the money could be set aside to offset future fiscal risks.
Amy Paulin, chair of the Assembly Health Committee, said she supports the plan because it could help address systemic disinvestment that has brought many safety net facilities to the brink of collapse. Stated. “We're in a terrible situation right now, and a big reason for that is the fact that Medicaid is underfunding all surgeries,” she said.
She added: “The question for me is why leave the federal budget on the table?”
There's no guarantee the federal government will approve New York's deal, and some skeptics warn that balancing the budget on that basis could worsen fiscal woes.
The Centers for Medicare and Medicaid Services approved California's tax through 2026, but warned that the measure violates the spirit of the program, and in a letter accompanying the approval, the agency said it would “impose regulations to address this issue. I intend to propose.” problem. “
The Centers for Medicaid and Medicare Services declined a request for comment on New York's proposal.
But Hochul said Thursday that he believes the federal government's interest in closing the loophole discovered by California is genuine and hopes he can persuade federal officials to hold off until New York can also take advantage of it. He said he is doing so.
“We have been very persistent in asking them to provide us with the same accommodations before we close,” Hochul said, adding that effort has included communication with “the highest levels of the White House.” he added.
Not a yes yet, the governor said, “but they listened to us.”
Still, fears that the loophole could close soon only heightened concerns among some fiscal watchdogs.
“What they can expect is a short-term windfall,” said Bill Hammond, a researcher at the Empire Center who closely studies state health care spending. “But they're talking about using it to change the Medicaid fee structure. That's going to continue.”
Andrew Lane of the bipartisan Citizens Budget Committee agreed, saying: “You shouldn't use short-term funds for long-term needs. That's a recipe for financial instability or worse.”
But California lawmakers echoed Hochul's optimism, saying they have no idea whether the funding will run out soon.
“The rumors have been around for a while, but CMS never backed down,” said Democratic Sen. Caroline Menjivar, who heads California's Health and Human Services Appropriations Subcommittee. She added that California will receive an additional $1.5 billion more than the state requested last year.
“That's not to say CMS is pulling the rug out from under us,” she says.
The biggest concern, Menjivar said, is how the political environment in Washington will change under a potential second Trump term.
“Whatever happens in November could change a lot,” she said. “If the federal government changes, we're not going to look at California as a friend.”
The same can certainly be said for New York.
