The Division of Budget recently released its mid-year financial plan update which shows that the state is facing its largest budget gap since the recession in 2010. This time, however, the economy is not to blame. It is largely Medicaid that is causing the gap.

The report shows the $78 billion Medicaid program—the state’s publicly funded healthcare system—will cause a nearly $4 billion deficit in the current year. This is happening in a strong economy where Wall Street is healthy and when personal income and business tax collections are up. In fact, total tax receipts were $406 million above the enacted budget estimates so why is there a budget gap?

The simple answer is Medicaid costs, which consumes about a third of the state’s budget, have not been controlled or estimated appropriately. The Cuomo administration knows that if not kept in check, Medicaid costs can quickly spin out of control. To help keep costs under control, Governor Cuomo and the state legislature imposed a global cap on the state’s share of Medicaid spending in the 2011-12 fiscal year. This slowed the rate of costs until the administration grew lax and spending exemptions to the cap were made. One of the exemptions was made for higher labor costs. In 2016, the state failed to adequately account for how the new minimum wage mandate would impact the cost of Medicaid so it made exemptions to the cap to help pay for the increased labor costs associated with healthcare.

Budget gimmickry is also to blame for the budget gap. In 2018-19 the Cuomo administration postponed a $1.7 billion payment to providers at the end of March to early April—effectively putting off the expense from one fiscal year to the next. This allowed the state to keep Medicaid spending under the global cap for fiscal year 2018-19 but it punted the expense into the future. (More on Medicaid can be found in this recent column.)

The mid-year plan reports that the Division of Budget, the Governor, and the Department of Health are developing a savings plan that would maintain the Medicaid global cap and result in savings of $1.8 billion for the current fiscal year. Details are expected to be released in the executive budget in January. Adjustments to when health care payments are made, reductions in rates paid to providers and other administrative reductions are expected to be put forth as solutions but at this time, there are a lot of unknowns.

Clearly, action must be taken to reign in the growth of Medicaid spending and mismanagement. In the last 10 years alone, the program has gone from $52 billion to $78 billion and serves 6 million people—roughly a third of the state’s population—with the highest per capita spending in the nation. This trend is unsustainable and if not addressed Medicaid spending will crowd out every other spending priority in Albany.

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