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Legislature Seeks to End “Arbitrary Limit” on Medicaid Spending

In his first months in office in 2011, Governor Andrew Cuomo signed into law a package of sweeping cuts and reforms to the state’s Medicaid program, in an effort to rein in what he described as its “out-of-control spending.” A key measure in the package was the Medicaid Global Cap, which restricts yearly growth of New York’s Medicaid spending and has played a major role in structuring health policy in the state since it was enacted.

But in their proposals for this year’s budget, for the first time, both houses of the legislature have proposed scrapping the cap, saying that it damages the quality of healthcare in New York State.

“The purpose of the cap, plain and simple, is to cut down on Medicaid spending—not based on merit or sound health policy, just based on a political decision to spend less on healthcare for the poor and frail, the elderly and people with disabilities,” Assembly Health Committee Chair Richard Gottfried told New York Focus. “We need to get rid of it for the current budget.”

The legislature’s proposal to reject the cap has alarmed conservative health policy experts.

“Repealing the cap sends a really unfortunate signal,” said Bill Hammond, a health policy fellow at the Empire Center for Public Policy, a fiscally conservative think tank. “It sends the signal that we’re cutting the break line, and we’re going to floor it from now on—cost is no object when it comes to Medicaid.”

New York’s Medicaid program, which provides public health insurance to over 7 million low-income New Yorkers, is more expensive per capita than the programs in most other states, in large part because it is more generous. Unlike many other states, New York covers prescription drugs, vision, and dental care.

“Our higher Medicaid spending level is not because we’re throwing money away, it’s because we are doing a better job than other states in paying for healthcare,” Gottfried said.

The cap, tied to the Consumer Price Index, restricts the yearly growth of the state’s Medicaid spending to a low-single-digit percentage. The governor often invokes the cap in negotiations with the legislature to justify implementing cuts and rejecting service expansions, advocates said.

But despite frequent mentions of the cap, advocates said that enforcement is selective, as the budgetary process allows certain costs to be “exempted” from the cap. Budget observers said that this gives the governor, who plays the dominant role in the budget process, a powerful tool to control state funds—he can and does cite the cap when arguing for cuts or rejecting the legislature’s spending proposals, but exempt from it expenses he supports.

For the next fiscal year, Hammond noted, the cap authorizes about $20 billion in state Medicaid spending—but the budget proposed by Governor Cuomo contains $28 billion.

“When the governor has wanted to, he has had no qualms about excluding some items from the cap, and then a year later putting them back under the cap without any explanation,” Gottfried said.

Even selectively enforced, the cap has negatively impacted the quality of the state’s Medicaid program, advocates said.

“The Medicaid budget has been subject to ten years of austerity and cuts. People in need of home care simply cannot find aides; we have crumbling public hospitals that bear the brunt of Medicaid cuts because they rely so heavily on state funding. It’s very easy to see how our entire delivery system has suffered because of the cap,” said Lara Kassel, coordinator of Medicaid Matters New York, a group that advocates for Medicaid recipients.

Last year’s budget included significant cuts to Medicaid, including $138 million of cuts to New York City’s public hospital system. “The cap gives him cover,” Amanda Dunker, a senior health policy associate at the Community Service Society of New York, told New York Focus. “It gives him a way to propose these types of cuts.”

“The cap allows the governor to point to an arbitrary limit that shuts down any negotiation over investment,” Kassel said. “When we exceed the cap he calls it a deficit, and says we need to make cuts in the program. We don’t see that as a deficit, we see that as spending that needs to happen.”

Lifting the cap would enable greater investment in the state’s public health care system, such as increased support of public hospitals and community health centers and higher wages for low-paid home health aides, advocates said.

Gottfried said that as a blanket restriction on growth, the cap ignores a number of natural causes of Medicaid cost increases. “It has never fully accommodated real inflation in healthcare costs. It doesn’t account for the aging of the Medicaid population, and it ignores the growth in the number of people who are income eligible for Medicaid,” he said.

Because it does not account for enrollment, the cap effectively requires per-enrollee cuts in years when significantly more people enroll for Medicaid.

Between March and November 2020, over 700,000 New Yorkers enrolled in Medicaid as many lost employment-based insurance due to the economic downturn caused by COVID-19. While this placed significant additional costs on the system, Kassel said that the program’s ability to respond to such shocks is a virtue. “Medicaid is a safety net program that did what it was supposed to do in 2020,” she said.

Medicaid advocates say that there are ways to shrink Medicaid spending without cutting services. Naomi Zewde, a professor of public health at the City University of New York, said that New York could cut spending without reducing services by eliminating contracts with expensive managed care programs, cutting out the middleman in provision of care, as Connecticut did in 2012. 97% of Connecticut’s Medicaid budget goes directly to providing healthcare, in contrast to 93% in New York, Zewde noted.

Whether the legislature’s proposal to end the cap makes it into the final budget could depend on to what degree legislative leadership prioritizes the issue in negotiations with the governor.

“The Assembly and the Senate are in negotiations to have a united front when it comes to negotiating with the governor,” Kassel said. “Our hope is that repeal of the cap will be something that will make it to the top of their priority list.”