Its budget season in New York, and the Governor and legislators are faced with some serious problems – problems mainly of their own creation. It looks like they will be handling it the way Albany usually deals with such things – confusion, short timetables and some passing of the buck.

The issue at the moment is how the state will deal with a six billion dollar budget shortfall for the new fiscal year that begins on April 1. About two-thirds of that hole relates to the state’s Medicaid program.  Medicaid provides health care for nearly one of every three New Yorkers.

Medicaid was created by the federal government in the 1960’s to assist the poor with their medical needs, about the same time that Medicare was set up to assist those 65 or older with health insurance. New York State got into the Medicaid business in 1966 during the Rockefeller administration.  Medicaid was created to assist people with limited financial resources to receive health care, something most other major nations provided long ago.

Like every major government social program, there are two main elements to Medicaid: what it does, or is supposed to do; and how it pays for the administration of the program and the services rendered.

The federal government mandates 15 different medical-related services that must be offered under Medicaid. They also permit an additional 28 services related to various medical needs.  The states choose the optional ones that will be made available for their residents.  Some states choose just a few of the possible options for assistance.  New York State chooses to offer many additional non-federally mandated services, some of which require small co-pays.

The federal government has historically funded 50 percent of the costs, although some poorer states receive up to 77 percent reimbursement for services those states offer. The Trump administration is currently attempting through a block grant arrangement to reduce the open-ended availability of some of the federal reimbursements.

States cover the remainder of costs in various ways, with most states picking up the entire non-federal share. New York State, however, requires New York City and the other 57 counties to pick up a portion of the costs.

The cost sharing is a one-sided arrangement. The state government has total control over what Medicaid options to cover.  They set the terms for who qualifies for the coverage.  And then they require county governments pay for a large portion of the bill.

Over the years that one-sided arrangement has caused serious problems. For most of the time Medicaid has been available in New York State the counties had an open-ended requirement to cover approximately one-quarter of total costs in the respective counties.  That put a major strain on property taxes, which are usually counties’ main source of revenues.  Erie County has experienced major budget upheavals more than once over the past fifty years when the economy soured, Medicaid usage expanded, and county budgets were strained.

There have been efforts over the years to mitigate the financial impact on counties by limiting their exposures to rising costs. Early in the Cuomo administration the Governor pushed through a major change in the program’s cost sharing by capping Medicaid costs to the counties.

That move provided a breather for the counties. If the Governor’s proposed 2020-2021 budget is approved, however, counties and their taxpayers may again be exposed to substantial cost increases that they have no control over.

Cuomo has complained about a “blank check syndrome,” suggesting that counties and New York City had run up the costs of Medicaid while doing nothing about controlling expenses, ignoring the fact that those local governments had nothing to do with what the program requires or how it is administered. He recommended that the counties be held responsible for any increases in Medicaid costs that are greater than three percent over the previous year’s spending.

Albany budget folks are holding their cards close to the vest as to how much the change in policy might costs the counties. New York City government, the local agent for Medicaid, says their costs could go up more than one billion dollars a year; state officials claim that the increased costs for New York City would be in the $200 million range.

Mark Poloncarz has indicated that Erie County’s costs would have been $7.5 – 8 million higher in the two most recently completed state Medicaid years if the governor’s plan was in effect then. It is difficult to project increases going forward because of the overlapping fiscal years of counties, the state and the federal government.

Buried in the state budget is an estimate of $150 million that the state expects to collect from the counties resulting from the change in funding.

Part of the reason Albany is now in trouble is that they provided funds to increase wages of people working in nursing homes and agreed to cover the extra costs. That is certainly a nice thing to do, but when you act like a big shot you should be ready to put your money where your mouth is.  Didn’t the administration or Legislature figure out such things before they increased Medicaid spending?

While all of this is going on, the Trump administration is proposing a change in federal management of part of the Medicaid program to provide block grants of funds to state for certain services, allowing the states to choose whether or not to provide all the services that the current Medicaid legislation requires under a “state waiver” from existing federal rules. The New York Times reports that “a state would use a formula to determine ahead of time how much it will spend on its adult Medicaid population in a given year, then get a fixed federal share in either a lump sum or a per-person amount. Critics said this could be devastating if more people became eligible for Medicaid because of a recession, or if costs went up because a lot of enrollees needed an expensive new medicine.”

Meanwhile the Governor has appointed a “Medicaid Redesign Team,” so far consisting of just two members, who are being charged with proposing changes in the state’s Medicaid program to reduce costs. The MRT is expected to report next month and approval of the new state budget is required by April 1.  Don’t expect transparency and well-thought out results from anything occurring in such a compressed timeframe.

The folks who decide such things in Albany are not usually inclined to reduce services. If that is a correct assumption this year, then the State Legislature needs to find a way to pay for the increased costs of Medicaid.   They can choose to cut Medicaid services, cut something else or to deal with the consequences of raising taxes.  Or there might be some fiscal gimmicky involved by just deferring some required state payment obligations into the next fiscal year.  It’s Albany.  Anything is possible.