As state budget preparations head into their final weeks, a confrontation is brewing over Medicaid, the state-run health plan for the low-income and disabled.

Governor Hochul has proposed holding the state’s $36 billion share of Medicaid funding essentially flat, arguing for restraint after three years of double-digit growth.

Yet hospitals, nursing homes and other provider groups are clamoring for further increases to address what they portray as a broad crisis in the health-care system.

Judging by the large and rapidly increasing expense of New York’s Medicaid program, Hochul’s concerns about affordability are well justified.

In the aftermath of the pandemic, state-funded Medicaid spending has been rising at some of the fastest rates in the program’s 59-year history, jumping 31 percent in the last two years alone.

Medicaid is consuming a larger share of overall state spending than ever before, and it has outpaced school aid to become the state’s costliest spending item.

Strikingly, most of this explosive growth occurred during the post-pandemic recovery, when New Yorkers were going back to work and regaining their employer-sponsored insurance – a period when the pressure on Medicaid ought to have been easing.

Here is a summary of trends lawmakers should consider as they finalize the Medicaid portion of this year’s budget.

Spending

Medicaid’s current annual budget of almost $100 billion includes $55 billion in federal funds, $36 billion in state funds and $8.5 billion from New York City and the other 57 counties (see Figure 1).

Growth in both total spending and the state’s share have accelerated sharply in the post-pandemic period.

After a 15 percent dip in fiscal 2021, during the worst of the outbreak, state Medicaid funding quickly rebounded with increases of 25 percent in 2022, 13 percent in 2023 and an estimated 15 percent in 2024.

Compared to 2020, the last fiscal year before the pandemic, state funding is up 38 percent and total funding is up 32 percent. (Local funding has been mostly frozen since 2015.)

In the two budgets signed by Hochul, the state share increased at an average annual rate of 14 percent, which was five times higher than the average for the previous decade (see Figure 2).

Medicaid has surpassed school aid as the costliest portion of the state budget. It now accounts for 28.5 percent of state operating funds, its highest share ever.

This growth came on top of what was already high spending relative to the rest of the country. New York’s per capita outlays in 2020, at $3,600, were the highest among the 50 states, 76 percent above the national average and almost double the amounts for peer states such as New Jersey and Illinois (see Figure 3).

Hochul’s executive budget for 2025 calls for reducing the total state share by about $700 million or 2 percent. This includes an increase of $3 billion or 11 percent in Medicaid funding from the Department of Health (so-called DOH Medicaid), offset by a reduction of $3.7 billion or 45 percent in funding from other agencies.

However, those figures are distorted by an unusual transaction: Earlier in this fiscal year, the state temporarily advanced $1.7 billion to distressed hospitals, and repayment of $1.1 billion was delayed to fiscal 2025.

When adjusted for that anomaly, Hochul’s proposal would increase total state Medicaid funding by $1.5 billion or 4 percent.

Adjusted or not, state Medicaid funding in 2025, at $35.5 billion, would remain significantly higher than in any year before 2024.

Enrollment

Medicaid enrollment increased dramatically nationwide during the pandemic, due initially to an economic slowdown that caused many to lose income and employer-provided insurance. Over time, the rolls were further swollen by a federal policy that barred states from dropping enrollees—regardless of changes in their income or insurance status—throughout the public health emergency.

That “continuous coverage” rule expired with the formal end of the pandemic emergency last spring. At that point, New York and other states launched an “unwinding” process to prune their rolls of people who lost eligibility, which is expected to take a year or more.

In June 2023, New York’s enrollment peaked at an all-time high of just under 8 million, almost a third higher than it was in March 2020. It’s expected to drop to 6.8 million when the unwinding is complete.

As of November, statewide enrollment stood at 7.6 million or 39 percent of the population. That included 4.3 million New York City residents, or just over half the city’s population.

Another 1.2 million, including 760,000 city residents, are enrolled in the state’s Medicaid-like Essential Plan, which is available to people up to 200 percent of the poverty level (rising to 250 percent in April).

Even before the pandemic, Medicaid had expanded well beyond its original mission of covering the poor and disabled.

As of 2019, the state’s Medicaid enrollment was twice as large as the population living under the federal poverty level (see Figure 4).

Home care

New York Medicaid has long spent more than other states on home-based long-term care for the elderly and disabled—especially in the category of “personal care,” which refers to non-medical services such as help with bathing, dressing, eating and housekeeping.

Spending on the program roughly doubled in just four years – from $5.7 billion in 2016 to $11.4 billion in 2020 – and, after a slowdown during the pandemic, has begun rising again.

As of 2020 – the most recent year for which national data are available – New York’s total home care spending amounted to $1,082 per state resident, which was more than double the national average.

At the same time, New York also has a relatively large population of nursing home residents, indicating that home-based care is not being used effectively to keep people out of institutions.

Minimum wage costs

After approving a major minimum wage hike in 2016, lawmakers committed to reimburse Medicaid providers for their added labor costs – which has proven far costlier than initially estimated.

The adoption of a separate, higher minimum wage for home care aides – and an additional statewide hike approved last spring – are compounding the costs.

On Jan. 1, 2024, the general minimum hourly wage increased from $15 to $16 in New York City, Long Island and Westchester, and $14.20 to $15 in the rest of the state. On the same day, the minimum for home health aides rose from $17 to $18.55 in those same downstate areas and $15.20 to $16.20 elsewhere.

Due to the combined effect of those hikes, Medicaid’s minimum wage-related costs are expected to jump 49 percent from fiscal 2024 to fiscal 2025, pushing the state’s share to $3.9 billion – or 11 percent of its total Medicaid budget.

A looser 'global cap'

As part of her first budget as governor, Hochul proposed – and the Legislature approved – loosening the so-called global cap on Medicaid spending.

Established under Governor Cuomo in 2011, the cap had nominally limited the increase in the state share of Medicaid spending to a rolling average of the medical inflation rate. Over the years, lawmakers had weakened the policy by exempting certain expenses, such as minimum wage-related costs. But the cap had continued to impose a modicum of constraint.

Under Hochul’s 2022 revision, the cap is based on a new benchmark: a rolling average of projected Medicaid spending as estimated by a federal actuary. As a result, the allowable annual growth rate for covered costs has roughly doubled, from about 3 percent to about 6 percent per year. In fiscal 2024, that difference was enough to allow an additional $1.4 billion in state spending under the cap.

The share of Medicaid spending exempted from the cap has also risen, from 26 percent in 2020 to 33 percent in 2024.