When asked at the end of the1974 season why he was replacing his general manager, the owner of the Houston Oilers football team replied “I gave him an unlimited budget, and he exceeded it!” The same may be said of New York State’s Medicaid program. Its budget is unlimited – its cost goes up by whatever it does every year, and taxes are raised and other services cut to make up the difference. Medicaid, along with debt service and pensions, get the first, second and third bites of the apple. (Public schools in the portion of New York State outside New York City get the fourth.) And when the cost of Medicaid is restrained, as in the mid-to-late 1990s, it is by reducing the number of beneficiaries who receive health care benefits, not by restraining the increase in what the health care industry decides to charge. The number of people employed by that industry in New York, fueled in large part by government money, rises rapidly each and every year. With just 6.5% of the nation’s population, New York State accounted for 15.1% of its Medicaid spending (see attached spreadsheet).
New York State’s Medicaid program is expensive for three reasons, each of which multiplies by the others.
First, it has an above average number of recipients as a share of its population, caused in large part by above average poverty. That is the subject of most of this essay. With that 6.5% of the population, New York State accounted for 7.6% of the nation’s poor people in 2004, according to data from the U.S. Census Bureau. In 2003, according to data from the Center for Medicare and Medicaid, New York State accounted for 8.3% of the nation’s Medicaid eligibles.
Second, New York’s health care providers are the most powerful interest in the state, dominating the Democratic Party and the Working Families Party, but free to turn their backs on both and endorse a Republican Governor, as in 2002, and still have the Democrats come crawling back for support. At last report Local 1199, the health care union, was poised to take over the Independence Party as well (or so some insiders tell me). This enables the industry to charge extremely high prices for its services, to an extent only partially explained by the higher average wage and cost of living downstate. In 2003 New York State was charged $7,912 per Medicaid beneficiary, 76 percent higher than the national average of $4,487 and more than any other state.
Third, New York State provides more services in certain categories than other states, especially for the elderly, and the practice of older middle-income people arranging their financial affairs to qualify for Medicaid is particularly common here.
This post will focus on the first factor.
Medicaid data comes out late: the 2003 data was only released this January. But there is a significant change from past years that bears watching in the future – 2003 is the first year New York State’s share of those eligible for Medicaid was higher than its share of the poor. In general, however, New York has had more people on Medicaid because it has had more people who are poor. In 2002, for example, the state had 7.8% of the nation’s poor and 7.9% of its Medicaid recipients. I’ll wait for another year’s data, and try to get some more detail– which age group, which part of the state, before concluding that something has changed.
The established situation is that New York State’s high poverty rate causes more people to end up on Medicaid. And this is a harsh financial blow to New York City and New York State taxpayers, because the federal Medicaid matching share doesn’t take poverty into account. It is based exclusively on per capita income, with the difference between a state’s per capita income and the national average squared, and then applied to a formula to determine the state and local share, which is between 20 percent and 50 percent. New York State, with one of the highest per capita incomes in the country, is one of 12 states forced to pay for 50 percent of its Medicaid expenditures with state and local taxes. In North Carolina, a state where many New York businesses move to get lower taxes, state and local taxpayers have to pay only 37 percent of the Medicaid bill. National taxpayers including those in New York, pick up the rest.
The Federal Medicaid Matching formula assumes that there are two kinds of states, those with high per capita income and low poverty, such New Jersey (which had an 8.0 percent poverty rate in 2004), and those with low per capita incomes and high poverty, like Arkansas (which had a 15.1 percent poverty rate that year). The national average was 12.7 percent. The problem is New York is a third type of state. A concentration of very rich people in Manhattan and the Downstate Suburbs pulls the per capita income up. But the state’s median household income, which better reflects the situation of the average person here, is just average – below average when the higher cost of living is accounted for. And, more importantly, New York State’s poverty rate was 15.0 percent in 2004, very much like Arkansas and nothing like most of the other states with a 50 percent state and local share (see chart at the end of this post). The only other state with a 50 percent state and local share of Medicaid and above average poverty is California.
Meanwhile, many other states have both a lower poverty rate than New York State and a lower state and local Medicaid share – and lower taxes and a more dynamic economy. New York State residents end up paying twice, in state and local taxes for Medicaid in New York, and in federal taxes for Medicaid elsewhere. And those from other states often come to New York City for health care, according to those I know in the industry, shifting the cost of their care from the state where they come from to New York. When they are healthy, they go back to their lower-tax, higher growth states. Those low tax red states, getting services from our tax dollars rather than their own, can use the tax savings to lure jobs out of New York. New York’s health care industry has no incentive to turn them away, since more business for them means more profits. And, under a little-discussed Supreme Court decision overturning part of the 1996 welfare reform act, New York has virtually no ability to impose a residency requirement to limit access to its Medicaid services. The situation is bad enough as it is. One can see how expanding health insurance by expanding Medicaid, the de facto Democratic Party policy since the defeat of national health care in the early 1990s, will lead New York State to financial and economic ruin.
This situation – high poverty and many recipients, a high state and local cost for Medicaid – would be bad enough if spending per Medicaid recipient were lower. As it, with sky-high spending here, the cost is enormous. Just compare the reaction of California to the situation the Federal Matching Share formula places both it and New York State in. While New York State has the highest Medicaid expenditures per recipient, the subject of my next post, California has the lowest. Lower than Arkansas, lower than Mississippi, lower than Alabama, lower than anywhere – just $2,770 per recipient in 2003. Of course, the state had a lot of recipients, with 18% of the nation’s U.S. eligibles compared with 12.3% of its population and 12.8% of its poor people. For a decade, while wondering how New York’s spending could be so high, I’ve also wondered how California’s could be so low. Given the high state and local share of Medicaid there, perhaps California feels it has no choice.
I have tried, to the extent I am able given my (lack of) position, to raise the federal, state and local shares of Medicaid as an issue. I convinced the staff of the Northeast-Midwest institute to examine it, but a study did not go forward because members of Congress from New York were not interested. If the federal government was going to spend more on health care, they wanted funding for the health care industry to go up, I was told – remember who they report to. I also have tried to call attention to the fact that the local tax share of Medicaid is higher for New York City than it is for other parts of the state. The state has responded by deleting the table that shows what share of Medicaid is paid for with local tax dollars by county from the New York State Statistical Yearbook, where it had been for many years. The cost of these Medicaid funding formulae, in higher taxes paid and other services not funded, is large. But not nearly as large as the burden imposed by the high level of spending here, the subject of my next two posts.