DOB Issues Mid-Year Budget Update

In the recently issued Mid-Year Financial Plan Update, the Division of the Budget (DOB) indicates that if left unaddressed, Medicaid spending will exceed Global Cap projections by $4 billion by the end of the current fiscal year. The figure includes $1.7 billion in Medicaid payments from the prior fiscal year, primarily to Medicaid Managed Care plans, that were shifted into the current fiscal year. The Global Cap, enacted in 2012, limits increases in the State share of Medicaid spending to the 10-year rolling average of the medical component of the Consumer Price Index (CPI) and empowers DOB and the Department of Health (DOH) to make reductions if spending exceeds projections. The final State Fiscal Year (SFY) 2019-20 Budget included additional authority for DOH to make cuts if the need arises.

DOB reports that there is a structural imbalance within the Global Cap that is likely to continue to result in spending that exceeds projections in future years as well. Key State-share Medicaid spending drivers include reimbursements to providers for increases in minimum wage (which is outside of the Global Cap), the phase-out of certain federal funding, increased enrollment and costs in managed long term care (MLTC), and payments to financially distressed hospitals.

Inclusive of Medicaid spending, the State’s General Fund is tracking toward a $6.1 billion shortfall by the end of this fiscal year (i.e., March 31, 2020). In an effort to close the overall spending gap and, “to the extent practicable,” avoid piercing the Global Cap, DOB is developing a Fiscal Year 2020 Savings Plan that will impact the current fiscal year. The plan is expected to include a permanent adjustment to the timing of certain health care payments as well as a range of cost containment measures. These may include across-the-board reductions in rates paid to providers and health plans, reductions in discretionary payments, and other actions that can be executed administratively in the current fiscal year. The State intends to unveil the plan at the same time as the Governor’s SFY 2020-21 Budget Proposal in January, which is expected to have additional Medicaid cost containment proposals for the upcoming year.

Contact: Darius Kirstein, dkirstein@leadingageny.org, 518-867-8841