Get Billions of Dollars to Pay for Medicaid With This One Weird Trick

But the legislature didn’t simply adopt the hospital lobby’s plan, which called for the state to tap its reserves to pay for Medicaid. Instead, the Senate and Assembly proposed an accounting trick that would allow them to raise $4 billion at no cost to New York.

The details are fiendishly complicated, but the overall strategy is simple: The state would tax health insurers billions of dollars more each year, then turn around and put that money back into the insurance industry. Theoretically, insurers would be made whole, and the state’s Medicaid spending would appear $4 billion higher. Then, New York would cash in.

Under a longstanding policy, the federal government provides matching funds for states’ Medicaid programs. For every dollar New York spends on Medicaid, the federal government sends another dollar — so Washington would send $4 billion.

“This really is a way to print $4 billion out of the sky, as far as we can tell,” said Michael Kinnucan, health policy advisor at the Fiscal Policy Institute, a liberal think tank. “It allows the legislature to make every Medicaid constituency happy.”

It has not, however, made every industry stakeholder happy. The proposal is now driving a clash between major players in New York’s health care industry, as some private health insurers argue that if the federal government doesn’t approve the scheme — or only does so temporarily — it could ultimately hit their bottom lines.

1199SEIU, the union allied with the hospital lobby, supports the plan, calling it a needed investment in the state’s Medicaid program. “We’re absolutely appreciative that they included that tax in the budget,” Tori Newman Campbell, the union’s legislative coordinator, told New York Focus.

Lev Ginsburg, executive director of the New York State Conference of Blue Cross Plans, which lobbies on behalf of the insurance industry, suggested that if the tax eats into their profits, they may pass costs off to New Yorkers.

“We find it pretty troubling and we are very much opposed to it,” Ginsburg said. Representatives of the National Federation of Independent Businesses and New York Business Council, also said that their organizations oppose the tax over concerns that it could raise health care costs for their members.

Both factions are now competing for the governor’s ear. Hochul’s office did not respond to questions about her position by time of publication.

Albany didn’t invent this playbook. Last year, California passed a similarly structured tax that is slated to win the state nearly $5 billion a year in federal cash.

Assemblymember Amy Paulin, who chairs the health committee, said that California’s example inspired Assembly staff members to propose the tax for New York. “It came from Assembly staff, and the Senate decided to agree,” she said. (She denied that the hospital lobby first floated the idea.)

Before the tax was unveiled, 1199SEIU and the Greater New York Hospital Association, the state’s main hospital lobby, called on Hochul to tap the more than $20 billion the state has in reserve funds to pay for their proposed Medicaid boost.

Even with the proposed $4 billion tax, that’s still something the union wants.

“Good substitute?” Newman Campbell said. “No, would be useful in addition to.”