Putting Medicaid in the Larger Budget Context: An In-Depth Look at Four States in FY 2016 and FY 2017

New York

Economic and Budget Outlook

Economy and State Revenues

The State of New York has the third largest economy in the United States (behind California and Texas) with a Gross Domestic Product (GDP) of $1.4 trillion in 2015.¹ Among the various industry sectors comprising the state’s economy, the education and health care sector is now the largest (in terms of employment), has steadily grown reaching 15.2 percent of total nonfarm payroll employment in 2015. By contrast, the manufacturing sector has decreased over the last 15 years to 4.9 percent in 2015. The financial sector is also very important to the overall health of the state’s economy but was especially hard-hit by the Great Recession (2007-2010). This sector has rebounded slowly as technology, stricter regulations, and high operating costs have inhibited hiring, accounting for 7.6 percent of total nonfarm payroll employment in 2015.²

In line with the national economy, the New York economy has experienced slow and steady growth since the last recession with GDP growth of 1.2 percent in 2014³ and 1.4 percent in 2015.⁴ Employment has also steadily grown since 2010 and the unemployment rate fell to 4.7% in July 2016.⁵ In February 2016, the New York State Assembly Ways and Means Committee Economic and Revenue Report forecasted that state employment and personal income in New York would continue to grow in 2016 and 2017, but at somewhat more moderate pace.

State tax growth has been positive in recent years growing by 1.9 percent in FY 2015 and 5.1 percent in FY 2016.⁶ While growth in FY 2017 was originally forecasted at 3.3 percent, that estimate was reduced to 2.4 percent in the first quarter update issued by the Division of the Budget in August 2016.⁷ According to that report, through the first quarter of FY 2017, personal income tax collections fell $595 million below planned levels reflecting continued weak performance in the financial sector. Other taxes, however, remain on target with earlier estimates.

State Budget

Unlike most other states whose fiscal years begin on July 1, the State of New York operates on an April 1 – March 31 state fiscal year. New York’s enacted budget for FY 2017 of $96.2 billion⁸ holds state spending to a 2 percent growth rate for the sixth consecutive year,⁹ but grows school aid by $1.5 billion (6.5%)¹⁰ and includes the largest state transportation plan ($55 billion) ever approved.¹¹ The enacted budget for FY 2017 also authorizes regional, phased-in increases to the state’s minimum wage to $15 an hour and the nation’s only 12-week paid family leave program.¹²

The FY 2017 Medicaid budget growth of 3.4 percent reflects the continuation of the Medicaid spending cap (called the “Global Cap”) adopted in FY 2012 which limits year-to-year growth in the state share of Medicaid spending to the ten-year rolling average of the medical component of the Consumer Price Index (CPI).¹³ The Division of the Budget currently estimates that projected CPI reductions will reduce the Medicaid Global Cap to 3.2 percent in FY 2018, 3.0 percent in FY 2019 and 2.8 percent in FY 2020.¹⁴ The FY 2017 Medicaid budget also includes additional funding to cover increased costs associated with the phased-in increases to the hourly minimum wage rate, which is expected to increase annual Medicaid spending, above previously forecasted Global Cap limits.¹⁵

The FY 2017 budget also authorizes new middle class tax cuts that take effect in FY 2018, including a reduction in the marginal tax rates on middle incomes from 5.9 percent and 6.65 percent to 5.5 percent and 6 percent. These cuts are expected to reduce tax collections by $236 million in FY 2018, growing to $1.5 billion in FY 2020, on a cash basis. When fully effective in CY 2025, the tax reduction is estimated to reach $4.2 billion on a liability basis.¹⁶

ACA Implementation

New York is one of 31 states and the District of Columbia that have implemented the ACA Medicaid expansion and is one of 13 states that operate a state-based Marketplace.¹⁷ In FY 2015, New York also implemented a new program under an ACA coverage option called the “Basic Health Plan” (BHP). Under this ACA option, states may offer health coverage to individuals with family incomes between 133 and 200 percent of the federal poverty level (FPL) and for individuals from 0-200 percent FPL who are lawfully present in the United States but do not qualify for Medicaid due to their immigration status. This coverage takes the place of subsidized coverage in the Marketplace. States electing this option receive federal funding equal to 95 percent of the premium tax credit and the cost-sharing reductions that would have been provided for Marketplace coverage.¹⁸ New York is using the BHP authority and federal funding to offer the “Essential Plan” which has allowed the state to realize savings by transitioning certain Medicaid waiver populations and certain immigrants (previously covered with state-only dollars) to BHP coverage.¹⁹

Medicaid Redesign Team

After years of rapid growth, New York’s Medicaid program had per enrollee costs in FY 2011 that were far in excess of those in other states, but these higher expenditures had not produced correspondingly high quality results or rankings.²⁰ To address these concerns, Governor Cuomo appointed the Medicaid Redesign Team (MRT) to design strategies to lower Medicaid expenditure growth and improve quality in the program. The 27 member MRT is led by the Medicaid Director and includes representatives from various health care providers and stakeholders.²¹ Since its inception, more than 200 initiatives have been created as a result of the MRT addressing programmatic changes in the way health care is provided, reimbursed and managed to ensure that quality care is provided in the most efficient manner.²² During that time, Medicaid spending growth has not exceeded the Medicaid Global Cap (described above).

In 2012, the MRT issued a multi-year action plan that incorporated three broad Medicaid redesign strategies: increased reliance on managed care, development of new service delivery mechanisms and use of value-based payments.²³

Medicaid Managed Care

New York began contracting with capitated managed care organizations (MCOs) in the late 1980’s, and by 2010, approximately two-thirds of all Medicaid enrollees were enrolled in “mainstream” MCOs offering acute care services but excluding coverage for most long term services and supports (LTSS), prescription drugs, some dental care and behavioral health services. There were also several MCOs at that time specializing in LTSS (some offering both acute care and LTSS) serving about 40,000 Medicaid enrollees who voluntarily enrolled. ²⁴ In 2011, the MRT added prescription drugs, personal care, and some home health care to the mainstream MCO benefit package. Dental services (2012), hospice care (2013) and nursing home care (2015) were added later. Beginning in 2015, coverage of certain mental health services, including substance abuse treatment, began to be phased-in (through 2017). ²⁵

Since 2011, managed care enrollment has also become mandatory for a number of previously exempt groups including HIV positive individuals (2011), homeless individuals, low birth-weight infants, persons with end-stage renal disease (2012), and some foster care children (2013). Mandatory enrollment for adults receiving home and community-based services (HCBS) for an extended period of time was phased-in during 2012 and 2013, was applied to adults entering a nursing home in 2015, and will be applied to children entering a nursing home in 2017. ²⁶ Also, in 2015, the state implemented a voluntary Financial Alignment Demonstration with the Centers for Medicare and Medicaid Services (CMS) for persons dually eligible for Medicare and Medicaid that provides a comprehensive benefit including Medicare and Medicaid acute care and LTSS on a capitated basis by Fully Integrated Duals Advantage (FIDA) plans.

More recently, the state has begun to phase-in mandatory managed care for persons with severe mental illness (in FY 2016 and FY 2017) by contracting with specialized MCOs called “Health and Recovery Plans” (HARPs). An estimated 140,000 persons will be served in these plans.²⁷ Also, as part of the Financial Alignment Demonstration referred to above, the state currently contracts with one “FIDA-IDD” plan to provide coordinated care, on a voluntary basis, for people with intellectual and developmental disabilities who are eligible for both Medicare and Medicaid services. The FIDA-IDD plan provides Medicare and Medicaid benefits through an integrated benefit design that includes a dedicated interdisciplinary team to address each individual´s medical, behavioral, long-term supports and services, and social needs.²⁸

Delivery System Reform Incentive Payment Program (DSRIP)

In April 2014, CMS approved an amendment to New York’s existing Section 1115 waiver allowing the state to reinvest over a five-year period (2015-2019) $8 billion of the $17.1 billion in federal savings generated by MRT reforms.²⁹ From this total, $6.42 billion is to be used to implement delivery system reform incentive payment projects (the “DSRIP program”), $1.08 billion is for Health Home development and investments in long term care, workforce and enhanced behavioral health services, and $500 million in one-time funding will be used to assist safety net providers.^{30 31} New York’s DSRIP program is designed around 25 “Performing Provider Systems” (PPSs) – newly created provider partnerships who have agreed to cooperate and coordinate services for the Medicaid population in the counties they serve. The PPSs can receive DSRIP payments for implementing at least five reform projects from a list of 44 and meeting performance metrics.³² PPSs are coalitions of providers with a lead organization that is often a major medical center. Among the most frequently selected projects are primary care/behavioral health integration, integrated delivery systems, chronic disease transitions, and adult cardiovascular high risk management.³³ As of October 2016, the PPSs have received 99.4% of all available funds to date.

Value Based Payments

As a condition for approval of the DSRIP Section 1115 waiver amendment described above, and to ensure the long-term sustainability of the improvements made possible by the DSRIP investments, CMS required the State of New York to submit a multiyear Roadmap for comprehensive Medicaid payment reform including how the state would amend its MCO contracts. In June 2015, the New York State Department of Health released “A Path Toward Value Based Payment: New York State Roadmap for Medicaid Payment Reform,” (the “VBP Roadmap”).³⁴ The VBP Roadmap outlines the state’s strategy for assuring that 80-90 percent of MCO payments are shifted from fee-for-service (FFS) to VBP by 2020 and describes the new payment approaches and the types of provider organizations that will be involved.³⁵ In June 2016, the state released the results of MCO survey designed to get a baseline for measuring statewide progress toward the overall 80-90 percent VBP goal and towards a second goal that at least 35 percent of MCO payments to providers be risk-based VBP arrangements (at “Level 2 or 3” as defined in the VBP Roadmap).³⁶ Overall, the survey results indicated that 63.2 percent of MCO payments were FFS while 25.5 percent reflected VBP Levels 1-3. The remaining 11.3 percent reflected VBP “Level 0” (FFS payments with bonus and/or withhold based on quality scores)

Additional Medicaid policy actions taken in FY 2016 or planned for FY 2017 are described below.