taxes New York budgets
By JAY GALLAGHER
Albany Bureau
(Original publication: March 28, 2004)
But she couldn't have what she really wanted for her birthday.
"I wanted to go home,'' she recalled recently, lying in her bed in the Van Rensselaer Nursing Home just a few miles from the state Capitol.
But like most of the 360 other residents of the county-run facility, she had no home to go back to. It had been sold long before, when she could no longer take care of herself.
Now, she depends on Medicaid, the taxpayer-supported health-care-insurance program, to pay for her care.
While she is well cared for, she is not happy to be where she is. Nor are taxpayers happy to be footing the bill.
Every day she has been at the nursing home, a little more than two years, Medicaid has paid the home $159.85, or more than $58,345 a year. Last year alone, nursing homes in New York got $7.4 billion in Medicaid funds to care for about 88,000 residents — about 78 percent of all people who live in nursing homes.
Exploding Medicaid costs are a problem everywhere in the country, but the problem is most severe in New York, which spends far more than any other state, about $42 billion — more than California and Texas combined, which together have three times as many people as New York.
"Medicaid is the biggest reason our taxes are the highest in the country," said Robert Ward of the state Business Council.
Despite the crushing tax burden Medicaid imposes, little has been done to bring the costs under control.
While other states have taken steps to trim costs, Gov. George Pataki and the Legislature have failed to agree on what to do in New York. Lawmakers last year rejected a Pataki plan to limit the choice of drug brands for recipients to enable the state to save money on bulk purchases. He's put forward that idea again this year along with a list of other cuts. The package, worth about $1.25 billion, has gotten a cool reception from lawmakers.
Democrats point out that Pataki's active encouragement of expanding the Medicaid rolls over the past few years is a major reason for the current crisis, and that only two years ago he signed an election-year deal with an influential union that added billions to health-care costs.
A task force Pataki appointed last year came up with widely praised ideas for overhauling the system, some of which have already been implemented in other states. But any cost savings from those recommendations are at least a few years away.
The big expense in Medicaid is paying for long-term care — for people like DeWitt, a former seamstress who loved to swim and ice-skate in her hometown of Troy until just a few years ago.
Three levels of government split the cost of her care: Washington pays almost $31,000, the state almost $22,000 and Rensselaer County about $5,000 through Medicaid.
The price tag for the 3.7 million New Yorkers (one in every five residents) covered by Medicaid is helping to widen the state budget gap and, along with similar problems in other states, balloon the federal deficit. But the impact is being felt most acutely at the county level, where spiraling Medicaid costs are driving double-digit property-tax hikes and sales-tax increases.
"Medicaid is killing us,'' said Rensselaer County Social Services Commissioner John Beaudoin, sounding like county officials all over the state. Like many counties, Rensselaer, which has about 200,000 residents, spent every last dime collected in property taxes last year, about $31.5 million, on Medicaid.
And it's not just county budgets that Medicaid is devouring. The state portion of the Medicaid tab is expected to approach $14 billion next year — a total nearing state money spent on education, for decades the biggest state expense.
Even the federal government, facing record budget deficits, is looking for ways to slow the growth of the $280 billion program.
'Political malpractice'
The spending in New York dwarfs that of any other state. Twelve percent of all Medicaid dollars in the country are spent in New York, even though the state has less than 7 percent of the nation's population.
New York is also one of the few states that makes localities pick up part of the cost. That drives up property taxes and is the reason county governments are screaming.
Making the problem worse, the federal government pays only 53 percent of the New York tab — a figure that is set to drop to 50 percent at the end of June, when a one-year supplement is due to expire. That will cost the state about $1.3 billion. Mississippi, in contrast, gets 80 percent of its Medicaid funding paid for by Washington.
State officials say the formula Washington uses to pass out Medicaid funds, which uses average wealth as a key criterion, should be thrown out. They point out that although New York has more rich people than most other states, it also has an above-average proportion of poor people (about 16 percent compared to the national average of about 13 percent.)
"It would be political malpractice to let the federal government off the hook,'' said James Tallon, the former Assembly majority leader from Binghamton who is now president of the United Hospital Fund, a Manhattan-based group that analyzes health care.
Further clouding the future of Medicaid in particular and all health care in general is that in 2011, the first of 76 million members of the baby-boom generation will turn 65 and put unprecedented stresses on the system.
"The debate now is: How is the baby-boom generation going to pay for the expensive years of its health care?'' Tallon said.
'No one asks questions'
Despite the huge Medicaid expense, the state hasn't done enough to see that the money is well spent, critics say.
"I always thought we had a bad Medicaid policy, but I discovered we have no policy,'' said Sen. Raymond Meier, R-Oneida County, co-chair of a Senate task force that explored the issue last year. "That's the problem. There's no coherent set of principles and policies that guide the system."
Meier has seen the budgetary impact up close. He wrestled with Medicaid as a county executive before being elected to the Senate.
"We decide a whole bunch of people are going to be eligible, we decide they can access a whole bunch of services,'' he said. "So we set up a system that provides those services. But no one asks questions about who's using services or why there are more hospitalizations in one county as opposed to another.''
It's no mystery where the money is going.
New York spends by far the most in the country on nursing homes and other kinds of long-term care, like home visits from nurses. It also spends the most on hospitals, in part because New York City is the doctor-training capital of the world.
Almost 10 percent of New Yorkers over 65 are either in nursing homes or getting services at home, according to an analysis by the Center for Governmental Research, a Rochester-based think tank. That's more than double the rate for the other large states the center used as points of comparison.
But those costs have been going up relatively slowly in the past several years, as new services have diverted thousands of seniors away from the homes.
What has led to the current crisis is a huge runup in the overall number of recipients, which has exploded from 2.7 million four years ago to 3.7 million now. In addition, like other states, New York has had to deal with a rapid escalation of prescription-drug costs.
Helping people, hurting budgets
The number of people on Medicaid has been going up so rapidly in part because of decisions made by people like Lisa Sivers, a 30-year-old mother of three who lives in Binghamton.
She makes between $15,000 and $20,000 a year driving a bus for a preschool program while her 46-year-old husband stays home to care for their three boys, ages 9, 6 and 5.
Her employer offers health insurance, but she would have to pay about $40 every two weeks to get that coverage.
"That may not sound like a lot, but we have five people to feed,'' she said.
So instead, about 2 1/2 years ago, she signed up for Family Health Plus, a new Medicaid program available to so-called "working-poor'' families like hers. Unlike the regular Medicaid program, there is no limit on assets, like a house and car, that recipients can have.
The income limit for the normal Medicaid program for a family of five is less than $12,000 a year, but for Family Health Plus, the limit for that size family is just under $29,000.
She said the program has been important for her family. Recently her husband, who has diabetes, had a stent installed to open an artery, and he also needed to get new eyeglasses.
"It's been a lifesaver,'' she said.
But the program has helped to put serious holes in the budgets of counties, which have to pay 25 percent of the cost. The state pays its quarter share with the proceeds of a 55-cent-a-pack increase in the cigarette tax enacted in 1999.
"The state is providing an enormous incentive for employers to point people to Family Health Plus,'' said E.J. McMahon, a budget analyst for the Manhattan Institute, a business-backed think tank.
Proposing changes
Family Health Plus has enrolled about 325,000 members, spurred in part by an aggressive TV advertising campaign featuring Pataki. New York City advertised a plan called Health Stat to get people signed up. It cost more than $2 billion last year.
The thinking behind that program and other taxpayer-backed plans, like Child Health Plus, which insures children whose families have incomes too high for Medicaid, is that providing them with insurance will in the long run save money and improve lives by reducing serious illnesses and also cutting down on the charity cases that hospitals have to treat.
But, as McMahon pointed out, there's no evidence yet that has happened, and in the meantime taxpayers are footing the bill.
Pataki's top health adviser acknowledged that Family Health Plus has grown significantly and its costs have to be reined in.
"That is why the governor proposed changes to the program to reduce its cost and make it more like the type of insurance most working families have,'' said the aide, Robert Hinckley.
Pataki has proposed eliminating vision and dental services from Family Health Plus, limiting assets, banning coverage for people who work for large organizations, requiring some co-payments and mandating a 12-month waiting period for those who had health insurance previously.
But key Democratic Assembly leaders have said they don't want to make those changes.
"It is a devastating package,'' Assembly Health Committee Chairman Richard Gottfried of Manhattan said of the Republican governor's proposal. "Governor Pataki's health-care budget would be especially cruel to working New Yorkers and their families, those least able to afford it.''
Hinckley also pointed out that the task force appointed by Pataki last year made recommendations that would "bring real reform to the system'' and deal with the lack of planning that Meier criticized.
Among other things, the task force recommended tightening restrictions on who qualifies for Medicaid, designing programs to help keep people out of nursing homes, expanding long-term-care insurance and having the state take over the local share of long-term-care costs.
New York vs. California
The recent surge in enrollment sparked by Family Health Plus added costs on top of a system that already was by far the most extensive and expensive in the United States.
Why New York spends so much more than anyplace else, especially California, can be traced to the origin of the program, a key Great Society initiative of President Lyndon Johnson passed by Congress in 1965.
Medicaid was a groundbreaking piece of legislation designed to have the federal and state governments share in the cost of making top-quality health care available to poor people. It was the lesser publicized half of Johnson's health-care plan, which also included Medicare, the health-insurance plan for people over 65.
"You've got to remember who were the governors then,'' Tallon said. "Ronald Reagan (of California) and Nelson Rockefeller (of New York),'' the leaders of the conservative and liberal wings of the Republican Party at the time.
"Reagan's attitude was 'We're not going to take a nickel, we're not going to spend a nickel,' '' Tallon recalled. "Rocky's was 'We're going to take every dollar from Washington that we can, and spend what we need to get it.' ''
Almost from Day One, New York, which already had an extensive system of publicly financed health care, was the most aggressive state in designing programs that Medicaid would help pay for, even if it cost a dollar from state and local taxpayers for every "free'' greenback coming from Washington.
"The problem with that approach is after a while it's like shopping at too many sales,'' Meier said. "You still go broke. … We've become addicted to Medicaid.''
From the beginning, New York has offered more services than most states — now ranging from smoking cessation to erectile dysfunction — to more people than any other state, while at the same time being more aggressive than most in figuring out how to get every possible nickel out of Washington.
For example, the state used to pay for its extensive mental-health and mental-retardation-treatment system out of state tax dollars. But now $7.2 billion of it is paid for by Medicaid — which means Washington foots more than half the bill.
"Most states don't have the capacity or the ideology or the inclination to maximize federal aid the way New York does,'' said John Rodat, a health-care consultant, former state Budget Division official and Medicaid expert.
But that mind-set clashed almost from the beginning with concerns about how to pay the half of the costs that Washington requires states to pay. Almost no one envisioned it growing as big as it has.
"I asked what the price tag was going to be. It was a rule of the Senate you could get the cost of any item coming up for a vote,'' recalled former Sen. William T. Smith, R-Chemung County, who was the only vote against the program that Rockefeller pushed through the Legislature on April 29, 1966.
Smith, who served in the Senate from 1963 to 1986, held the bill up until the administration came up with a cost estimate: $66 million, which turned out to be $36 million below the cost the first year.
Smith said he voted against it because he feared the costs could get out of control.
"It didn't take too many brains to figure it would be a big one,'' he said. "If they had told the truth, they might not have passed. … I wish they could figure a way to control it. But I don't think they can.''
'Costs have become staggering'
In his first State of the State message, in 1995, Pataki said, "The Medicaid system has grown far beyond its original intent as a provider of care for the needy. Its costs have become staggering and the quality of care it provides leaves much to be desired. … Today, New York's Medicaid system costs three times as much per recipient and often delivers a quality of care inferior to the programs run by other states. We can do better and we must.''
When he made that speech, nine years ago, the cost of the program was $23.5 billion — compared to more than $42 billion this year.
That's not to say he's had no success in reining in costs. Between 1997 and 2000, when the state's economy was booming, welfare rolls were shrinking and managed-care plans were squeezing hospitals to lower rates, the number of Medicaid recipients actually fell, from more than 2.9 million to 2.73 million, and the cost went up a not-unmanageable rate of about 4 percent a year.
But then the economy turned down, the World Trade Center disaster happened, hospitals and doctors started to demand higher payments from HMOs, the cost of prescription drugs started to take off — and the state as well as New York City started to actively push people to enroll. Costs have jumped from $32.5 billion to $42.1 billion in just three years.
When the state was facing a potential budget gap of more than $11 billion a year ago, Pataki proposed $1.3 billion in health-care cuts that would have led to the loss of 38,000 health-care jobs. In response, health-care unions as well as hospital and nursing-home executives led a throng of 25,000 people to the Capitol, who in a snowstorm marched and chanted against the cuts. The Legislature rejected most of the reductions Pataki proposed.
The demonstration was led by Dennis Rivera, president of one of the most politically powerful unions in the state, the 250,000-member Local 1199 of the Service Employees International Union, who uses a huge political war chest and the energy of his members to push government leaders for more government spending on health care.
"There is no effective opposition to him,'' said McMahon of the Manhattan Institute.
Part of what makes Rivera such a powerful political figure — and Medicaid such an important issue for him — are two key facts: Medicaid accounts for about one-third of all health-care spending in the state; and the 1.17 million-worker health-care industry, where employment grew by 1.7 percent last year, is one of the few areas of the state economy that is adding jobs.
So any substantial cuts in Medicaid would mean the loss of thousands of jobs that are protected by powerful labor unions.
One of those jobs belongs to Natalia Mhlambiso, a South African native who is a registered nurse and works for the Visiting Nurse Service of New York.
One recent afternoon, she traveled to East Harlem to look after a 72-year-old man suffering from emphysema and a 70-year-old woman who, after a series of strokes, has lost the use of her legs and most use of her arms.
The woman whom Mhlambiso visited, Doris Hasell, a mother of seven, spent some time in a nursing home after her first stroke about five years ago but, as Mhlambiso cleared her breathing passages in her apartment, she talked about how much more content she is now.
"There's no place like home,'' she said.
New York has by far the largest Medicaid-financed home-care program in the country. Taxpayers are spending about $3.7 billion on it this year. But at an average cost of $120 a day, it is far cheaper than nursing homes.
One of the major challenges for those who want to reform the state's Medicaid system is to care for more people at home, like Hasell, and fewer in institutions, like DeWitt. It would be both cheaper and better for the patients, advocates argue.
"We need to deliver more services at home," said Daniel Sisto, head of the Healthcare Association of New York, a lobbying group.
Sources: Business Council of New York State, state Association of Counties, Attorney General Eliot Spitzer, staff research
