The recent recession and its fiscal impacts have focused attention on the need to reform New York State’s Medicaid program and rein in costs. The fiscal year 2012 budget made considerable progress in curbing spending growth, primarily through rate reductions, shifting more enrollees into managed care, and placing a cap on spending for core items in the program. These measures – and the ongoing work of the Medicaid Redesign Team – should pave the way to a more sustainable program. While Medicaid reform efforts are underway, the state should take steps to fix a long‐standing problem with how it pays for the program: its unusual requirement for substantial local government financing.

In state fiscal year 2012, New York’s counties will pay more than $7.1 billion for Medicaid, or about 13 percent of total expenditures which are projected to be $53 billion. This report focuses on state fiscal year 2008 because federal stimulus funding reduced the counties’ liabilities in subsequent years and because that is the most recent year in which the state published county‐by‐county local Medicaid costs. In fiscal year 2008, New York’s counties paid $6.5 billion for Medicaid, or about 16 percent of total expenditures.

Localities are required to pay for 25 percent of the cost of acute care services and 9 percent of the cost of long‐term care services provided within their borders. Counties are exempt from paying any portion of costs for some other services, such as mental health care, and a statutory cap enacted in 2005 limits growth in the local share to 3 percent per year.

The financial burden this requirement places on counties is highly unusual. Many states do not require any local contribution, and among those that do none come close to what is required in New York. The policy is problematic for two reasons: It places an inequitable burden on taxpayers in less affluent communities, and it reduces the pressure to contain costs.

The local share policy inequitably distributes the burden of Medicaid financing among counties and taxpayers. Because Medicaid provides health care services primarily to the poor, low‐income counties pay a disproportionately large portion of Medicaid costs relative to their population size and wealth. Likewise, individual taxpayers in low‐income counties pay higher amounts toward Medicaid costs compared to taxpayers with similar incomes and home values in more affluent counties. The 2005 cap on local share growth mitigates financial risks for local governments but leaves a heavy and unfair burden in place. Although local officials viewed the growth cap as a significant improvement at the time
it was adopted, the passage of a 2 percent property tax growth cap in June 2011 presents significant new budgetary challenges for them. County governments are now responsible for 3 percent annual
growth in a program that demands a significant portion of their property taxes while those revenues are allowed to grow only 2 percent.

The local share policy also mutes incentives for cost containment. Under current policy the State sets rates and determines the scope of services for the program, passing part of those costs along to the counties. However, the counties determine the level of benefits for key long‐term care services for which the State and federal governments pay 90 percent of costs. To improve the incentives for cost containment the State will assume all administrative responsibility for Medicaid by 2016. The final logical step toward aligning the decision‐making responsibility for Medicaid with the obligation to pay for it is the elimination of the local funding requirement. Full state financing is the best way to achieve continued cost control in a program fully controlled by the State. It would also better comport with the new fiscal realities for counties under the property tax cap.