Education and health care will be two of the major points in dispute in the 2005-06 State Budget. The Governor proposed billions of dollars in cuts in Medicaid, Family Health Plus and other health care programs, while ignoring the recent court decision requiring several billion dollars in extra funding for education.

The good news in Governor Pataki’s $105 billion proposed budget was that an upsurge in state revenues has reduced the projected state budget deficit to $4.2 billion. Pataki proposes however to increase the deficit with a tax cut of $246 million for the wealthiest taxpayers, eliminating the 2003 income tax increase for New Yorkers making more than $100,000 a year earlier than planned. Meanwhile he wants to raise more than $456 million by continuing the sales tax on clothing and foot wear.

The Earned Income Tax Credit continues to eat up an ever greater percentage of the TANF (welfare) block grant. A new proposal is a Fatherhood Initiative to extend the EITC to cover non-custodial parents who pay child support. The Governor is also proposing a Performance Bonus for counties that increase food stamp participation, though no details are available. He also wants to shift welfare-to-work program oversight from the State Department of Labor to OTADA.

A more controversial proposal is to take one billion dollars of the federalTANF block grant and in turn block grant it to the counties, leaving them to decide how much money to allocate to child care, child welfare and employment transitional support services in their counties. The proposed Flexible Fund for Family Services has no requirement for community input into the spending, and lack safeguards to prevent the funds from being used to fill other budget gaps (as the state has done for years).

The Governor did spare the Hunger Prevention and Nutrition Assistance Program (HPNAP) from the TANF block grant, adding $12 million to the Health Departments budget that use to be paid out of TANF. However, the combined $22.8 million in funding for emergency food is still two million dollars below where it was several years ago. Funding for all nutrition programs remained stable: WIC $31.2 million; Summer Food $3.3; Seniors $17.2 million; Nutrition Outreach $2 million; and FAP $200,000.

The Governor as usual is proposing full family sanctions for welfare participants. Currently welfare benefits are withheld only from the head of household for noncompliance with work requirements. The Governor wants to cut off the children as well. The Governor is proposing a change in the Earned Income Disregard (EID). Welfare participants who work are the highest taxed workers in New York, as their welfare benefits are slashed when they get earnings. The Governor is proposing that the Earned Income Disregard be 50% for the first five years (up from 43% presently, though it increases annually for inflation) but drop to 25% after that.

The Governor’s budget includes more than $2.5 billion in spending cuts in Medicaid. The Governor is seeking to eliminate many health care services for adults under both Medicaid and Family Health Plus(podiatry, eye care, dental outside of clinics, mental health) while also increasing various co-pays (e.g., $250 for hospital care under FHP). The Governor would also reduce payments to New York’s hospitals ($201 million) and nursing homes ($182 million) while re-establishing a 0.7% assessment on hospital revenues and freezing managed care premium payments ($194 million).

The Governor incorporated a cap on local contributions to Medicaid, adjusted for inflation, into his recent 2005-06 budget proposals. Pataki estimated Medicaid savings to local governments at $578 million for fiscal 2005-06.The inflationary adjustment for the cap however is only between 3.5% and 3.0% annually, ignoring the fact that overall health care costs are increasing by double digits annually. The cap goes into effect only if the State Legislature agrees to the billions in proposed health care cuts. The Governor hopes the proposed cap will push County officials and local taxpayers to pressure the Legislature to agree to the service cuts.

For the first time, the Governor is proposing that the Health Care Reform Act (HCRA) - the funding formula for hospitals, nursing homes, Family Health plus, etc, - be included as part of the budget. This may prove critical in light of the recent court decision greatly strengthening the Governor’s budget powers with respect to the state legislature.

The Governor’s proposal to save $135 million to withhold one-half of college students TAP awards until “timely degree completion” is unlikely to fly; he is also seeking to cut funding for CUNY and SUNY by $137 million. His budget also allows a $500 tuition increase at SUNY and $250 at CUNY.

Of the $826 million in “one-shot” revenue items proposed by the Governor, the least likely to fly is a renewed attempt to reduce pension contributions by $321 million.

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The Governor released today his proposed 2005-06 Executive Budget, which is intended to address a State budget deficit in the upcoming fiscal year of over $4 billion, contain the growth of the Medicaid program and provide fiscal relief to New York State’s local governments – all without raising state income taxes. The proposal sets the stage for what may prove to be a particularly challenging and drawn-out negotiation over the State’s fiscal plan, which will also address the extension of the expiring Health Care Reform Act (HCRA) and the State’s response to the Campaign for Fiscal Equity (CFE) lawsuit that will compel increased funding for New York City’s public schools.

Making matters more difficult, both from the perspective of understanding the budget proposal and ultimately enacting it, is the decision by the Governor to include in the appropriation bills paragraphs upon paragraphs of substantive law revisions for the Legislature’s consideration. Whole new programs are defined by appropriation language – a strategy designed to take advantage of the most recent decisions by the Court of Appeals that substantially limit the ability of the Legislature to tinker with the appropriation language that accompanies the State Budget.

In the days and weeks ahead, we will share more in-depth insights into the details of the Governor’s fiscal proposals and will be preparing more specific analyses of key provisions of the Governor’s budget for your review. In the meantime, here are the highlights:

HEALTHCARE AND MEDICAID PROPOSALS:

The Governor described a four-point program to address health care issues in New York:

 Cost-containment: The Governor’s proposal seeks to restrain State spending on the Medicaid Program to current year levels through a series of cost reduction, benefit elimination and provider assessment proposals. The Governor’s budget contains $2.5 billion in Medicaid cuts. His proposals include reductions (or eliminations of otherwise expected increases) that touch nearly every aspect of the program, and over $230 million in provider taxes on hospitals, nursing home and home health services providers;

 Restructure and consolidate health care facilities: Building on the proposals advanced by the Governor’s health care workgroup (headed by Steven Berger), a Commission on Health Facilities in the 21st Century would be established to “rightsize” the hospital and nursing home system;

 Invest in healthcare infrastructure: The Governor would implement the HEAL-NY capital finance initiative – enacted, but not funded, last year – that will invest in facility improvement, reconfiguration, consolidation, upgraded information technology and enhanced efficiency;

 Reform long-term care: A series of proposals have been advanced that are intended to improve the efficiency, affordability and flexibility of long term care services, including an expansion of the Expanded In-home Services of the Elderly (EISEP) program, new funding for home accessibility renovations, and home care demonstration programs. These programs would also be accompanied by tightened eligibility for long term care services, including an elimination of the right of a spouse to refuse to contribute to the cost of care.

A major objective of the Budget is to begin to relieve local governments of the growing costs of the Medicaid program. The Governor’s budget language explicitly, however, provides that the funds necessary to assume partial state responsibility for local Medicaid costs will not be spent “unless the Medicaid cost containment actions proposed in the 2005-06 executive budget are enacted, as certified by the commissioner of health and the director of the budget.” Thus, the Governor is effectively utilizing the significant pressure for county Medicaid relief as the wedge to secure substantial Medicaid cost reductions – pressure that the Legislature may find difficult to resist.

The details of these and other health-related proposals are described below.

Hospital Reimbursement. The budget proposes a number of reductions in hospital reimbursement under Medicaid, including the elimination of the annual trend factor, unspecified changes (as determined by the Commissioner of Health) in the distribution of bad debt and charity care, the revision of GME payments to ensure that the rate methodology reflects actual costs, and the reconciliation of GME grants described by the Division of Budget as overpayments. The budget would authorize the Department to contract selectively with hospitals for specialized high cost procedures, would eliminate specialty rates for mental health outpatient programs and would reduce inpatient detoxification rates for uncomplicated cases. In addition, the budget proposal would reestablish the 0.7 percent assessment on hospital revenues. The $48 million Priority Restoration Pool for former SLIPA and Financially Distressed Hospitals is continued at the current level.

Nursing Home Reimbursement. The budget recommends the implementation of a new regional average reimbursement methodology so that all homes within a region will be reimbursed up to the regional average rate, adjusted for patient mix based on 2003 costs. In addition, the proposal would eliminate the Medicaid provider rate enhancement (which the budget documents characterize as no longer necessary due to Federal reimbursement changes), eliminate the annual trend factor, and reduce the supplemental payments to nursing homes related to quality of care. Nursing homes would, in addition, be required to pay a six percent reimbursable assessment on their patient revenues – an increase from their current five percent assessment.

Home Care. The Governor’s proposal would impose a non-reimbursable 0.7 percent assessment on home care revenues, similar to the assessment proposed to be applied to hospitals. The Governor’s budget documents reference, as well, the implementation of other measures to limit administrative costs of home care agencies and long-term home health care programs – which are not defined in the now-available budget documents, but which may relate to already enacted, but not yet implemented, cost reporting and expenditure limitations imposed on licensed home health care agencies. At the same time, the Governor is advancing home care demonstration programs that would enhance home care rates to encourage community-based services, including respite, for patients that might otherwise be institutionalized in nursing homes or hospitals.

Community-Based Care for the Elderly and Persons with Disabilities. In addition, the Governor is proposing to double funding for the Expanded In-Home Services for the Elderly Program (“EISEP”) over the next two years. EISEP provides non-medical in-home services to elderly New Yorkers, such as case management and respite for caregivers. The Budget also proposes increasing the funding for the Community Services for the Elderly (CSE) program by $250,000 to reach a total of $16.6 million. CSE supports an array of services to assist the elderly, their families and informal caregivers, including case management, personal care, housekeeping, home health care, adult day services, and transportation.

Finally, the Governor proposes to allocate $10 million to a new Access to Home Program, which will support efforts to enhance the accessibility of the homes and apartments of low and moderate income New Yorkers with disabilities. This proposal is intended to allow disabled individuals to remain in their homes rather than enter institutional care.
Limits on Eligibility for Long-Term Care. At the same time as the above-referenced enhancements to home and community-based care are advanced, the Executive Budget again proposes restricting eligibility for Medicaid as follows:

 Eliminates the ability of a spouse to refuse to provide medical support to a spouse applying for Medicaid, unless the well spouse is “absent” (i.e., no longer living with the Medicaid applicant);

 Extends to 60 months the “look back period” for determining Medicaid eligibility for long-term care services in the context of a transfer of assets for less than fair market value (subject to approval of a federal waiver);

 Extends the period of ineligibility after a transfer of assets within or after the look back period;

 Extends the transfer of assets penalty to non-institutionalized applicants for Medicaid coverage of long-term care services.

Clinic, Community Health Center and Practitioner Services. The Governor’s proposal appears to eliminate Medicaid reimbursement for non-clinic adult dental services, and nurse, audiologist and psychologist services provided to adults. The proposed budget would not eliminate Medicaid reimbursement for clinical psychologist and audiologist services provided in federally-qualified health centers or clinics with the mission of serving individuals with developmental disabilities. In addition, clinics would still be reimbursed for dental services, and the Governor’s budget proposes a $1 million appropriation for new dental vans in underserved areas. The Governor’s proposal does, however, include the elimination of Medicaid reimbursement for podiatry services in the clinic setting.

As noted below, the Governor’s budget dedicates to community health centers $10 million in 2005-06 from the HEAL-NY capital program. In addition, the budget would authorize the Department of Health to collect SPARCS data from hospital outpatient and free-standing clinics.

Adult Homes. The Governor’s budget includes new funding for adult homes. Specifically, it proposes to add $4.75 million to the Department of Health budget for vocational education, recreation, independent living skills training for residents, and maintenance and upkeep of the homes. It also provides for an additional $5.25 million in the Office of Mental Health budget for care management.

Transportation. The Governor proposes to modify current Medicaid transportation requirements to allow counties to contract with lower cost providers and encourage greater use of existing public transportation.

Pharmacy Proposals. The Governor’s proposal establishes a preferred drug program for Medicaid which limits Medicaid reimbursement to certain drugs that have been selected for the preferred drug list, based on their cost and clinical efficacy. The Medicaid program will reimburse for drugs that are not on the preferred drug list only if prior authorization is obtained. The drugs on the list will be selected by a pharmacy and therapeutics committee established by the Department of Health. Certain drugs, including atypical anti-psychotics, anti-depressants, anti-retrovirals used in the treatment of HIV/AIDS and anti-rejection drugs used for the treatment of organ and tissue transplants would be exempt from the preferred drug program.

The Governor’s proposal also increases Medicaid fee-for-service and managed care co-payments for pharmaceuticals. For generics, co-payments are increased from $.50 to $1.00, and for brand name drugs, co-payments are increased from $2.00 to $3.00.

EPIC. In the Elderly Pharmaceutical Insurance Program (EPIC), the Governor proposes to promote enrollment in the new Medicare Part D prescription drug program by waiving the EPIC fees for low-income individuals. The budget projects $40 million in EPIC savings through coordination with Part D. Despite repeated pleas from disability and disease organizations, the Governor’s budget does not apply these savings to expand the EPIC program to cover disabled individuals under the age of 65 who are eligible for Medicare.

Medicaid Managed Care. A series of proposals were advanced that would affect the State’s Medicaid managed care program, including:

 Premium Payments – The Governor proposes to freeze premium payments at current levels for the Medicaid managed care and Managed Long Term Care programs.

 Marketing Expenses – The Governor’s budget proposal includes a cap on marketing expenses for Medicaid managed care plans.

 Pharmacy Co-payments – As noted above, as with fee-for-service Medicaid recipients, Medicaid managed care enrollees will be required to pay pharmacy co-payments: $1 for generic drugs and $3 for brand name drugs.


Child Health Plus (CHPlus).

 Re-authorization – The Governor proposes to reauthorize the CHPlus program, which expires on July 1, 2005.

 Premium Payments – As with Medicaid managed care, the Governor also proposes to freeze premium payments at current levels for the Child Health Plus program. The budget would also shift rate setting authority from the Insurance Department to the Department of Health.

 Continuous Eligibility – The Executive Budget would provide 12 months continuous coverage for children enrolled in CHPlus.

 Presumptive Eligibility – The Governor proposes to eliminate presumptive enrollment into CHPlus for Medicaid-eligible children, except under specified circumstances.

Family Health Plus. In light of the State’s assumption of the local share of Family Health Plus costs, the Governor proposed even more dramatic reforms of this managed care initiative:

 Benefit Reductions – The Governor proposes to modify the FHPlus program benefit package to make it consistent with the Healthy New York Program. Healthy New York has a far more limited benefit package than FHPlus. This proposal would eliminate the following benefits from the FHPlus program: dental, DME, home health services, hospice services, mental health and alcohol/substance abuse services, short-term rehabilitation services and vision services.

 Resource Test – The Governor proposes to implement a FHPlus resource test for applicants that is consistent with the resource test in the Medicaid program, but would allow families with savings of up to $10,000 to qualify.

 Co-payments – The Governor’s budget calls for FHPlus co-payments consistent with those required in the Healthy New York program . Proposed co-payment levels are as follows:

Service Co-Payment
Inpatient hospital services $250 copay
Outpatient surgical facility $75 copay
Emergency services (waived if admitted to the hospital) $50 copay
Generic prescriptions $10 copay
Brand name prescription $20 copay
All other services $20 copay

 Facilitated Enrollment – The Executive Budget Summary also states that “unnecessary enrollment assistance funding” would be eliminated.

 Marketing Expenses – The Governor’s budget proposal includes a cap on marketing expenses for Family Health Plus plans.

 Eligibility Exclusions – The Executive Budget refers to closing certain “eligibility loopholes” in the FHPlus program to prevent inappropriate use of the program. These proposals include eligibility exclusion for:

1. Applicants employed by federal, state, county, or municipal agencies or school districts;
2. Applicants employed by an employer with more than 50 employees; and
3. Applicants who had insurance coverage within a 12-month period prior to the date of application, with some exceptions.

Managed Long-Term Care Programs. As with the “mainframe” managed care program, premiums for Managed Long-Term Care (MLTC) plans would be frozen at last year’s levels. It is also anticipated, although not reflected in the budget documents released thus far, that the Governor will be proposing the authorization of several new MLTC plans.

Local Government Medicaid Relief. As noted, if these cost containment proposals are enacted, the Governor’s budget would reduce the Medicaid burden on local governments, at least somewhat, over the next several years. Commencing in January 2006, county (and New York City) Medicaid payments would be capped at the amount spent in 2005 plus a growth rate of 3.5% or actual costs, whichever is less, and would be lowered still to 3.25% in 2007 and 3 percent in 2008 and thereafter. Full takeover of local Medicaid costs would be initiated in 2008, subject to the remission to the State of this capped contribution or the assignment of the local governments’ sales tax revenues, whichever the local government prefers. The Family Health Plus program takeover would, in addition, be accelerated for upstate counties, which would also receive some additional transitional funding.

Early Intervention. The Governor proposes $34.4 million in savings to the State and county governments in the Early Intervention Program, through the following proposals, some or all of which have been advanced previously:

 Increasing private insurance reimbursement of Early Intervention services;

 Allowing counties to negotiate lower rates with providers;

 Imposing a financial contribution on families with income of up to 250 percent of the FPL, ranging from $25 to $215 monthly (hardship waivers would be available for qualifying families);

 Establishing one rate for both basic and extended visits; and

 Mandating independent evaluations for children that require only one service weekly.

HCRA Reauthorization. The Governor’s proposal reauthorizes HCRA – which is currently set to expire on June 30, 2005 – for two additional years. The proposal continues HCRA funding for existing programs, including health care workforce recruitment and retention and Child Health Plus, and increases funding for rural health providers. The proposal provides funding for new programs such as disease management, childhood obesity prevention and mobile dental vans. The proposal authorizes HCRA funding for certain unspecified reform initiatives recommended by the Governor’s health care reform working group. Finally, the proposal reduces funding for selected programs, including the elimination of the catastrophic health insurance program and the individual insurance subsidy program.

The Governor’s proposal provides that proceeds of any future conversions of not-for-profit insurers to for-profit status – similar to the Empire Blue Cross/Blue Shield conversion – will go to HCRA. The proposal would also increase HCRA hospital and clinic surcharges on net patient service revenues from 8.75% to 8.95%, and increase the covered lives assessment by $50 million. In addition, the proposal provides for HCRA spending to be reflected in the State budget.

Healthcare Efficiency and Affordability Law (HEAL-NY) Capital Funding. The Governor proposes a $1 billion capital grant program to improve and “rightsize” the State’s health care infrastructure, with $250 million available in 2005-2006. The funds would support facility improvement, reconfiguration and consolidation, investments in information and health care technology and enhanced facility operations, all intended to facilitate the transition of the health care system in New York State. Of the first $250 million, $10 million would be specifically earmarked for community health centers.

WELFARE AND TANF PROPOSALS:

The Executive Budget contains several proposals affecting low-income families. These include:

Flexible Fund for Family Services. The proposed budget re-directs the allocation of the TANF surplus – the amount of the federal Temporary Assistance to Needy Families block grant that exceeds spending on welfare grants. Historically, these funds have been allocated to a variety of services and supports for families on welfare and other low-income families. Under the Governor’s budget, all TANF surplus funds that are not allocated to the Earned Income Tax Credit or State Operations would be allotted to the “Flexible Fund for Family Services.”

This $1 billion fund would be used to provide block grants to counties for child care, child welfare emergency services, domestic violence screenings, drug screenings and counseling, Edge/Bridge employment programs, employment and transitional programs, pregnancy prevention, PINS, Title XX services, transportation services, youth employment programs, and local administration. Under this block grant proposal, all TANF initiatives that have been added by the Legislature in prior years would be eliminated.

In addition, the proposed budget would create the Local Administration Fund, comprised of $309 million from the General Fund. This fund would provide support for local social services district administration of employment, food stamp, and public assistance programs.

Work Requirements for Welfare Recipients. The Governor once again proposes the “full family sanction” for families on welfare. Under this proposal, if the head of a household on welfare fails to meet work requirements, the family’s entire public assistance grant would be withheld.

Earned Income Disregard. The Executive Budget would modify the amount of earnings that are disregarded in determining eligibility for cash assistance. For recipients receiving welfare for less than five years, the disregard would be 50 percent of earnings. However, the disregard would be reduced to 25 percent for families on welfare for more than five years.

Earned Income Tax Credit (“EITC”). The Executive Budget proposes spending $1.7 billion in TANF funds on the EITC. In addition, the Governor proposes to make the EITC available to non-custodial, low-income parents, age 18 to 30, who are current with child support obligations.

CHILD WELFARE, CHILD CARE AND YOUTH SERVICES PROPOSALS:

Foster Care Block Grant and Kinship Care Demonstration. The Executive budget proposes a $373.5 million Foster Care Block Grant to provide counties with flexible funding to reduce the foster care caseload. In addition, the proposed budget provides $250,000 for a kinship care demonstration program.

Child Welfare Funding. The Governor’s proposed budget provides an increase of $4.5 million in aid to counties for child welfare services. The State will provide 65 percent reimbursement for family preservation and other preventive services to social services districts that maintain or increase child welfare spending under the Flexible Fund for Family Services. Local social services districts may use this reimbursement to expand mental health services for children in foster care or at risk of an institutional placement. The Executive Budget provides $2.34 M to support an additional 245 Medicaid home and community-based waiver slots for these children. In addition, the budget provides $1.9 million for child welfare quality improvement initiatives to be distributed to counties and not-for-profit organizations to promote the implementation of innovative models for child welfare services.

Adoption Funding. The Governor’s budget includes $3.5 million in new federal adoption incentive funds. It also appropriates $184 million in state funding for families who adopt children with special needs.

PINS. The Governor’s budget includes a proposal to use community-based services to reduce detention facility placements among youth in the PINS program. The Governor projects that this initiative will generate savings of $3 million and proposes to reinvest $1 million of the savings in community-based programs to serve these youth.

VOTING PROPOSALS:
The Governor’s budget proposes a $7.7 million appropriation for expenses relating to satisfying the matching fund requirements under the Help America Vote Act (HAVA) of 2002, elements of which are directed to ensure that persons with disabilities are able to exercise their franchise. This appropriation would allow New York to receive additional Federal election funding to assist the State in meeting upcoming implementation deadlines. The funding will provide for State and local election related initiatives including: modernizing voting machines, developing a statewide voter registration database, training poll workers, providing voter education and assuring accessibility to the disabled. A total of $220 million in Federal funding is expected to be received for implementation of HAVA.

Likewise, the Governor will be advancing a new Reform the School Voting Process (RSVP) initiative to increase voter participation in local school district elections. In addition to mandating other reforms of the school voting process, the bill is intended to expand access to school-related polling places.