Are the counties and New York City going to get any relief on the local share of Medicaid costs? This is a question considered apart from issues of structural reform of the Medicaid program, but the structures and shares are actually interwoven. While the politics of the Medicaid shares are getting testy, there's more to it than which elected officials get to raise tax revenues (and tax rates) to pay for it. We need to consider this issue, not only for the current politics, but also for its interrelationships with the larger issues of Medicaid program reform.
Currently, the Medicaid local share is also mixed in with the State's responding to a court decision on inequities in the distribution of school aid. The Legislature and Governor are focusing more attention on the education financing issue and they'll likely focus many more dollars on resolving it. Both school aid and Medicaid have substantial tax incidence implications - which regions's taxpayers are net payers and which are net beneficiaries. But this isn't just about who pays. It's also about the politics of who benefits and how much is paid.
It would be easier to pick up the local share and get local officials off the backs of State officials if the local share had not become so expensive. So logically it would also be easier to pick up the local share if there were a prospect for structural reform that would rein in total Medicaid costs. This argues for structural reform first; pick up the local share later. The problem is that a local share reduces the pressure State budget to engage in structural reform while increasing the lobbying pressure not to. The standard lobbying argument "don't cut us to save 33 cents. It will cost us a dollar" has been historically potent.
New York's requirement that counties and New York City pay a substantial portion of the costs of the country's most expensive Medicaid program began as an artifact of the system in which counties actually administered the public welfare and medical systems that pre-dated Medicaid.
As the program has grown and services have expanded, policy and operational authority has become centralized. Counties have no say in Medicaid policy making and relatively little operational flexibility. It is the State which makes Medicaid policy, determines which institutions and individuals benefit from the program and to what degree, and creates the prices and structures that drive program costs.
So as Medicaid costs have grown, the alignment of financial and policy responsibilities have become weaker, exactly the opposite of what we should require. The State is only responsible for about one-third of the cost. This creates a political environment in which the State officials can provide a dollar’s benefit and reap a dollar's political benefits for only $.33.
But even those distorted figures don't present the whole picture. The differential in State/local share growth has accelerated. The State has used various new revenue streams such as the assessment and pooling arrangements under the “Health Care Reform Act” to generate off-budget revenues that partially offset general revenue requirements for the State’s share of Medicaid expenditures. Counties are unable to draw on these or comparable funds. Thus, the apparent increase in the State share is relatively small (a couple of percent) and, in terms of the State budget, it is relatively inexpensive for State policy makers to increase Medicaid spending. But it is other jurisdictions that bear the cost burdens. Thus there's been no new revenue for localities and their shares of Medicaid costs has risen at rates typically in the 12-14 percent range.
Given the legislative politics of interest groups especially hospitals and nursing homes, there were and still are counterpressures heavily weighing against it. As the healthcare industry has become more financially dependent on Medicaid and its lobbying more aggressive, the more expensive the program has become and the harder it's become to fix.
So, the local share of Medicaid is not only a problem for local officials and taxpayers. It's a structural barrier to structural program reform.