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Nicole Gelinas
Spitzer’s Radical Medicaid Surgery?
It’s really a placebo, but you wouldn’t know it from union screaming.
8 February 2007

Governor Eliot Spitzer lost a big battle with the state legislature this week, when Assembly Speaker Sheldon Silver and Senate Majority Leader Joe Bruno defied an agreement with him to choose a new state comptroller from a short list of qualified candidates rather than from the political trenches. But the new governor faces an even bigger struggle in the months ahead, with union interests and likely with legislative leaders too, as he tries to bring a semblance of rationality to the state’s dysfunctional health-care system—including its $45 billion Medicaid program, which exists more to serve special interests than to serve the poor.

New York State’s powerful health-care workers’ union, the 320,000-strong Service Employees International Union Local 1199, is about to launch a protest against Spitzer’s reform plan, which the union’s incoming leader, George Gresham, calls “the most devastating health-care cuts any governor has ever proposed.” Local 1199 will blitz TV and radio with ads and deploy 200 new foot soldiers statewide to scare New Yorkers about the cuts to come, notes Daily News columnist Juan Gonzalez. But the modest health-care proposals that Spitzer unveiled in last week’s budget are anything but devastating.

A look at the fine print behind Spitzer’s proposed $1.2 billion in health-care savings shows that the union’s histrionics are much ado about nothing. First, overall state spending on health care is still going inexorably up. Next year, federal, state, and local spending on Medicaid will exceed this year’s total by at least $2 billion, despite the governor’s proposed savings (the feds pay about half of New York’s Medicaid bill, while state and county taxpayers pay the rest). Meanwhile, state resources devoted to the program will rise about 3 percent, likely outpacing inflation. After the tiny changes that Spitzer proposes, New York will still spend nearly as much on Medicaid as Texas and California combined.

What’s more, the new governor actually proposes to expand—significantly—one component of Medicaid: child enrollment. Spitzer wants to open the state’s health-insurance program for kids, Child Health Plus, to families who earn 400 percent of the poverty level, up from 250 percent. After the change, nearly half a million children will be newly eligible to join.

This change will surely entice some moderate-income parents to switch their kids from private insurance provided through their jobs to public insurance, since now they’ll get a better deal from the state than from their employers. Spitzer’s proposed expansion comes even as President Bush seeks to shrink the same program. In his recent budget, the president sought to limit federal matching funding for Child Health Plus to kids whose parents earn only 200 percent of the poverty level. If the president gets his way, New York will be on the hook for even more annual spending, because the state will have to make up for the absence of federal funding for kids in the 200 to 400 percent bracket.

But what about those “devastating health-care cuts”? Spitzer proposes to freeze the level of payments to hospitals, nursing homes, and public-health managed-care plans instead of providing automatic increases. He intends to revise the state’s payments that fund medical-student training, so that hospitals don’t end up getting paid more than they spend on such training. And he’ll eliminate some subsidies to nursing homes that result in double payments for the same services, as well as try to ensure that Medicaid money follows real Medicaid patients at nursing homes, rather than funding other costs. He’ll also try to slash wholesale payments for prescription drugs.

And the new governor is doing something else that hospital and nursing-home managers and workers won’t like. Noting that New York spends 70 percent of its Medicaid money on just 20 percent of its patients (mostly elderly and disabled), he’ll review expensive hospitalization and nursing-home cases. Reducing hospitalizations, and irrational payments to hospitals, would go a long way toward cutting costs. As the Business Council of New York State’s Robert Ward reported two years ago, “hospital spending represents the biggest single disparity between Medicaid spending in New York and in . . . competitor states.”

Spitzer’s modest savings would give him some time over the next year to construct for New York, almost from scratch, a more rational public health-care system. Under the current crazy system, Medicaid isn’t so much a health-care program for the truly needy as it is a subsidy for foundering hospitals and nursing homes. This muddled mission is a big reason that New York spends $10 billion more annually on Medicaid than California does, though it has fewer than half the number of recipients.

But Spitzer won’t succeed unless he can cut through the union’s apocalyptic rhetoric and convince voters that the state needs real change. If past health-care campaigns are any guide, New Yorkers are about to face a deluge of ads claiming that we’re all going to die if Spitzer changes a thing.

And 1199—one of Albany’s biggest institutional lobbyists and donor bases, as well as a huge voting bloc—can probably count on ironclad loyalty from the Assembly and the Senate. According to the New York Public Interest Research Group, fully one-third of the $6 million spent by New York’s top 16 political action committees in 2004 came from groups that benefit from Medicaid money, among them Local 1199. Judging from Gresham’s remarks, the union believes that it’s powerful enough to maintain the dysfunctional status quo in New York health-care spending, despite the swelling cost to taxpayers—popular new governor notwithstanding.

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More by Nicole Gelinas:
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