Shortly after taking office in 1995, Governor George Pataki commissioned a study on how to reform New York’s crushingly expensive health-care system, characterized by huge public subsidies to hospitals, hefty surcharges on private insurance (making it increasingly hard to afford), and the most spendthrift Medicaid program in the country (a serious burden on local governments, which must shoulder half of the non-federal Medicaid cost in the state). The study called for getting rid of excess hospital beds and cutting health-care subsidies, among other steps.

Recently, a second study on health-care reform commissioned by Pataki reached pretty much the same conclusions. It deserves credit for outlining the tough choices the state must make. But the only real news here is that over the past decade, the governor and the state’s legislative leaders have done zero to fix the system’s problems and have actually made them worse.

Ten years ago, even hospital and health-care union brass, who had spent the previous two decades using their political might to fatten the system, admitted that change was inevitable. But they pleaded with Pataki to go slow. The hospitals had become so dependent on state subsidies, they said, that weaning them too fast could be ruinous. Pataki replied in 1996 with what was to be Phase One of an ambitious long-term reform, ending the state’s practice of setting the price of every hospital procedure but leaving in place the subsidies and the insurance surcharges.

The governor then learned just how formidable the state’s health-care industry could be. Rather than preparing for future reforms, the state’s hospitals and unionized health-care workforce mounted a political campaign to derail them. In 1999, they rolled out the costliest state lobbying effort ever for a single issue. It included a series of ominous ads warning that reforms would close hospitals and keep New Yorkers from getting needed health care.

Spooked, Pataki reversed course. Instead of pushing new reforms, he raided the state’s share of the national tobacco settlement to pour billions more into the wasteful system. Making matters worse, two years later, he used the state’s take from Empire Blue Cross Blue Shield’s conversion into a for-profit insurer to pay for private-sector health-care worker salaries. Pataki’s moves gobbled up money that could have helped eliminate taxes on private insurance and relieve the state’s counties and New York City from their Medicaid load, which has contributed to local budget deficits and tax hikes.

Albany’s leaders now face another looming crisis. The state’s current health-care legislation expires this year. With many other big-ticket, non-health-care items already busting the budget, Albany will have to come up with new funds to feed the health-care giant. The state will need $2.7 billion just to replace the one-time revenue boost it got from Blue Cross’s public offering. And it will need to keep tapping tobacco-settlement funds to sustain hospital subsidies at a time when the state could dearly use that money in other ways.

Pataki might have avoided the coming crisis if he’d made the tough choices in the past. Now, Albany watchers think that the new health-care report is political window dressing—that Pataki will just send the report to the legislature and, when lawmakers fail to enact its proposals, blame them for the state’s ongoing health-care woes.

If New York is ever to bring sanity to its health-care system, it will have to wait for another governor.


City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).

Further Reading

Up Next