The Special Interests

Health Care–Just Sick

If one sector outweighs all others in adding to the cost of living and doing business in New York, it’s health care. Part of the problem is institutional: New York’s sprawling network of public and private hospitals is massively expensive. A decade ago, the state had the nation’s highest per-capita hospital costs, paid for the most beds per capita in the nation (20 percent of them unnecessary), and had the longest average length of stay.[38] With the long-term goal of cutting costs, New York began a high-profile effort to “deregulate” in 1996, but neither real deregulation nor lower costs materialized. New York’s per-capita hospital spending is still nearly three times the national average.[39] A blue-ribbon commission concluded in 2004 that the sector is “too bloated and too costly.”[40]

The HCRA Explosion New York State passed the Health Care Reform Act (HCRA) of 1996 with much fanfare. Hopes were high that the hospital deregulation that HCRA promised would finally work to reduce costs.[66] With HCRA, New York joined 48 other states in deregulating its hospital sector.[67] New York decided to trade its outdated commandand-control model of government-set prices for hospital procedures for a more market-driven approach in which market forces would eventually drive down spending.[68] But HCRA drove up spending and has become a potent symbol of Albany’s fiscal irresponsibility: Prior to fiscal 2005–06, New York’s spending on various HCRAfunded programs was kept off the state budget, insulating them from normal accounting review and making it harder for fiscal observers in and out of state government to evaluate the bottomline impact of the programs.[69] Dramatic increases in health-care spending under HCRA have often been funded by substantial “one-shot” infusions of cash—even though the state’s expressed commitment to the program is effectively permanent. For example, as of 2005, major sources of revenue for HCRA programs included cigarette taxes, which are steadily shrinking along with tobacco usage, and proceeds from the conversion of nonprofit health insurers to for-profit status.[70] Where the roughly $3 billion generated from such actions will come in the later years of the decade is anyone’s guess.

A single man has come to symbolize hospital interests’ intractable appetite for ever more taxpayer dollars: Dennis Rivera, head of New York’s powerful hospital-workers’ union, Local 1199 of the Service Employees International Union (SEIU). Rivera has capitalized on—and helped expand—a core political reality in New York: in Albany, hospital and Medicaid spending is about jobs, not health care. With a welloiled get-out-the-vote machine staffed by union members, a history of expensive advertising campaigns designed to intimidate elected officials into toeing the line, and some savvy political contributions, Rivera and his union have a long record of getting what they want from Albany. The cunning labor leader couldn’t do it alone: Governor Pataki, Senate Majority Leader Joseph Bruno, Assembly Speaker Sheldon Silver, and rank-and-file legislators have been all too willing to capitulate to several sweetheart deals with his union members.

Rivera’s first big score came in 2000, when Pataki, Bruno, and Silver agreed to a program expanding health-care entitlements while at the same time preserving most of the state’s unique hospital subsidies.[41] Rivera fared even better when that program was renewed and further expanded in 2002. Albany increased payments to hospitals and nursing homes by $1.8 billion—mostly to give unionized hospital workers pay raises (see photo, right).[42]

Rivera again emerged as an apparent winner in the 2005–06 state budget, which included an $80 million item earmarked for pay raises and training for health-care workers in upstate nursing homes. The item specifically omitted government-run facilities—where, as it happens, Local 1199 has no presence.[43] As one columnist put it,[44] this was clearly intended to “help Rivera settle contracts for the workers he already represents or suitably impress the workers he has yet to organize.” After lawmakers considered further increasing this exorbitant spending, the item stalled at the legislative session’s end, but few doubt that Rivera will eventually collect on the budget promise—perhaps even more than he originally sought.

Rivera and the rest of the hospital sector keep their winning streak alive despite years of reports concluding that New York sustains far too much capacity in its hospital system—and despite efforts by the state, in fits and starts, to begin dealing with the problem. In 2005, Pataki and the legislature agreed to impanel a “hospital-closing commission” akin to federal “military base–closing commissions.” (In fact, the governor had the regulatory power all along to push ailing facilities to close—but the
hospitals and their unions are so politically powerful that the commission was proposed as the only way to force consensus on the issue.)

The source of much of New York’s hospital-spending excess is Medicaid—a program now “so huge, so complex and so lightly policed that it is easily exploited.”[45] New York spends far more on Medicaid than any other state, whether outlays are measured relative to population or the economy.[46] Per-recipient Medicaid spending in the Empire State is fully double the national average.[47] In fact, New York’s 2005 Medicaid budget—totaling $44.5 billion in federal, state, and local funds—is bigger than those of Florida and Texas combined.

Several factors account for this Medicaid monster:

• High and growing enrollment. As of 2003, nearly one in five New Yorkers was enrolled in Medicaid, compared with a national average of fewer than one in seven.[48] In a long-running TV ad campaign that continued into the summer of 2005, Governor Pataki encouraged even more to sign up.[49]
• Weak commitment to managed care. New York’s enrollment in managed care is far lower than that of most states,[50] even though managed care has been shown to cut costs and improve health outcomes in Medicaid programs.[51] As of February 2004, New York’s participation rate in managed care was only 45 percent, compared with the national average of 57 percent.[52]

• Easy eligibility and lavish benefits. New York maintains relatively lax eligibility thresholds and offers virtually every “optional” benefit that the federal government permits in the program.[53] New York’s taxpayers could save about $1 billion a year if New York’s spending just on “home services” (which includes housekeeping, shopping, and the like) were reduced to the national average.[54]
• Nursing-home abuse. In New York, it’s shamefully easy for middle-class and wealthy New Yorkers to transfer assets to relatives and thus qualify as poor.[55] And New York’s one-of-a-kind “spousal refusal law” permits even prosperous New Yorkers to foist the costs of their spouses’ care onto taxpayers merely by formally refusing to pay (see box, p. 9).[56]
• Fraud. A series of July 2005 stories in the New York Times concluded that Medicaid fraud and abuse may be costing New York’s taxpayers as much as $18 billion a year, and that the state’s efforts to combat fraud and recover losses have been disastrously lax. In the words of one former investigator quoted in the story, New York’s program “almost begs people to steal.” In one case, the Times found that a single Brooklyn dentist had billed the state for nearly 1,000 procedures in a single day. But the losses aren’t just street-level swindles; some occur as a result of policies encouraged by Albany, Inc., in order to draw down more federal funding. In a single day, a Buffalo school official assigned 4,434 kids to Medicaid-supported speech therapy without required evaluations, the Times reported. Thanks to such official scamming of the program, New York state’s school districts draw down an incredible 44 percent of all federal Medicaid spending on “schoolbased health clinics.”[57]
• Divided financial responsibility. New York is unique in requiring its counties (including the five-county municipal government of New York City) to subsidize up to 25 percent of Medicaid expenditures. Thus, officials in Albany are able to garner political credit for expanding Medicaid services while leaving local taxpayers to foot a hefty portion of the bill.

Privately insured New Yorkers pay higher costs for their insurance, thanks to laws requiring that optional procedures and treatments be covered under their policies—
making health coverage costlier[58] and rarer.[59] One study estimates that such mandates increase premiums in New York by more than 12 percent.[60] If that weren’t
enough, state lawmakers proposed another 109 mandates in just the first five months of the 2005–06 legislative session.[61]

Efforts to rein in health-care spending are fiercely resisted by some of the most visible and free-spending Albany lobbyists:[62] Rivera’s Local 1199 and two powerful hospital associations are each top-ten spenders for state Capitol lobbying.[63] These groups are masters of Chicken Little rhetoric, [64] warning of impending doom in health care if spending (or even the rate of growth in spending) is tempered even slightly.[65]

New York’s health-care system is clearly ailing, and a strong dose of fiscal common sense is the most obvious cure.

Take My Wife, Please On Long Island a few years ago, an elderly woman was put into a nursing home by her husband, who sought and received Medicaid coverage —even though the couple had over $1 million in assets beyond their home and car. The husband later refused to pay for her care, so taxpayers had to pick up the tab.[71] Medicaid was created by the federal government in 1965 to provide health care to the poor, not to protect the inheritances of middle-class or even affluent families. But in New York, a notorious loophole costs taxpayers millions of dollars a year, largely because a branch of the profession that has slyly dubbed itself “elder law” exists mainly to help middle-class New Yorkers hide their assets for just this purpose.[72] Shielding assets is not difficult. An individual can give away most of his assets and then be eligible for full Medicaid coverage.[73] In fact, attorneys specializing in gaming the Medicaid rules advise clients to keep just enough for a year of care at a good, private nursing home—because federal law prevents the facility from kicking patients out after one year. Once the year expires, taxpayers must pay to keep the patient in that comfortable nursing home.[74] The New York State Bar Association has an entire section of attorneys devoted to elder-law practice,[75] and at least one law firm bluntly calls its attorneys “New York Medicaid Planning Lawyers.”[76] This elder-law section of the bar association reacted with alarm to Governor Pataki’s initial 2005 proposal to reform these Medicaid abuses, calling the governor’s reform proposals “devastating.”[77] New York will never get its Medicaid spending under control without first tightening the rules governing nursing-home eligibility—and putting the clamps on law practices that exist mainly to exploit gaping loopholes in these rules.

<<previous section | next section>>

38. Misguided Money, report from the Public Policy Institute of New York State, November 30, 1998, section 1, available at http://www.bcnys.org/ppi/misgd1.htm.
39. Ibid.
40. See Health Care Reform Working Group Report, January 2005, available at http://www.health.state.ny.us/health_care/ medicaid/related/health_care_reform/final_report_11-17- 2004.htm.
41. For background on the 2000 HCRA renewal, see “Health-Care Entitlement Expanded: Legislature Preserves Health-Care Surcharges,” a story by the Business Council of New York State, January 7, 2000, available at http://www.bcnys.org/whatsnew/2000/0107hcra.htm.
42. Richard Perez-Peña, “Jump in Health Care Lobbying, Then in State Health Care Spending,” New York Times, March 21, 2002.
43. Tom Precious, “Raises for Nursing Home Workers in Limbo,” Buffalo News, June 19, 2005.
44. Bill Hammond, “Golden Boy Rivera Still Gets Grease,” New York Daily News, April 6, 2005.
45. “New York Medicaid Fraud May Reach into Billions,” New York Times, July 18, 2005, p. A-5.
46. Medicaid Inc., 2004 report by the Rochester Business Alliance and the Rump Group, p. 2, available at http://www. rumpgroup.org/reports/Rump_MedicaidReport.pdf.
47. Transforming Medicaid: Options for New York (Center for Governmental Research [CGR], Rochester, December 2003), p. ix.
48. Medicaid Watch ’05, no. 2, March 17, 2005, the Public Policy Institute, at http://www.ppinys.org/medicaid/2005/mwatch2. pdf.
49. Transforming Medicaid, CGR, p. xv.
50. Ibid., p. xxi.
51. Medicaid Inc., p. 6.
52. Confronting the Tradeoffs in Medicaid Cost Containment, Citizens Budget Commission, February 2004.
53. Transforming Medicaid, CGR, p. xvi.
54. Confronting the Tradeoffs in Medicaid Cost Containment.
55. “Taming NY’s Medicaid Beast,” Newsday editorial, May 8, 2005.
56. Ibid.
57. “New York Medicaid Fraud May Reach into Billions.”
58. Health Insurance Mandates in the States 2005, Council for Affordable Health Insurance, p. 1, available at http://www.cahi.org/cahi_contents/resources/pdf/MandatePubDec2004.pdf.
59. The Lewin Group has estimated that every 1 percent real increase in premiums would be associated with a coverage loss of about 300,000 persons nationwide. Information provided May 20, 2005, by the New York State Conference of Blue Cross and Blue Shield Plans, Albany.
60. “New York State Mandated Health Insurance Benefits,” May 2003, study for the Employer Alliance for Affordable Health Care conducted by Donna Novak, NovaRest Consulting.
61. Information provided May 20, 2005, by the New York StateConference of Blue Cross and Blue Shield Plans, Albany.
62. Michael Gormley, “Report: Unions Spent Millions in Campaign Contributions in ’04,” Associated Press, April 29, 2005.
63. Data from the state’s Temporary Commission on Lobbying, available at http://www.nylobby.state.ny.us/app_grev.html.
64. See also The Tax New Yorkers Pay to Train Other States’ Doctors, a 1999 report from the Public Policy Institute.
65. See, for example, “State Risks Health Funding,” Albany Times Union, April 21, 2005, in which a hospital association executive predicts a “train wreck” in the hospital sector if anticipated funds are not made available.
66. “Many See NYPHRM Reform as Cure for Rising Care Costs,” Business Review, July 19, 1996, still available at http://www.bizjournals.com/albany/stories/1996/07/22/story8.html.
67. Ibid.
68. Ibid.
69. “The Health Care Reform Act (HCRA): The Need to Restore Accountability to State Taxpayers,” April 2003, a report from State Comptroller Alan Hevesi, p. 1.
70. Ibid.
71. “Pretending to Be Poor,” Newsday editorial, May 9, 2005.
72. “Medicaid for Millionaires,” Wall Street Journal, February 24, 2005.
73. Ibid.
74. Ibid.
75. See http://www.nysba.org/MSTemplate.cfm?MicrositeID=53.
76. See http://www.vollmerandtanck.com/CustomPage.shtml.
77. See “New York State Bar Association Elder Law Section Report on Governor’s Budget Bill: Medicaid Initiatives,” February 10, 2005, available at http://www.nysba.org/Content/ContentGroups/Kathy_Plogs_Section_info/2005Report.pdf.