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Don’t call it a kickback. The provision slated to be added to the American Health Care Act at the behest of New York Republicans doesn’t actually give anything to New York state.
It would make parts of the state significantly worse off – and not necessarily the parts you might expect.
Two likely losers under the amendment would be Suffolk and Nassau Counties on Long Island, represented by Republican Reps. Peter King and Lee Zeldin, two more moderate members of the caucus who have not yet said how they will vote.
Medicaid is usually described as a joint federal-state program, but New York has an unusual arrangement in which counties pay 13% of the bill for Medicaid.
In an effort to round up votes for the AHCA from Republican congresspeople from New York, Rep. Chris Collins (who represents the Buffalo area) won an amendment that would effectively force New York to stop sending any part of the bill to localities except New York City.
That change would save counties $2.3 billion a year, and would be especially favorable to counties in upstate New York, where most of the state’s Republican members of Congress live. But New York state would have to look somewhere to replace the revenue lost from counties, and “somewhere” would probably be a tax that would fall disproportionately on taxpayers in New York City’s suburbs.
Winners and losers
A lot of New York voters have misconceptions about how tax revenue flows in the state. People in New York City complain that upstate is living off all the tax revenue generated by businesses and high earners in the city. Upstate residents are convinced they’re paying for big, expensive social programs in New York City.
The truth is that, when New York’s state government taxes and spends, upstate tends to win, while New York City comes out a little bit behind. The biggest losers – the areas with the largest gap between what they pay in state taxes and what they get back in services – tend to be the suburban counties around New York City, which have high incomes like the city but not its high appetite for social services.
Eliminating the local responsibility for Medicaid would tend to reinforce this dynamic.
Bill Hammond of the Empire Center for Public Policy, an Albany-based conservative think tank,* did the math on one proposal: The state would start paying for the whole Medicaid program outside New York City. In exchange, counties outside the city would give up 1.2 percentage points of the sales tax they currently receive, allowing the state to use this revenue to fill the hole in Medicaid. New York City would keep its existing arrangement.
This structure has been previously proposed by county officials, and Gov. Andrew Cuomo’s lieutenant governor, Kathy Hochul, has said it’s one way the state might react if the AHCA becomes law.
Hammond found that most counties would be better off under this arrangement: The Medicaid bills they’d be relieved of paying would exceed the sales tax receipts they would lose. But about a quarter of the counties would be made worse off, including wealthier suburban ones such as Nassau and Suffolk.
There are other ways you could slice the revenue apple. For example, you could throw New York City into the new financing scheme, even though AHCA would not obligate the state to do so. But that would be even worse for the suburbs, Hammond says.
New York City has disproportionate sales tax revenue. But it generates an even more disproportionate share of the state’s Medicaid expenses, so unlike on other programs, the city would tend to come out ahead if responsibility for the program were shifted to the state.
This would make the city a fiscal winner, and most other counties – in the much more Republican parts of the state outside New York – into losers.
The feds can’t force a good deal for all Republican parts of New York
This amendment to the AHCA would blow up New York’s existing structure for funding Medicaid, but it wouldn’t impose a new structure. State lawmakers would have to agree on a new Medicaid funding formula as part of budget negotiations among Cuomo, an Assembly dominated by Democrats from New York City, and the state Senate.
The Senate has a precarious Republican majority, whose members are divided between upstate and Long Island – that is, between two regions that would likely come out with opposite ends of the stick from any Medicaid funding changes.
This is probably why John Flanagan, the Republican Senate Majority Leader from Long Island, told Spectrum News he has “a certain amount of skepticism” about the amendment, even though it was in theory written specifically to please Republicans from New York.
Funding Medicaid with the sales tax would be unfavorable to Flanagan’s constituents and those of other downstate Republicans in the state Senate. Funding it with a statewide income tax increase would be anathema to the goals of the state’s Republicans. Plus, as Flanagan told Spectrum, counties might not even cut taxes to fully offset their savings from no longer needing to pay for Medicaid.
I get why this amendment would be good for the Buffalo and Syracuse areas, and why Republican members of Congress from upstate would like it. I don’t see what’s in it for the three downstate Republicans in New York’s delegation.
*Disclosure: I did some work for the Empire Center when I was a fellow at the Manhattan Institute for Policy Research, from 2009 to 2012.