The state financial plan published on June 10 disclosed key information about healthcare revenue and spending that lawmakers had not made public when approving the annual budget two weeks before.
Here are the biggest revelations:
Federal healthcare funding is billions higher than previously acknowledged
The Enacted Budget Financial Plan revealed that total spending in fiscal year 2027 would be $277 billion, which was $9 billion more than the total budget officials provided when lawmakers approved the budget in late May.
Officials said their earlier estimate had left out some $10 billion in healthcare-related spending financed with funds from Washington and leftover federal aid in a reserve account.
Budget officials also lowered their estimate of state-funded spending by about $1 billion, for a net change in projected “all funds” spending of $9 billion.
The revision doubled the growth rate of total spending compared to 2026, from 3.5 percent as estimated in May, to 7 percent on June 10.
The Essential Plan is facing another crisis in 2029
Most of the increase in spending revolved around the Essential Plan, a health plan for lower-income New Yorkers that was thrown into turmoil by federal policy changes in President Trump’s One Big Beautiful Bill Act, also known as H.R. 1.
That legislation ended most federal healthcare subsidies for legally present immigrants, who made up 43 percent of the Essential Plan’s enrollment and drew 55 percent of the federal funding that covered almost all of the program’s cost.
In response, the Hochul administration sought federal permission to reverse an expansion that was implemented in 2024 and lower the income eligibility ceiling to 200 percent of the federal poverty level, down from 250 percent. That would enable the state to tap into a trust fund of surplus federal aid collected before 2024 and continue coverage for about 1.3 million enrollees, including non-citizens.
Governor Hochul’s initial budget proposal in January assumed the downsizing would be rejected by the Trump administration and that the Essential Plan would shut down completely after July. After Washington gave its approval in March, the state did not publish updated estimates of revenue or spending. When the budget was finalized, they apparently neglected to add the program back to their spending totals – an oversight that was corrected in the June 10 report.
The updated figures show that the Essential Plan will receive about $9 billion in federal revenue, down from $14 billion in fiscal 2026, and spend about $11 billion. The $2 billion difference between revenue and spending apparently reflects a drawdown of the Essential Plan trust fund, which holds some $8 billion in accumulated surpluses from the plan’s first nine years.
One consequence of the reorganization is that some 434,000 enrollees above 200 percent of the poverty level will lose access to the Essential Plan as of July 1. Many in that displaced group can obtain subsidized health insurance through the Affordable Care Act, but non-citizens are no longer eligible for those subsidies.
The long-term future for other enrollees is uncertain. The June 10 financial plan projects that the Essential Plan trust fund will be depleted by December 2028 and shows spending and revenue after that as “TBD,” or “to be determined.”
“The State continues to explore programmatic changes and options that may extend EP funds available to continue coverage into FY 2030,” the plan says in a footnote.
Federal Medicaid funding is up 13 percent
After enactment of H.R. 1 last summer, Governor Hochul and other state officials warned that it would slash federal aid for state healthcare programs with consequences that were described as “devastating” and “catastrophic.”
So far, however, overall federal healthcare funding is going up, not down (see table above).
The June 10 financial plan estimates that New York will receive $66 billion in federal Medicaid funding in fiscal 2027, an increase of $7.7 billion or 13 percent.
While federal aid for the Essential Plan is dropping by $5 billion, aid for the two programs combined is up $2.7 billion, or 4 percent.
The increase in federal Medicaid money is driven largely by the program’s funding formula, which obliges Washington to cover roughly half of whatever spending amount the state determines – a formula that H.R. 1 did not disturb.
This year, the state is increasing its share of Medicaid funding 12 percent to $48 billion, which is driving a parallel increase from Washington. Total Medicaid spending from all sources is projected to rise 11 percent to $124 billion.
Federal aid for Medicaid might still decline in future years as other parts of H.R. 1 take effect – in particular its “community engagement” provision requiring non-disabled adults receiving Medicaid to work, go to school or volunteer for a minimum number of hours per month. This is expected to cause hundreds of thousands of recipients to lose coverage.
However, it does not appear that such reductions will be severe: The financial plan shows federal Medicaid funding dipping by $2 billion or 3 percent in fiscal 2029, then growing by 4 percent each in the two years after that.
The MCO tax will raise almost as much revenue as original projected
The June 10 plan estimates that the state will net $3.4 billion in proceeds from its tax on managed care organizations, or MCOs, over a two-year period, which is 92 percent of the amount originally forecast.
Approved in 2025, the MCO tax was designed to exploit a loophole in federal law and extract extra Medicaid money from Washington. The state anticipated that the federal government would cut off the maneuver after a few years. H.R. 1 closed the loophole earlier than expected, leading state officials to lower their revenue forecast by $1.5 billion. However, the Centers for Medicare & Medicaid Services granted New York a nine-month extension to December 2026 – as requested by Rep. Michael Lawler – which added back about $1.2 billion.
After December, the budget calls for continuing the MCO tax in modified form to comply with updated federal rules. That reduced levy will raise an estimated $224 million annually, the financial plan shows.
State lawmakers are using most of the initial proceeds of $3.4 billion to finance Medicaid rate increases for hospitals, nursing homes and other providers. This creates a potential fiscal cliff when that short-term surge of revenue ends in December of this year.
The budget borrows another $1 billion for healthcare capital grants
In another financial boost for the healthcare industry, the budget allocates an additional $1 billion for capital grants to hospitals, nursing homes, clinics and other providers – using money borrowed at taxpayer expense.
This provision was included in Governor Hochul’s January budget proposal, so it’s not a surprise.
Lawmakers have approved a total of $4.6 billion in healthcare capital over the past five budgets, only $155 million of which has been spent – leaving a considerable pot of money to be handed out, largely at the discretion of the governor and the Health Department.
