Now that New York has won partial federal approval for overhauling its Essential Plan, it’s worth being clear about what the state is doing and why.
The redesign sought by Governor Hochul is not primarily about “preserving coverage,” as she has said, but about saving money for the state budget.
Nor was the change truly forced upon New York by Washington. State officials are making a policy choice in response to diminished federal aid.
Also, the portion of enrollees who stand to be displaced – provided they have citizenship – are not losing access to government-subsidized coverage. They still qualify for tax credits under the Affordable Care Act, which would absorb two-thirds or more of their premiums.
Launched in 2015, the Essential Plan offers zero-premium, government-financed health coverage for New Yorkers just above the income cutoff for Medicaid. It was organized under an optional provision of the ACA that has been exercised by only three other states: Minnesota, Oregon and Washington.
Participating states are to collect federal aid equal to 95 percent of the tax credits that enrollees otherwise would have received if they bought insurance through an ACA exchange. That formula unexpectedly generated more money than the state needed, causing a multi-billion-dollar surplus to accumulate in the program’s trust fund.
New York took advantage of that extra funding to subsidize hospitals – by boosting the plan’s hospital fees to 225 percent of the Medicaid amount. In 2024, the Hochul administration also obtained a waiver lifting the eligibility cap from 200 percent to 250 percent of the federal poverty level.
With zero premiums and low copayments, the plan has grown to cover 1.7 million people, or almost 9 percent of the state’s population.
The program’s financial outlook changed dramatically with last summer’s federal budget legislation, known as the One Big Beautiful Bill Act or H.R. 1. That bill barred nearly all immigrants, including those who are legally present, from participating in most federal health programs.
Legally present immigrants account for about 43 percent of the Essential Plan’s enrollment and 55 percent of its funding. Their share of funding is disproportionately high because 500,000 of them have incomes below 138 percent of the poverty level, meaning they draw the maximum amount of federal aid.
This is the so-called Aliessa population, named for 2001 court ruling in Aliessa v. Novello that requires New York to provide Medicaid coverage for legally present immigrants regardless of whether federal support is available. The state had been bearing the full cost of this care, but the ACA made it possible for them to shift the Aliessa group into the Essential Plan at federal expense.
With the passage of H.R. 1 last summer, New York faced the prospect of moving the Aliessa group back to Medicaid, which officials have said would cost the state an estimated $3 billion per year.
Then the Hochul administration came up with an alternate plan: The state would cancel the 2024 expansion waiver and revert to its original program design. Officials said this would allow them to keep the Aliessa population in the Essential Plan and tap into a $9 billion surplus to pay for their coverage – but only for two or three years, when that surplus would run out.
At the same time, this plan would also mean displacing some 470,000 enrollees above 200 percent of the poverty level.
On Wednesday, the Health Department told Politico that it had received partial approval for the plan from the Centers for Medicare & Medicaid Services
The governor has framed plan as something the state was forced to do “to preserve coverage for as many New Yorkers as possible.” Yet federal law still allows New York to continue the Essential Plan in its expanded form for enrollees who are citizens – and still provides funding for those enrollees according to the original formula.
The issue appears to be money: Officials have said the state cannot afford to continue the current Essential Plan new rules, which exclude immigrant enrollees and the revenue they generate.
However, officials have never spelled out how much the status-quo option would cost, how much federal aid it would draw, and how much additional money, if any, the state would have to provide to fill the gap. Neither have they released the projected expenses and revenues for the overhaul plan pending approval in Washington. Instead, the governor’s January budget proposal assumes the Essential Plan will shut down completely in July of this year.
According to the state’s early analysis of H.R. 1, the Essential Plan is losing 730,000 immigrant enrollees and $7.5 billion in yearly funding. That would leave 970,000 citizen enrollees and $6.2 billion in funding – about $6,400 per person, or 79 percent of the program’s current funding level.
If the Hochul administration wanted to preserve coverage for enrollees above 200 percent of poverty, it could either find ways to cut costs – by rolling back the elevated hospital fees, for example – or allocate supplemental funds in the state budget. The amount necessary to preserve current spending levels would be roughly $2 billion.
That said, rolling back the 2024 expansion is hardly a draconian step. The affected population, with incomes from 200 percent to 250 percent of poverty, would still be eligible for subsidized coverage through the state’s ACA insurance exchange, the New York State of Health. As seen in the table below, they would be eligible for tax credits that would cover from 67 percent to 80 percent of the cost of benchmark silver-level coverage.
Individual enrollees would be responsible for paying the remaining one-fifth to one-third of their premiums, which would amount to thousands of dollars a year – a not insignificant bite for someone with a modest income.
However, asking people in this income range to pay a share of their own coverage costs has been part of the structure of the ACA from the beginning. It’s the norm in 49 other states – and it was the norm in New York until two years ago.
