By Hank Russell
A recent report from The Empire Center found that, contrary to what Governor Kathy Hochul and other state officials said, the state’s own budget division found that federal funding cuts to the state’s healthcare budget are not as “draconian” as Hochul and her administration made them out to be.
According to the budget division’s financial plan update, the tax and spending package signed by President Donald Trump as part of his One Big Beautiful Bill will add $2.6 billion to the state’s health costs in fiscal year 2027 and $3.6 billion in fiscal years 2028 and 2029.
In May, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would prevent the state from implementing a tax on medical care organizations (MCPS) known as the “MCO tax.” According to the agancy, this would save taxpayers over $30 billion over five years. Further, CMS claimed that states “exploited these tax loopholes” to reduce their budget defeicits and “spent ‘state’ money on new benefits for illegal immigrants.”
“States are gaming the system—creating complex tax schemes that shift their responsibility to invest in Medicaid and rob federal taxpayers,” said CMS Administrator Dr. Mehmet Oz. “This proposed rule stops the shell game and ensures federal Medicaid dollars go where they’re needed most—to pay for health care for vulnerable Americans who rely on this program, not to plug state budget holes or bankroll benefits for noncitizens.”
However, the Center said, the state’s projected revenue from the MCO Tax will remain the same, as state officials await clarity on when those federal policies will take effect. “These forecasts are surprisingly stable given that the federal legislation cut almost $1 trillion from Medicaid over the next 10 years, and New York’s version of the safety-net health plan has the highest per capita spending in the U.S.,” said the report’s author, Bill Hammond, who is The Empire Center’s senior fellow for health policy.
Hochul railed against the federal government’s cuts, calling them “draconian” and claiming it would cost the state’s healthcare system $13 billion a year and result in 1.5 million New Yorkers losing their coverage. She also cited a study from the Greater New York Hospital Association and the Healthcare Association of New York State that New York’s hospitals and health systems would see $8 billion in cuts, which would mean hospitals would either have to reduce essential services, downsize operations or close their doors for good.
“I’ve been very clear: no state can fully undo the damage in this bill or backfill cuts of this scale,” Governor Hochul said, according to a July 11 press release, referring to Trump’s legislation as the “Big Ugly Bill.”
However, Hammond said Hochul based her figure on double-counting. “It was the sum of $10 billion in lost federal aid and $3 billion in increased costs to the state,” Hammond explained. “That equates to a net reduction in health funding of $7 billion, which – if cut immediately – would still have left hospitals and other providers with more money than they had in 2025.”
Hochul’s estimate of coverage losses was based on two provisions of the federal legislation: a “community engagement” rule requiring that non-disabled adults demonstrate 80 hours per month of work, education or volunteering to stay on Medicaid, and a ban on using most federal health funds for legally present immigrants, according to Hammond.
“The latter requirement was especially disruptive for the state’s Essential Plan – and accounts for the bulk of the fiscal impact on New York,” Hammond said.
In addition, New York’s Essential Plan (EP) may close in July 2026, resulting in 460,000 residents who are above 100% of the Federal Povety Line (FPL) losing their EP benefits. When asked to clarify why its report showed the plan’s funding ending next year, a Budget Division spokesman said: “The Financial Plan reflects H.R. 1 as currently executed and will be updated as we receive CMS’s decision.”