The Affordability of Healthcare in New York
This commentary is available as a PDF here:
Governor Kathy Hochul presented the FY 25 Executive Budget for State fiscal year 2024-25 on Tuesday in Albany. The 447-page Financial Plan (plus the Briefing Book and the related Article VII bills) always makes for interesting reading. We are going to take the time to review the Executive Budget in depth and will have more to say about it in the coming weeks.
In this Update, I wanted to begin to address a new focus area for the Step Two Policy Project, which is the complicated topic of the affordability of healthcare in New York. Sally and Adrienne are working on an Issue Brief we plan to post next week that includes a good bit of useful data on the topic, which comes from a combination of State and federal data sources and especially from data curated by some of the leading not-for-profit healthcare policy analysis organizations, including the Commonwealth Fund, the Kaiser Family Foundation, and the Peterson-Milbank Program for Sustainable Health Care Costs. Before discussing the affordability of healthcare, it’s worth stepping back to address the broader context, which is the affordability of living in New York and, indeed, in most parts of the developed world. It’s not an overstatement to say that large parts of the developed world face a crisis of affordability, which is most apparent in the lack of affordability of housing. The New York Times ran a story this week with the headline: ‘The Social Contract Has Been Completely Ruptured’: Ireland’s Housing Crisis. The story noted that two-thirds of people 18 to 34 in Ireland still live with their parents, which is also the case for 42% of that age cohort in the whole of Europe. This is part of the phenomenon of younger generations being unable to afford the lifestyle of their parents, which is part of the general affordability crisis that is having profound effects on society and contributes to the polarization threatening the fabric of democracies around the world.
One of the most comprehensive studies of the affordability crisis in New York City is the 2023 NYC True Cost of Living Report produced by the Center for Women’s Welfare for the United Way of New York City. The report concludes that 50% of working-age New York City residents are “facing difficulties in making ends meet” even though only 16% fall below the official federal poverty level (FPL). According to the report, for a family of two adults and two children (one preschool-aged and one school-aged), an annual income of over $100,000 is necessary to afford the true cost of living in all five boroughs of New York City, before taking into account the publicly funded benefits. This amount far exceeds the FPL (a critical index for determining eligibility of publicly sponsored healthcare coverage or tax subsidies) of $31,200 for a family of four, as well as the median household income in New York City (2018-2022 in 2022 dollars) of $76,607.
The major components of this “true cost-of-living” index are housing costs, food expenses, healthcare costs, childcare, transportation, and “other necessities” such as utilities. Many of these costs are fully subsidized by public benefits. However, these public benefits are only available for the subset of New Yorkers who qualify for entitlement programs based on their income (e.g., up to 200% of FPL in the case of healthcare) or have the good fortune of winning a limited number of slots for non-entitlement programs, such as Section 8 housing assistance, literally winning the lottery for affordable housing units (where there are typically 60,000 applications for each unit) or limited childcare slots. The cost of living is especially unaffordable for those who are ineligible for government assistance, such as people who are undocumented, those who fall just outside of income eligibility thresholds, and those who are not fortunate enough to “win the lottery” for limited non-entitlement benefits.
Roughly 47% of New Yorkers who have incomes up to 200% FPL are covered by the State’s public health insurance programs as an entitlement (including Medicaid, CHIP, and the Essential Plan),[1] and the State has submitted a request to the federal government to increase eligibility for the fully subsidized Essential Plan to individuals with incomes up to 250% of FPL. Another 13.5% of New Yorkers are covered by Medicare. For the 60% of New Yorkers who received government-funded healthcare, the issue is less about affordability and more about whether there are a sufficient number of providers accepting payment from these programs to ensure access to healthcare services. Given the vast differences in the cost of healthcare depending on income and age, the threshold question of healthcare affordability is, “affordable for whom?”
The affordability of healthcare in New York needs to be addressed in terms of three distinct groups – individuals, taxpayers, and employers. Within the category of individuals, there are another three distinct groups – individuals receiving publicly funded healthcare, individuals purchasing individual health insurance policies, and individuals with employer-sponsored coverage. Health insurance policies purchased by individuals, as well as employer-sponsored coverage, typically include premium cost-sharing, deductibles, and co-pays.
Our Issue Brief next week will use data that is readily available to address the question of healthcare affordability for these three distinct groups and three distinct categories of individuals. The great limitation of this data, however, is that the data is based on averages, which can easily obscure the actual experience of those who fall on the wrong side of the median. The data in the Issue Brief will add considerable color to the story, but we can offer some of the headlines now.
The easiest question to answer is the affordability of healthcare for taxpayers. This issue is addressed in sharp relief in the FY 25 Executive Budget, which shows that State and local Medicaid costs proposed for FY 25 increased by 10.9% over FY 24 levels, and by 38% since FY 22.[2] As the new budget director, Blake Washington, said in his excellent Executive Budget presentation, part of the cause of this increase involves demographic shifts toward an older population. But programmatic growth is a much larger contributor to the total growth since FY 22 than demographic change. The State, with the best of intentions and the most humane of impulses, over time has developed a Medicaid program – specifically a long-term care Medicaid program – which New York cannot afford long-term. Medicaid spending will eat the entire budget unless the spending curve can be bent.
For businesses, perhaps the best measure of affordability is the decline of employer-sponsored coverage in New York. The number of individuals covered by employer-sponsored health insurance has declined from 9,625,500 in 2010 to 9,045,200 in 2022, even though total private sector employment in the state increased 21% from 6,823,500 in January 2010 to 8,278,800 in December 2022. At the same time, the burden on individuals with employer-sponsored coverage has grown through increased deductibles, which have risen 97% from an average of $1,918 in 2011 to $3,657 in 2021 (for a family plan). One reason for the decline in employer-sponsored coverage is that the total cost of providing insurance to a family of four had soared to $27,100 in 2021, up from $18,490 in 2011.
The hardest question to answer is the affordability of healthcare for individuals. First, as noted above, for the roughly 60% of New Yorkers receiving publicly funded healthcare, the challenge is not affordability but access. Access due to breadth of coverage is also an issue for those with employer-sponsored insurance. This can be seen most acutely with dental care. Relatively few dentists accept Medicaid and the benefit often is not included in most employer-sponsored plans. As a result, dental care is close to a luxury good for many New Yorkers.
For individuals purchasing individual health insurance policies, the analysis is more nuanced. As we will describe in more detail in next week’s Issue Brief, individuals with household income of up to 400% of FPL who are purchasing individual health insurance policies pay premiums based on their income, irrespective of the total cost of the policy. Although premium cost is capped based on income, most of these policies have deductibles and co-pays that assume on an actuarial basis that the individual will pay roughly 30% of the total cost with insurance covering only the remaining 70%. The result for many New Yorkers is that these individual policies (as well as employer-sponsored coverage with high deductibles) almost represent what the industry refers to as “catastrophic” insurance.
For these reasons, the affordability of healthcare for individuals is more buried under the law of averages than is the analysis for taxpayers and businesses. We will offer the best empirical analysis we can in our Issue Brief, but I will give you my hypothesis, which is as follows: as a broad generalization, healthcare costs do not represent the ever-present threat of crisis for most New Yorkers to the same extent as housing costs and childcare expenses. However, given how many New Yorkers live from paycheck to paycheck, going to see a doctor is a real decision point for millions of people. For all but the relatively well-off, most New Yorkers without public health insurance coverage or very robust employer-sponsored coverage will face real financial hardship if they need to utilize the full amount of their deductibles and co-pays. They may be protected from the catastrophic costs of emergency healthcare and the costs of routine preventive care, but anything else has a good chance of creating a liability they cannot manage from their day-to-day finances.
The crisis of affordability may well be beyond the capacity of government at any level to solve, much less the capacity of any individual state. But it is a challenge that must be managed even if it cannot be solved. The political future will belong to the person or party who has the most persuasive strategies to manage this problem.
Paul Francis
January 19, 2024
1 This includes the 38.3% of New Yorkers enrolled in Medicaid, 2.3% enrolled in CHIP, and 6% enrolled in the Essential Plan. Undocumented individuals are not eligible for these programs even if they meet the income level criteria.
2 The 10.9% growth estimate depends on some ambitious assumptions about the ability to secure legislative agreement to various programmatic savings proposals.
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