Across the State, growing Medicaid costs continue to place significant pressure on local fiscal conditions. With most counties already seeking or receiving State legislative approval to increase their sales tax rates to 4 percent or more, and some dangerously close to exhausting their property tax margins, counties are being challenged to effectively deal with rising Medicaid costs.

The Legislature has recognized these growing pressures, and in 2004 enacted legislation that shifts costs associated with the Family Health Plus Program from the counties to the State over the next two years. Family Health Plus provides health insurance for adults who do not have insurance on their own and who have incomes too high to qualify for Medicaid. Although the takeover provides some welcome relief, the savings are insufficient to offset anticipated cost increases over the long-term.

Preliminary information gathered from counties [pdf] regarding their recently adopted 2005 budgets, indicates that county general fund budgets (outside New York City) are increasing from $12.0 billion in 2004 to $12.7 billion in 2005, or 5.9 percent – more than twice the rate of inflation. A major portion of this increase is driven by Medicaid expenditures which are estimated to increase from $2.3 billion in 2004 to $2.5 billion in 2005, or 8.6 percent. To cope with rising costs, including Medicaid, counties are expected to increase tax levies from $3.45 billion to $3.61 billion, or 4.5 percent.

These increases are part of a continuing trend in county budgets, where Medicaid expenditures (those reported to OSC in county annual financial reports) have more than doubled in the last decade from $1.1 billion in 1993 to $2.3 billion in 2003, an average annual growth rate of 8.6 percent during that period. For some counties, average annual growth rates have reached double-digits, ranging as high as 16 percent. In comparison, total county general fund expenditures have increased an average of 4.7 percent annually statewide during the last 10 years, while inflation (as measured by the CPI) has averaged 2.4 percent annually.

Counties have had to devote an increasing share of local tax levy to support rising Medicaid costs. In 1993, county Medicaid costs represented 13.5 percent of county general fund expenditures and 40.2 percent of property tax levy. By 2003, county Medicaid expenditures accounted for 19.1 percent of county general fund expenditures and 73.2 percent of tax levy.

County Medicaid expenditures could grow to over $3.6 billion by 2010 if the average growth rate experienced in the last ten years continues. If property taxes were raised to fully cover these projected increases, property tax levies would have to grow by $1.1 billion by 2010. This reflects an average annual growth rate of 6.5 percent, or more than double the tax growth rate of 2.5 percent experienced from 1993 to 2003. This magnitude of property tax levy increase would cause 5 counties to completely exhaust their remaining constitutional tax margins, while an additional 11 counties would consume more than 50 percent of their remaining tax margins.

Technical Notes: Information on 1993 through 2003 Medicaid expenditures, general fund expenditures and property tax levy comes from annual financial reports counties file with OSC. Information on 2004 and 2005 Medicaid expenditures, general fund expenditures and property tax levy was obtained (for most counties) from responses to a survey conducted by LGSED in late December 2004; information for counties which did not respond to the survey was extrapolated from county specific historical trends.

Projections out to 2010 were calculated using county specific annual average increases calculated from historical trends of actual expenditure/tax levy information from 1993 through 2003. For counties which experienced a decline in actual tax levy during the previous decade, tax levy projections were made using the Statewide average annual increase of 2.5 percent from 1993 to 2003. No adjustments were made in projected Medicaid costs to reflect prospective changes in funding for Family Health Plus or any other specific programs. Annual average growth rates referenced in this summary were calculated using a formula which assumes a constant rate of change with a compounding effect over the period.

The Medicaid expenditures cited in this summary differ from information cited by the NYS Department of Health (DOH), which reports net county Medicaid expenditures adjusted for certain State and Federal Medicaid assistance (such as State Overburden Aid). Projections based on DOH data show a similar growth pattern to the gross expenditures reported in county budgets.

No adjustments were made to county property tax margins to capture any potential growth in property valuation.