This year’s Executive and one-house budgets reflect a clear policy choice: Both the Governor and the legislature prioritize provider rate increases over protecting New Yorkers’ health insurance coverage. It is a surprising choice given the scale of insurance losses the State is facing: the Fiscal Policy Institute has previously estimated that without State action, over one million New Yorkers will become uninsured in the next two years due to Essential Plan and Medicaid cuts.¹Michael Kinnucan, “A Plan to Maintain Insurance Coverage After OBBBA,” Fiscal Policy Institute, February 5, 2026, https://fiscalpolicy.org/wp-content/uploads/2026/02/2026.02.05-A-Plan-to-Keep-People-Covered.pdf

Governor Hochul’s FY27 Executive budget proposal was notably generous to hospitals, nursing homes, and other providers. It fully backfilled federal cuts to provider rates and provided funding for significant additional rate increases—amounting to a total increase of $750 million state share / $1.5 billion all-funds in spending increases—all or most of which are likely to be permanent. However, the Executive proposal included several cost-saving reforms opposed by providers, notably to the State’s Independent Dispute Resolution (IDR) process and its subsidies for provider malpractice insurance. The Senate and Assembly one-house budget proposals largely reverse these moves, raising State spending by approximately $260 million relative to the Executive while maintaining Executive-proposed provider funding increases. The Assembly also adds an additional $450 million state share / $900 million all-funds for provider rate increases.

In striking contrast to this largesse for providers, neither the Executive nor the one-house proposals address the looming Essential Plan cliff, which will cause 470,000 New Yorkers to lose coverage beginning in July. Nor do the one-house budgets propose significant funding to address this looming crisis.

Recent federal actions provide a glimmer of hope for New Yorkers facing uninsurance, however. The federal government recently approved New York’s Essential Plan transition proposal, making an additional $2.5 billion available in the State budget—more than enough to cover the entire population faced with loss of insurance, should policymakers choose to do so.

The Backdrop: Hospital Rate Increases in Recent Budgets

Medicaid hospital payment rates have been a bone of contention in the New York State budget for decades. Medicaid reimbursement rates to hospitals are far lower than commercial rates, making it virtually impossible for hospitals that treat a large share of Medicaid patients to stay solvent using reimbursement rates alone. The State supports these high-Medicaid hospitals through a complex system of supplemental non-rate payments. These supplemental payments have increased dramatically since the pandemic, as pressure on hospital budgets from a variety of sources has increased.

The hospital industry, which is among the most powerful forces in Albany, has long pushed for substantial rate increases, which would benefit both safety net and non-safety net providers. The Cuomo administration resisted these calls for years, holding hospital rates virtually flat between 2011 and 2021.

Hochul has taken a different approach, increasing hospital rates substantially in recent years. In FY24, the State raised hospital inpatient and outpatient rates by 7.5 percent and 6.5 percent, respectively, at an all-funds annual cost of around $800 million ($400 million state-share), although these increases were offset to some extent by changes in how the Medicaid program purchased pharmaceuticals, which reduced revenue for some providers.

The MCO Tax

 In FY25, the State again increased outpatient rates, this time by 10 percent, and made other rate adjustments totaling $400 million in all-funds spending ($200 million state-share), offset this time by a much smaller cut to the capital component of hospital rates. The FY25 budget also authorized the State to pursue a managed care organization (MCO) tax to increase federal funding for New York’s Medicaid program, and created a new financing vehicle, the Healthcare Stability Fund (HSF), to collect and spend MCO tax revenue outside the Medicaid Global Cap.

The State received federal authorization for the MCO tax and began collecting revenues in the final quarter of FY25, setting off a scramble to spend that money in the FY26 budget. Hospitals did notably well in this scramble: Of the roughly $2 billion state-share in projected receipts in FY26, hospitals received $646 million state-share (or $1.3 billion all-funds), supporting the Safety Net Transformation Program ($300 million), a 10 percent outpatient rate increase ($145 million), a hospital “quality pool” ($125 million), maternal health investments ($25 million), and investments in rural hospitals ($10 million). Other providers—notably nursing homes, physicians, and Federally Qualified Health Centers (FQHCs)—also received substantial rate increases.

All this funding, however, was contingent on the availability of MCO tax revenue, and in the summer of 2026 Congress threw a wrench in that plan by enacting the One Big Beautiful Bill Act (OBBBA), which banned the tax and similar mechanisms in other states. Analysts initially feared that the tax could sunset as early as December 2025, although it has now been extended to December 2026. As a result, a major question as the State entered the FY27 budget season was to what extent MCO-tax-funded rate increases would be preserved. Would the state “backfill” these federal cuts, or would the rate increases be allowed to lapse?

Provider Rate Politics in the FY27 Budget

Governor Hochul’s executive budget proposal, released in January, made clear that when it came to provider rate increases at least, the State was committed to backfilling federal cuts (see table 1). The Governor preserved rate increases for most providers and created room for further increases by investing $750 million state-share ($1.5 billion all-funds) in so-called “targeted healthcare investments” to replace lost MCO tax revenues in the Healthcare Stability Fund, making good all losses in projected revenues.

Table 1 compares provider funding in FY27 that is anticipated in the FY26 enacted budget to provider spending that is in the initial FY27 executive budget proposal. Despite a projected massive loss of MCO tax revenue, which was anticipated to fund provider rate increases, the Executive actually increases total provider spending by over $600 million (state-share) / $1.2 billion all-funds. The Executive preserves rate increases to hospitals, nursing homes, and assisted living providers; and those to physicians, clinics, and MCOs, though in some cases implementation of those increases has been delayed from last year to this year. The executive budget drops some hospital investments (including the hospital quality pool and maternal health investments, totaling $150 million), but it also creates a new pot of money, labeled “targeted healthcare investments,” which could be used to fund these initiatives as well as additional rate increases. In budget hearings, State officials made clear that the Governor intends to negotiate with legislators over how to apportion this funding.

How can the State afford such investments given federal cuts? In part, the answer lies in changes elsewhere in the Medicaid program: As FPI described in its annual briefing on the executive budget, the State saved billions of dollars a year in projected spending through changes to the Consumer Directed Personal Assistance Program (CDPAP), which dramatically lowered enrollment in the program, creating fiscal headroom for provider rate increases.²See “Chapter IV: Healthcare,” in Annual Budget Briefing Fiscal Year 2027, Fiscal Policy Institute, February 24, 2026,  https://fiscalpolicy.org/annual-briefing-on-the-executive-budget-2026. Specifically, the State restructured the program by transitioning its administration from multiple fiscal intermediaries to a single fiscal intermediary and raised eligibility thresholds by requiring that applicants demonstrate need for assistance with at least three activities of daily living rather than only two, as was formerly the case.