New York is now allocating more funds to its Medicaid program than to K-12 schools, according to a recent analysis by State Comptroller Tom DiNapoli. In the 2025-26 fiscal year, the state's Medicaid spending reached $39.4 billion, constituting 26.5% of the entire state budget, and surpassing the $37 billion designated for education.
This development occurs as the federal government scrutinizes Governor Kathy Hochul's administration and its handling of the Medicaid program for potential waste, fraud, and abuse. Dr. Mehmet Oz, administrator of the U.S. Centers for Medicare & Medicaid Services, stated that reforming Medicaid is crucial to prevent education funding from being overshadowed. The Trump administration has previously targeted adult care facilities in New York City over fraud concerns.
New York already holds the distinction of having the highest per-resident spending on Medicaid among all U.S. states. State spending on Medicaid has more than doubled over the past decade. DiNapoli's report indicates that Medicaid spending is projected to increase to $53.3 billion within the next three years under Governor Hochul's budget proposals. This would represent 29% of state spending, while education funding is projected to rise to $43.7 billion, or 23.8%, creating a nearly $10 billion deficit between the two.
Medicaid, a joint federal, state, and local health insurance program for low-income individuals, involves all sectors of the healthcare industry, including hospitals, nursing homes, clinics, and drug manufacturers. Experts suggest that New York's significant spending may be driven by factors beyond serving needy patients, pointing to cases of overspending and potential waste. The proliferation of adult care centers for seniors and rising costs, coupled with accusations of bribery for enrollment, have contributed to the escalating expenses.
Further contributing to the rise in Medicaid costs is an expected influx of patients. Medicaid enrollment is projected to grow to 7.2 million from 6.6 million, partly due to non-citizens being removed from the state-run Essential Plan. Governor Hochul's budget office attributes increased Medicaid spending to minimum wage hikes for healthcare workers, rising medical and drug costs, higher reimbursement rates for facilities, and an increase in aging populations and high-utilization groups.
The report also highlighted a surge in financially distressed hospitals in New York. Approximately 28.7% of the state's hospitals are now considered financially distressed and eligible for subsidies, a 200% increase from ten years ago. This surge has led to a 700% increase in federal and state aid to these facilities, including a $500 million one-time assistance package in the recently enacted state budget. The comptroller's analysis suggests that the current trajectory of Medicaid spending, combined with a decrease in health-related tax revenues, will necessitate difficult choices regarding the program's long-term sustainability.