Net Loss: Secondary Effects of City Budget Cut Proposals

Chapter 3. Impact on the Sick: Medicaid, Mental-Health Services


This section has two parts. Part A deals with the Medicaid cuts, particularly as they affect home and community-based care for the fragile elderly and disabled. Part B deals with the cuts in mental-health services.

A. Medicaid

The Medicaid program is funded jointly by the City, the State and the Federal governments. In most cases, the City pays between 10 percent and 25 percent of the cost, depending on the particular benefit involved. The State and Federal government -- not the City -- determine the benefits to which recipients are entitled, as well as the rates at which providers are reimbursed. When the other levels of government reduce the benefits package, the City automatically saves its share of the cost.

The Governor and the State Senate have both proposed cuts in Medicaid benefits, and in the level of reimbursements to health care providers. The City's FY 1996 Executive Budget contains two estimates of the amount the City would save as a result of State action: one based on the Governor's plan and the other based on the Senate's plan. The Mayor's Executive Budget breaks the total down into broad categories (e.g., nursing homes, hospitals, managed care), but, at least in its published version, does not go into further detail about the impact on specific programs.

The details of the Governor's Medicaid plan were stated in a policy document by Lieutenant Governor McCaughey, in which she calculates that it would save the State $1.2 billion[9], and later formalized in the Governor's budget bill. The City's Executive Budget estimates that the Governor's plan would save the City $633 million. The Senate's plan is stated in the Senate's budget bill (Senate bill 4000)[10]. The City's Executive Budget estimates that the Senate plan would save the City $506 million.

Table 6 shows more detail on the two projections of the savings to the City budget.

Table 6.
City Budget Savings from Proposed Medicaid Cuts, FY 1996

Savings to City Budget ($million)
Governor's ProposalSenate Proposal
Hospital Rate Changes278191
Nursing-Home Reform3930
Home Care Reductions6730
Mandatory Managed Care6969
Service Eliminations5926
Fraud Control and Other Actions5998
Administrative Actions6262
Total City Savings$633 million$506 million
Total Impact, Including Loss of State and Federal Shares$2.3 billion$2 billion
Source: City of New York, FY 1996 Executive Budget: Budget Summary and Comptroller's Office, extrapolation of total-impact data.


The service impact is much bigger than the savings to the City budget. The State and Federal governments pay most of the cost of Medicaid. For long-term care services like home health, nursing homes and adult day care, the City share is 10 percent. For other services, the City pays 25 percent. Local health care providers will lose not just the City share, but also the State and Federal shares -- for a total loss of $2.3 billion under the Governor's plan and $2 billion under the Senate plan.

As discussed in the previous section of the report, the Comptroller's Office estimates that the Senate's bill could cost the City as many as 61,000 jobs. Others have even higher estimates.[11]

One-Year Medicaid Outlook: Dislocation

The Governor's and Senate's proposals will not only take $2 billion -- $2.3 billion out of the local economy, but they will do so very rapidly. They will also do so without a realistic transition plan. The most immediate effect will be a great dislocation. The system will be in turmoil in at least four ways.

  1. Dislocation in Existing Patient-Doctor Relations as existing relationships between patients and their doctors are abruptly terminated, leaving records and treatment in limbo. The chaos will result both from reduced resources and from inadequate planning. For example, the Governor proposes to move most Medicaid recipients into managed-care plans within 12 to 18 months,[12] which would require a rapid increase in primary-care capacity (i.e., the "managers" of managed care). But, far from providing a plan to develop that capacity, the budget actually cuts the State's existing primary-care initiative.
  2. Dislocation in Financing Care for the Uninsured as hospitals attempt to stay solvent by monitoring patient insurance more closely and denying care to the uninsured. The current hospital-reimbursement system contains mechanisms to fund care for the uninsured, but the current system will expire at the end of 1995, and the Governor is unlikely to extend it.[13] How will providers -- under great pressure to lower the amount they charge businesses and managed care plans -- afford to care for the uninsured? If an indigent patient goes to the emergency room, state law requires the hospital to treat him/her, regardless of the patient's ability to pay.[14] But the law does not require hospitals to provide non-emergency care. If hospitals can not afford to provide the non-emergency care, won't this foster emergency-room gridlock?

    Medicaid cuts will clearly be most serious for hospitals that get a high percent of their revenue from Medicaid, because they have less ability to offset Medicaid cuts by drawing on other sources of revenue (i.e., primarily private insurance and Medicare). This includes some major private hospitals as well as the Health and Hospitals Corporation.[15] Hospitals that depend heavily on Medicaid revenue often service poor neighborhoods, where people depend on them for treatment because few have private insurance or private doctors and few treatment alternatives exist. What will happen to these neighborhoods if Medicaid cuts force the hospitals to close or reduce services? Who else will pick up the burden of controlling contagious diseases like tuberculosis, which are already on the rise in low-income areas?

  3. People Not Knowing Where to Go For Help as they vainly try to replace the level of services they previously received. The proposed plan reduces or eliminates specific services and at the same time reduces patients' other options. For example, it cuts both home care and its alternative, nursing homes. Who is going to take care of the people who need the long term care? Will adult children have to quit their jobs? Will hospital emergency rooms see a surge in new patients?
  4. The Working Poor Struggling To Replace Lost Incomedue to heavy loss of health-care jobs, concentrated heavily in neighborhoods with hospitals and also concentrated among workers at the lower end of the pay scales. How successfully can these laid-off employees be retrained and rehired? Will many of them be added to the welfare roles?

Extended Example: Home and Community-Based Care: Two Proposals, Similar Impact

The effects of cutting $2 billion -- $2.3 billion of services in one year are too vast to itemize in a few pages. Instead of analyzing all of the specific cuts (over 60), we will limit the detailed analysis to cuts in one sector, home and community-based care for the elderly and disabled.

Over the last 20 years, New York State has taken the lead in developing a range of home and community-based services for the frail elderly and disabled. A major goal was to avoid more expensive (and restrictive) care in a nursing home or hospital. Several different programs were developed, so that there would be a "continuum" of progressively cheaper and less restrictive alternatives -- from help with chores (which is often the only thing keeping a frail elder out of a nursing home or hospital) to using nursing-home services on a purely out-patient basis (adult day care). As a result of these policies, New York State has fewer nursing-home beds per resident over 65 than three-quarters of all other states.[16]

There are important differences in the details of the Governor's plan for home and community-based care and the Senate's. In particular, the Senate's proposal restores some of the Governor's cuts. But, this analysis will show that, taken as a whole, the overall impact of the two plans will be very similar. People who desperately need services will not get them, or will get them only by being shifted into more expensive kinds of care. Moreover, particularly in the case of the personal care program, some of the Senate's restorations may be more apparent than real.

The analysis will start by detailing the Governor's proposal and its likely effects. It will then turn to the changes made by the Senate and show why the Senate bill will have a similar overall impact, in spite of the differences in the details.

Home and Community-Based Care Under the Governor's Proposal

The Governor's budget eliminates many home and community-based services and radically reduces others, with no realistic plan for the people who use and need those services. For example, as detailed in the following pages, many of those who will lose home-care services will need to be in a nursing home,[17] but most nursing-home beds are already occupied (currently about 97 percent occupancy),[18] and the Governor's budget places a moratorium on adding new nursing-home beds.

The Governor's key cuts are listed in Table 7. The City pays 10 percent of the cost of these programs. The other 90 percent is paid by the State and Federal governments. Next to each cut are the savings to the City and also the total impact on local health care providers, including the State and Federal shares. The last row shows that the total impact (City, State, and Federal shares combined) will be $577.2 million. This is 25 percent of the $2.3 billion overall Medicaid cut proposed by the Governor (i.e., total cuts to all providers, not just home care). To save the City $57.7 million, local health-services organizations will lose an additional $519.5 million in State and Federal funding.

Table 7.
Direct Impact of Cutting Alternatives to Hospital and Nursing-Home Care, Under The Governor's Bill ($millions)

Total Cut: City, State Federal $millionSaved in City Budget $millionState-Federal $ Lost, $million
End Level 1 services, i.e., for patients needing a few hours a week help cooking and housekeeping.10.31.0 9.3
Cap and cut Level 2 services -- home-attendant hours to help with personal hygiene (bathing, dressing, grooming, eating). Limit services to those awaiting placement in a nursing home.142.614.3128.3
End Adult Day Care (except for a few specialized programs designed for people with HIV).24.02.421.6
End Long-Term Home Health Care program ("Nursing Home Without Walls")64.36.457.8
End Assisted Living Program21.9 2.219.6
End protections against "spousal impoverishment"16.11.614.5
End other "continuing care" cuts, not including nursing-home cuts107.110.796.5
Cut provider reimbursements for home care116.911.7105.3
Cut provider reimbursements for personal care74.07.466.6
Total, $million577.257.7519.5
Total, as % of all NYC Medicaid savings or impact25%9%
Source: New York City Comptroller's Office, based on data in the previously cited McCaughey Report.


The City will not only lose the State and Federal shares, it will also have to pay more for institutional care. The fragile elderly and disabled will still need these services, but, for many of them, the only other option will be to go into a hospital (nursing homes do not have enough openings). If they do, the City pays twice:

  1. Caring for the elderly and disabled in hospitals is more expensive than in the home.

  2. The City pays a higher percentage, 25 percent, of hospital expenses, compared to 10 percent for home care or nursing-home expenses.

The cuts summarized in the first two rows of Table 7 are in the personal care program, which provides housekeeping and home-attendant programs to 63,000 City residents. Of all personal-care visits in the State, 80 percent are in New York City.

All services would be eliminated for those who only need "Level 1 services," namely a few hours a week of housekeeping help in order to be able to remain at home (e.g., making beds, vacuuming, laundry, shopping). This includes people who live alone and are weak due either to age (one-third of people over 65 live alone) or from a chronic condition that keeps them in bed -- e.g., HIV/AIDS. Many of them are people who have disabilities like blindness or are too weak to carry their clothes to a laundry or bend over to make their bed. They would in the future only get services when their condition has worsened to the point that they need "Level 2 services," namely help with basic activities of daily living such as eating, dressing and taking a bath (i.e., home-attendant services).

At the same time, the home-attendant program will itself be reduced, by limiting the number of hours of services. Hours will be reduced in several ways.

A 100-hour cap. Regardless of need (e.g., an Alzheimer's patient who needs to be watched almost all the time), no one will get more than 100 hours a month (3-4 hours a day).

Nursing-home eligibility. People will not be able to get these services unless they are eligible for a nursing home and waiting to be placed in one. Services would be limited to "medically oriented tasks...which enable the eligible individual to be treated on an out-patient basis at home."

Cluster Care. Cluster care means that each attendant takes care of several recipients who either live in the same building or are in touch with the attendant through the use of a beeper. In many cases, this is a good idea.

In addition, the bill threatens to end all personal-care services completely. It has a "poison pill" clause (§ 103) stating that if state or federal courts invalidate or enjoin any of its provisions concerning personal care, the state will cease providing any personal-care services at all.

Fewer hours of service will also be available to people who need medically oriented home care -- e.g., intravenous medications and fluids or changes in sterile dressings. Through Certified Home Health Care Agencies (CHHAs), these services are typically provided to people who have recently been released from a hospital and require nurse-supervised help to recuperate. CHHAs are currently required to be available 24 hours a day. But under the Governor's proposal, home-health aides will only provide "intermittent or part-time services" Under the Medicare law,[19] "intermittent or part-time" means less than 8 hours a day.

At a higher level of service need, the State has several programs that are specifically intended as an alternative to putting someone in a nursing home or hospital. The State budget proposes to end three such programs:

The Long-Term Home-Health-Care Program, otherwise known as the "Nursing Home Without Walls" or "Lombardi" program. This program provides comprehensive services analogous to those of a nursing home, but within the person's own home. By law, the cost can not exceed 75 percent of the average cost of a nursing home.

The Assisted-Living Program, which provides long-term home-health and personal care to people who are medically eligible for a nursing home, but are living in another kind of residential facility (e.g., an adult home). It was specifically designed as a way of avoiding having to build additional nursing-home beds for seniors who need the social support of a group home, but not a very extensive amount of medical care. Health care services are reimbursed at one-half the relevant nursing-home rate.

Adult Day Care, except for AIDS. This program provides nursing-home-like services during part of the day, on an out-patient basis. Typically, patients are living at home with a friend or relative, who provides care the rest of the time.

It will also be harder to become eligible for the services that do remain. The bill seeks to overturn various protections against impoverishing the spouses of seniors who need long-term care. In the absence of other insurance, the only way most people, including the middle class, can afford the enormous cost of long-term care (especially if a nursing home is needed) is by becoming eligible for Medicaid. For example, in the New York metropolitan area, people have to pay about $67,000 a year for a semi-private nursing-home bed, if they are paying out of their own pockets, rather than have Medicaid pay for it.[20] But, if Medicaid considers the resources of both spouses, they would be faced with the ugly choice of denying the sicker senior the necessary care, or impoverishing the spouse who is not so sick, but still not healthy enough to continue providing the care alone.

Several years ago, the State passed laws to protect the healthy spouse. The Governor now proposes to remove these protections. For example, he would allow Medicaid to deny service based on the spouse's resources, even if those resources are not actually available for buying the necessary care (e.g., either absence of the spouse or a refusal or failure to make resources available). The State could sue spouses for the resources regardless of their ability to pay for the care.

Secondary Impact of the Home Care Cuts, Under the Governor's Bill

As previously shown (Table 7), the Governor's cuts in home and community-based care will save the City budget $57.7 million. But the home care sector will lose $577.2 million in services: the $57.7 million in City money, plus the $519.5 million in State and Federal money.

Cuts in Home Care Mean 19,000 More People May Need Nursing-Home Care. By decreasing the options for community-based care, the State budget bill increases the number of people who may need to be institutionalized, since they cannot function on their own without the community-based care. Based on data provided by the Health Systems Agency of New York City and the Health Care Association of New York State,[21] we estimate the additional nursing-home need as more than 19,000 additional beds.[22] Table 8 shows the basis for this estimate.

On the other hand, some of the need will be reduced because relatives[23] will pick up the slack. No one can be sure of the exact number, but much of the time, the relatives that can help already do -- an estimated 80 percent of long-term care is "free care" by friends and family.[24] More often than not, people are getting the care from Medicaid because there is no one else to do it for them. For example, the Gay Men's Health Crisis estimated that 60 percent of its 5,200 clients do not have anyone to help them when they are too weak to carry out daily functions on their own such as bathing and feeding themselves. Similarly, the Visiting Nurse Service found that 47 percent of the patients in its long-term home-health-care program live alone.

Table 8
Additional People Probably in Need of Institutional Care, Under Governor's Bill

Community Program CutNo. servedPercent Likely to Need Institutional CareNo. Likely to Need to Be InstitutionalizedExtra Costs for Institutionalization Compared to Being Cared for at Home
Personal Care (Level 1 Plus Level 2)63,00020%12,600Personal care: 100 hours/month x $9.75/hour = $975.

Nursing-home care: $41,187 a year

Hospital care for person with AIDS = $1,000 /day, $30,000/ month.

Adult Day Care1,88950%945Part-time care as a nursing-home out-patient is cheaper than full-time in-patient care
Long-Term Home Health Care6,03870%4,227By law, reimbursement is capped at 75% of nursing-home costs.
Assisted Living1,641100%1,641About 50% of the cost of nursing-home care.
Total72,56827%19,413
Sources: Numbers served from Health Systems Agency of New York City. Percent likely to need institutionalization from Health Care Association of New York State.


Scarcity of Nursing-Home Beds May Force 17,000 People into Hospitals. In the absence of enough nursing-home beds to meet even a tiny part of the increased need, the Governor's bill aggravates the situation by imposing a moratorium on adding new nursing- home beds.

According to the Health Systems Agency, New York City has 42,233 nursing-home beds. On any given day, 3 percent of them are vacant.[25] Many of those available beds have to remain vacant due to the logistics of transferring people in and out of nursing homes. With a 3 percent vacancy rate, we would have 1,267 beds for over 19,000 additional patients -- a shortfall of 17,733 beds. Many of the 17,733 patients for whom nursing home beds would not be available would wind up in hospitals, because they would have nowhere else to go.

Certain groups would be at special risk. Statewide, 2,000 people need home care 24 hours a day (e.g., people with advanced cases of Alzheimer's disease),[26] but such care will no longer be available except in an institution.

Inappropriate Hospitalizations Will Cost The City Around $38 Million. Inappropriate hospitalization of people who could be cared for at home will cost the City in two ways. First, hospital care is much more expensive than community care. For example, according to data in the New York State Medicaid Management Information System (MMIS), in FY 1994, Medicaid paid an average of $1,051 a day for each New York City general-care hospitalization, but only an average of $50 a day for each New York City personal care recipient.[27] In FY 1994, the average length of stay for general-care hospital admissions was 8.3 days,[28] bringing the average cost of each gener-l care hospital admission to $8,723 (8.3 days times $1,051 a day). Second, the City pays a bigger percent of the cost -- 25 percent (an average of almost $263 a day) versus 10 percent (an average of $5 a day of personal care).

We do not have enough information to give an exact estimate of how much the additional hospitalizations will cost the City -- just the general magnitude. However, using very conservative assumptions, we calculated that the loss of community-based services would cost the City over $38 million in inappropriate hospitalizations.

Table 9 shows the basis for this estimate, which uses the FY 1994 MMIS data.[29] We assumed that the 17,773 clients remaining at home while needing institutional care would have an average of one additional hospitalization a year -- for example, people who get sick due to being unable to go out and buy food, people who burn themselves trying to cook, and people who break legs or have heart attacks after they trip over the clutter in an unkept apartment. We also assumed that each hospitalization would be for the average general-care length of stay (8.3 days). Both assumptions are very conservative, given that we are dealing with the fragile elderly and the disabled.

As summarized in Table 9, over the 8.3-day average length of stay, an average New York City Medicaid hospital admission costs $8,723 (8.3 times $1,051). The City share (25 percent) would be $2,181. For 17,733 people, the total would be $38.7 million.

By comparison the City's total savings from eliminating home and community services (the total of the first five rows in Table 7) is $26.3 million.

Table 9.
Extra Costs from Inappropriate Hospitalization, Under the Governor's Bill*

TreatmentTotal CostCity Share(%)Amount of City ShareCity Cost
(17,733 People x
Cost/Person)
One NYC General-Care Hospital Admission ($1,051 average cost per day x 8.3 days average length of stay)$8,72325%$2,181$38.7 million
*Costs in FY 1994, for scenario described in text.
Source: New York State Department of Social Services, Medicaid Management Information System (MMIS), reports MR-O-01A and MR-O-50. United Hospital Fund, Hospital Watch (March 1995). Further explanation is in text.


For some health conditions, people need more expensive care and need it over a longer period of time. But, even here, the cost savings for home care are still great. The United Hospital Fund calculated more precise cost estimates for two specific conditions. (See Table 10.)

Table 10.
Cost Savings from Home Care for Specific Health Conditions

ConditionHome Care Savings over Hospitalization
Chemotherapy$10,500 per month for hospital vs. $3,500 for home care; savings of $7,000/month.
Tube Feeding$16,000 per month for hospital vs. $6,000 per month for home care; savings of $10,000/month.
Source: United Hospital Fund.


When Added to the Cost of Preventable Nursing-Home Admissions, the Elimination of Home and Community Based Services Will Cost the City about $17.6 Million More than It Saves.

Table 9 did not include the cost of nursing-home care. As previously discussed, of the 19,413 likely to need institutional care, nursing homes have beds for no more 1,267. In FY 1994 Medicaid paid $41,187 for each nursing-home resident.[30] The City share was $4,119 per resident. To place 1,267 nursing-home residents, the City would have to pay $5.2 million -- $4,119 multiplied by 1,267.

The total of the additional nursing-home cost ($5.2 million) and the additional hospital cost ($38.7 million) is $43.9 million. This is $17.6 million more than the $26.3 million the City saves from eliminating the specified community services (first five rows in Table 7).

Patients May Stay in the Hospital Longer. People who need help in recuperating from operations will stay in the hospital longer if they are unable to get home care after being discharged. The increased length of stay will cause hospitals to lose more money, and it will take up resources that could have been used for other patients.

It is often hard to discharge patients from a hospital without ensuring that they get care when they return home. For example, in 1993, at least 17 percent of the state's AIDS-related hospitalizations required a home-care discharge.[31] Similarly, a stroke patient may not be strong enough to do daily household chores, or someone may need intravenous drugs. It may no longer be appropriate to keep them in the hospital, but if they can not get some help at home their condition will worsen.

If the home-care sector is reduced too much, there may be an increase in the hospitals' average length of stay. Hospitals get reimbursed at a lower rate for patients who stay too long and, at a certain point, they do not get paid anything at all.

More People Will Get Sicknesses that Require Hospitalization. Although not quantifiable, people will also have sicknesses more often. People who are getting personal care for daily chores like feeding themselves or moving around the apartment are likely to develop preventible illness if they do not have such care: for example, failing to get adequate nutrition or adequate changes in dressings or proper hygiene.

The Likelihood of Emergency-Room Gridlock Is High. A few years ago, gridlock in hospital emergency rooms was widely reported. In several hospitals, people were stacked in the emergency room awaiting admission, because there were no beds available.

The cuts in home and community based care may re-create this scenario. At the current time, many hospitals are under-utilized. However, this may not be true for very long. Within the hospital industry, it is widely assumed that several hospitals will close within the next few years, and that others will greatly reduce the number of beds -- due, in part, to the proposed deep cuts in Medicaid reimbursements to hospitals.[32] Once the total number of hospital beds is reduced, hospitals will have a hard time managing a large influx of former home care patients. The influx would put a lot of pressure on the remaining beds, recreating the emergency room gridlock of a few years ago.

It Will Be Harder for Relatives to Continue Caring for Patients at Home. For example, Alzheimer's and other patients are often cared for without cost to the government in their own homes. But the families require periodic trained support, which will be lost under the Governor's plan. In these cases, it may be necessary to replace free care by the family with paid care by a nursing home.

Between 121,000 and 150,000 New York City residents have Alzheimer's disease and related dementias.[33] They often require virtually full-time supervision. Four-fifths of such care is "free," provided by family members at great emotional and financial cost over a long period (Alzheimer's patients can live with the disease as long as 15 years).[34] In many cases, it would not be feasible for the family members to bear this burden if they were unable to get help in providing the care, or in gaining a temporary respite.

In New York City, 25 to 30 percent of home-attendant/personal-care clients have dementia.[35] These people would be particularly hurt by the cap on personal care hours. At the same time, the Governor is terminating other kinds of care that are especially relevant to them -- such as adult day care. Families that are unable to bear these burdens on their own may then be forced to turn to institutionalization.

Families Who Have to Care for Seriously Ill Relatives Will Lose Income Because They May Have to Quit Jobs or Work Fewer Hours. A study published in the Journal of the American Medical Association found a third of seriously ill people required considerable help from a family member. In 20 percent of the cases, this required the family member to quit work or make another major life change.

This will reduce the number of working people, especially working women, and will add to the strains on these families, especially where patients have diseases like Alzheimers, that require more than the 100 hours cap.

Elderly and Disabled People Able to Live on Their Own Will Lose Their Independence. The Governor's cuts particularly hurt those who require the least service -- help with small daily tasks -- often the shut-in elderly and disabled. For the recipients, the relatively small amount of help is the difference between being able and being unable to maintain their independence. Various scholarly studies[36] have shown that the isolation following loss of independence can contribute to depression and even suicide.

Over the Next Five Years, at Least 5,000 Fewer People Will Move Off Welfare Rolls. The home-care industry is one of the few sectors with a significant number of entry-level positions for people without prior job experience or education. Roughly 12 percent of the people who work at chore or housekeeping jobs are former welfare recipients. In 1994 alone, 1,000 welfare recipients were placed in home-attendant jobs. Over five years, 5,000 welfare recipients would have been placed in home-attendant jobs.[37]

Additional Unanticipated Costs Will Occur for Welfare and for Medicaid. According to the Health Management Program at the New School for Social Research, the Governor's cuts will cost 20,000 to 30,000 home-care workers their jobs. But there are few alternative careers for these people. Many may end up on welfare -- especially, the AFDC program (most home-care workers are women).

At the extreme, if all 30,000 were to go on welfare, the additional cost would be roughly $68 million, of which the City share would be about $17 million.[38] The additional welfare recipients would also qualify for Medicaid, as would their children. At current costs, this would add at least $163 million to total Medicaid expenditures, of which $40.8 million would be City money.[39] In sum, the City would pay $57.8 million ($17 million plus $40.8 million) for 30,000 additional welfare recipients.

In reality, the cut should add less than 30,000 additional welfare recipients. We do not have enough information to estimate the exact number, but even if only 7,500 recipients were added (25 percent), the City would still lose $14.5 million (25 percent of $58 million).

Welfare costs may also be increased by ending the protections against spousal impoverishment -- adding an undetermined number of healthy elders to the welfare rolls, because, in order to get their spouse into a nursing home, they had to exhaust most of the couple's own resources.

Senate Bill Changes Home-Care Details, but Not the Impact

Restorations. The Senate bill contains several restorations of special relevance to our analysis of service impact.

Some Restorations Would Have Only a Marginal Effect on Services. Three of the Senate's restorations -- assisted living, adult day care and long-term home health care -- affect a relatively small number of people, as shown in Table 8. Using the Governor's proposal, we had projected that 19,413 people would be at risk of institutionalization as a result of losing some form of home or community-based care. Assuming that the providers of these three restored services can continue to serve the same number of people despite the reduction in reimbursement rates, the number of people at risk of institutionalization would decline to 12,600. However, it seems overly optimistic to assume that the reduction in reimbursement would have no impact.

The Senate bill also lifts the Governor's moratorium on new nursing-home beds. But, for practical purposes, this does not change the overall scenario, the danger that reductions in home and community based care would lead to unnecessary hospitalizations, since New York City already has a severe nursing-home shortage without any moratorium. The shortage can be expected to continue even without a moratorium, due to the financial and other obstacles to adding new beds.[40]

Restoration of Personal-Care Funds Is Probably Illusory. Much of our impact analysis relates to the cuts in the personal-care program, as they would affect the most people. The Governor's bill cut this program in an overt way, by explicitly refusing to provide level 1 services (homemaker program), by limiting the number of hours that any particular client could receive under level 2 (home-attendant program), and by limiting services to persons who are waiting to be put in a nursing-home program.

The Senate bill seemingly restores the funds but if it passes the outcome is likely to simply shift from a cut being made by the State to the cut being made by the City. The Senate proposes to cut the program indirectly -- the bill eliminates the specific cuts, but replaces them with a new reimbursement formula likely to have the same, or even more severe, effect as the cuts. It is likely to reduce the number of people receiving personal care, and the number of hours they receive. One expert describes the change as shifting the focus of who will be responsible for reducing personal-care hours, arguing that the Senate bill is actually more stringent because the new reimbursement formula would so severely penalize New York City if it did not find a way to cut the program itself.[41]

The Senate bill in § 536 proposes to replace the current formula by which the State pays 40 percent of the cost of the personal care program, and the locality only 10 percent,[42] without any limit on the State's cost. Instead, the State's total cost would be capped -- in the general manner of a block grant. Additional non-Federal costs would be borne entirely by the locality, without any State contribution. The formula for determining the State's maximum payment penalizes the locality for providing clients a relatively high number of hours.

The details of how the bill would be implemented are not entirely clear. But the bill does lay out the following principles for computing the formula.

Table 11.
Senate Bill: Reimbursement Categories for Personal Care Program

Average Hours per MonthState ShareCity Share
1-8045 percent5 percent
81-12025 percent25 percent
More than 120none50 percent
Source: Senate 4000, §536(ii)(A-C).


Average Hours of Personal Care Services in New York City. It is difficult to determine exactly the average number of hours of personal care provided in New York City, but all sources agree that the average is well above the new limit of 120 hours per month proposed by the Senate to be eligible for State reimbursement. Data in the State Medicaid Management Information System (MMIS) indicate that for personal care services actually reimbursed in FY 1994, the average was 156 hours per month.[43] The State Department of Social Services (DSS) is the source for three different estimates. DSS told Senate staff that the average is 140 hours per month. DSS statistics analyzed by the New York State Association of Counties show an average of 155 hours a month in FY 1993. And, this year, DSS gave data to the trade association representing New York City personal care agencies that the agencies had authorized an average of 206 hours a month in calendar 1994.[44]

Our own analysis is based on more detailed information -- compiled by the New York City Human Resources Administration -- about the specific numbers of hours delivered to specific numbers of clients. Table 12 summarizes the HRA numbers. The table covers personal-care services delivered under the housekeeping and home-attendant programs in December 1994.[45] This data shows an average of almost 185 hours a month -- 65 hours over the threshold at which the City has to pay the entire State share.

Table 12.
HRA Personal Care Program: Average Hours Per Week, December 1994

Ave. No. Hours/Week (Housekeeping or Home Attendant) (a)No. Clients Receiving that Range of Ave. Hours/Week (b)Total Hours for These Clients (b x midpoint of a)
1-45191,298
5-82,85318,545
9-127,57679,548
13-191,32321,168
20-277,306171,691
285,524154,672
29-392,73092,820
40-441,38057,960
45-4844120,507
494,478219,422
50-5542422,260
56-6293355,047
63-761,680116,760
77-833,555284,400
844,916412,944
85-167263,276
1681,836308,448
Total47,500 clients2,040,765 hours per week
Ave. Hours/Week43.0
Ave. Hours/Month
(4.3 weeks x weekly average)
184.9
Source: HRA, Office of Home Care Services Program Contracts, Report, January 24, 1995.


Table 13 rearranges the same information on average number of weekly hours in terms of the categories (monthly hours) that the State Senate uses for the purposes of reimbursement.

Table 13.
Number of Clients in Each Reimbursement Category, December 1994

Average hours/monthNumber of ClientsPercent of Clients
1-8012,27126 percent
81-12013,37628 percent
121+21,85346 percent
Total 47,500100 percent
Source: Data on weekly averages from Table 12. In this table, the statistics are presented in terms of monthly categories (weekly average times 4).


Service Impact of Senate's Reimbursement Formula

The new reimbursement formula would leave the City with two alternatives: either replace the lost reimbursements with City money, or reduce the number of people receiving personal care and their average hours of care. The Executive Budget does not budget any additional money for personal care. The only alternative is to cut services.

The Executive Budget does not specify exactly how the services would be cut. However services would have to be cut drastically in order to bring down the average hours of service to the point where the City would not lose additional funds.

The Governor's bill seeks to reduce the average by focusing on the clients who need the most care -- e.g., an Alzheimer's patient who needs a half-time or full-time attendant. It does so by refusing to provide any client more than 100 hours a month, and proposing that the high-hour clients be put in nursing homes.

The Senate's bill does not state an explicit cap. However, the City could not reach the reimbursement thresholds -- 120 hours a month (4 hours a day)[46] and 80 hours a month (2.3 hours a day)[47] -- unless it removed high-hour clients from the program itself or severely cut their hours.

Table 14 illustrates this point. It shows what we found when we recalculated the average using different hypothetical caps on the number of hours an individual client could receive. It shows that incremental efficiencies[48] would not be enough to bring the average down to 120 or 80 hours. The cuts would have to be far more severe.

Using the HRA data from Table 12,[49] we recalculated the average several times. In the first row, we show what happens when we remove the 24-hour-a-day clients from our calculation of the average -- not only does the table statistically "cap" the hours of service, but it also shows what would happen to the average if these clients were put in nursing homes or otherwise taken out of the personal care system entirely.[50] If all 24-hour-a-day clients (4 percent of all clients) were removed from the personal-care program, the average would drop from 184.9 hours a month (Table 12) to 163.1. Even after taking this extreme step, the average would still be far above the 120-hour threshold.

Table 14.
Effects of Capping Hours of Personal Care

Impact of CapNew Average
Categories ExcludedPercent Clients ExcludedNew Weekly AverageNew Monthly Average
168 hours/week (24/day)4%37.9 hours/week163.1/month
84 hours/week or more (12+/day)14%32.3 hours/week139.0/month
77-83 hours/week or more (11+/day)22%27.8 hours/week119.4/month
63-76 hours/week or more (9+/day)25%25.8 hours/week110.9/month
49 hours/week or more (7+/day)38%20.8 hours/week89.6/month
40-44 hours/week or more (5.7+/day)41%19.4 hours/week83.4/month
29-39 hours/week or more (4+/day)47%17.8 hours/week76.6/month
Source: Comptroller's Office, based on HRA data from Table 12.


The subsequent rows present similar calculations, using progressively more stringent caps -- 12 hours or more a day, 11 or more, 9 or more, 7 or more, 5.7 or more, 4 or more.[51]

To reduce the average to 120 hours a month, we have to remove the 22 percent of the clients who need 11 hours or more of service each day (row three). We estimate that these clients utilize approximately 50 percent of the hours.

To reduce the average down to 80 hours a month, we have to remove approximately 45 percent[52] of the clients from the calculation -- those who need more than 4-5 hours a day (bottom two rows). These clients currently utilize over 75 percent of the hours.

If the 45 percent estimate were applied to all of the 63,000 people who received personal care at one time or another during FY94, the cut would affect 28,350 people.

The City is unlikely to deny all services to people who need more than 4 or 5 hours of service a day. However, its alternatives are limited. It could shift some of the high-hour clients into programs that are not subject to the same reimbursement formula (e.g., nursing homes, certified home health care, or the "nursing home without walls" program). But, the other programs are more expensive than personal care.[53] In any case, the alternative programs do not have enough capacity to pick up that much slack. An undetermined number of people would be left without any service at all.

For example, as previously discussed, there are relatively few nursing-home beds available. Similarly, its unlikely that the State would certify a big enough expansion in the capacity of the "nursing home without walls" program (which currently serves only 6,038 people), given that the Governor proposed eliminating the program entirely, or a large expansion in the number and capacity of Certified Home Health Care agencies after having just cut their reimbursement rates.[54]

As a result, the City could achieve the necessary reduction in average hours only by imposing a cap on hours similar to the one the Governor wanted, and by reducing virtually everyone's hours.

Moreover, the City would also be under pressure to limit the number of new clients, even low hour clients (e.g., "level 1" personal care clients). That is because the Senate's reimbursement formula establishes a limit -- in the manner of a block grant -- on the total State reimbursement for the subsequent year.[55] If the City added more personal care clients the next year, it would have to pay the additional State costs itself. To avoid the additional cost, the City would have to reverse the current pattern by which the number of clients is growing at about 3 percent a year.[56]

As a result, there should be little difference between the secondary effects of the Senate's home care provisions and those of the Governor. Both bills severely reduce the amount of home and community based services. Both will have the effect of forcing more people out of their homes and into more expensive institutional care. Both will create hospital log jams (especially in the emergency rooms) by putting more people into the hospital and keeping them there longer. Both will put financial and emotional strains on the families of the elderly and disabled. Both will throw a significant number of home care workers onto the welfare roles, and restrict a major area of opportunity for those trying to get off.

B. Mental-Health Services

The State's proposed FY 1996 budget cuts the State Office of Mental Health (SOMH) by $142 million, including $91 million in State operations and $51 million in aid to localities. SOMH provides inpatient and outpatient mental-health services for adults and children. Additionally, the State Office for Alcohol and Substance Abuse Services (OASAS) budget is reduced by $45 million, $10.3 million in state operations and $ 34.7 million in aid to localities. At the local level, a $7.7 million reduction is proposed for the New York City Department of Mental Health, Mental Retardation and Alcoholism (DMHMRA). This reduction represents a $4.2 million curtailment of voluntary mental-health contract services, $1.0 million in prison mental-health services, and $2.5 million in HHC mental-health services.

A reduction in state services for the mentally ill will put increasing demands on the City's Health and Hospitals Corporation (HHC). HHC hospitals provide more expensive acute psychiatric care, while state mental hospitals provide less costly long-term care.

According to estimates by HHC Reimbursement Services, the cost for an inpatient stay in an HHC psychiatric ward is $550 per day while the cost for inpatient treatment at a State psychiatric center is $310 per day. Generally, mentally ill patients must go to an HHC hospital first before being referred to a State mental hospital.

In addition, SOMH's current "90-Day Return" readmission policy adds to HHC's burden. The policy requires that a patient who has been out of a State mental hospital for 90 days or more and who then needs additional treatment cannot be returned to the state psychiatric center from which he or she was discharged. They must instead be assessed as a new admission through an HHC Emergency Room and transferred to an HHC inpatient bed for acute psychiatric treatment.

Although it is documented that beds are underutilized in many of the city's voluntary and municipal hospitals, that is not the case with adult psychiatric beds. For instance, HHC's aggregate inpatient occupancy rate for adult psychiatric beds was 99.7 percent in January 1995. Thus, HHC would have difficulty in meeting any increase in the current demand for inpatient psychiatric services.

The service impact of the proposed cuts is shown in Table 15.

Table 15.
NYS Cuts in Mental-health Programs and Service Impact

Proposed CutService Impact on New York City
Community Reinvestment Funds
$34 million
Freeze construction of new housing for the mentally ill
Increase Intensive Case Management workload
Freeze new Community Psychiatric Emergency Programs
Closure of some community-based programs, affecting some
15,000 individuals
Mental-Health Contracts
$7.7 million
Reduction in voluntary mental-health contracts.
Reduction in HHC mental-health services.
Inpatient Services
$91.2 million
Manhattan Children's Psychiatric Center to be closed
Capacity of State psychiatric centers to be reduced
3 of the 6 Alcohol-Treatment Centers to be cut are in NYC
NYC Regional Office, providing program oversight, to be cut
Staff-to-patient ratio in Adult Psychiatric Centers to be cut
Medicaid/Managed Care
$71 million
loss to HHC for inpatient
psychiatric beds
Outpatient and pharmacy visits to be cut
Current providers to be replaced with HMOs
Hospital stays to be limited to 60 days
Non-emergency transportation to be eliminated
Source: NYC Comptroller's Office, Office of Policy Management, based on data from Alliance for the Mentally Ill and Coalition of Voluntary Mental Health Agencies, Inc.; NYS FY 1995-96 Executive Budget, NYC FY 1996 Executive Budget; HHC, Impact of Proposed State Medicaid Cuts.


Cuts in Hospital Operations

Reductions for mental-health services include cuts in inpatient services and elimination of regional offices.

Cuts in Inpatient Services. The Governor's proposed downsizing of state OMH-operated inpatient services will result in the elimination of 950 inpatient psychiatric beds, 10 percent of the statewide total; the closing of two psychiatric facilities, including Manhattan Children's Psychiatric Center (MCPC) and the elimination of the five Regional Offices.

The closing of MCPC will reduce HHC's ability to place seriously disturbed children requiring continued inpatient treatment. According to officials at HHC's Mental Health and Chemical Dependency Services, at least ten children are currently awaiting post-acute hospital care. That is 15 percent of the total number of children now being treated by HHC. The current 2-7 month wait for inpatient beds in a state facility is expected to increase. HHC officials predict that the ultimate impact may be that some severely emotionally ill children in the community will go untreated.

Closing of Regional Offices. With the elimination of regional offices, local program oversight will be reorganized between the facilities and the central office in Albany. This may impede adequate oversight for independent or `free standing' community-based treatment and residential programs. Also, oversight for adult homes serving more than 9,000 individuals diagnosed with serious mental illness is threatened with state budget cuts. Without sufficient monitoring these programs may become vulnerable to quality of care issues, such as patient safety and facility maintenance. Also, eliminating funding for adult home supervision may adversely effect the quality of life for this fragile population.

Hospital Operating-Rate Reduction. A 60-day annual limit for psychiatric and substance abuse inpatient stays is proposed. This would result in a $34.5 million saving for the state. However, because each state Medicaid dollar is matched by two Federal dollars, the state savings would result in a $71 million reduction in revenue to HHC in FY 1996.[57] Patients who have exhausted their annual reimbursement limit for care will end up at HHC facilities that will become the provider of last resort and will ultimately absorb the cost for patients requiring longer hospital stays.

Elimination of Alcohol-Treatment Centers. Three of the six Alcohol Treatment Centers (ATC) targeted for closure are in New York City in Manhattan, Queens and the Bronx. These centers serve some of the most impoverished and high drug use communities, i.e. Harlem, Washington Heights, the South Bronx, Morrisania and Southeast Queens. HHC officials claim that the DMHMRAS contractual programs are not prepared to accommodate patients displaced from ATCs and OASAS is not prepared to increase deficit funding to community based providers.

The secondary impact of reducing alcohol and drug treatment is an increase in social ills -- i.e., homelessness and crime. This is particularly a concern since drug use is believed to be on the rise among the adult and youth populations. The most recent statistics for substance abuse show an upward trend among both adults and youth. For instance in 1992, the most recent data available, emergency room episodes for marijuana activity increased 68 percent compared to 1991. The number of heroin-related ER episodes increased 39 percent and cocaine-related ER episodes increased 27 percent in 1992 compared to 1991. Primary heroin admissions to state funded treatment programs increased 7 percent in 1992 over 1991 OASAS data also show increased use of illicit drugs among 8th, 9th, 10th, 11th and 12th graders.[58] Continuation of the upward trend in substance abuse creates the potential of escalating social problems, i.e., increased school drop-out rate, crime, runaways, etc.[59]

Research. The cuts will eliminate 168 state-funded positions, about 30 percent, from Psychiatric Institute (PI). Advocates point out that such a cut would eliminate some very important research in areas such as schizophrenia, Bipolar depression, Alzheimer's, Parkinson's and epilepsy. According to the New York State Alliance for the Mentally Ill, elimination of research programs will make it unlikely that PI can raise the current $47 million in federal funds and private donations. Second, the cuts will have an economic impact on the community, especially the small businesses surrounding the Institute -- PI, employing approximately 1,000 people, is one of a few economic enterprises remaining in the Highbridge section of Washington Heights.

Secondary Impact on Criminal Justice System

The state's current rate of downsizing without sufficient community planning and resources will most likely affect the already overburdened criminal justice system. For instance, if the Mentally Ill Chemical Abuser (MICA) or seriously ill patient is released without intensive case management, which is threatened to be reduced by $9.4 million for adults and children, and other adequate support systems, crime is likely to become an alternative lifestyle for many. Additionally, jails often serve as a "holding bin" for the mentally ill who commit petty crimes or no crimes at all.

A national survey of American jails conducted in 1992 by the Public Citizens Health Research Group found that 29 percent of surveyed jails admitted to holding people with no charges at all solely because they were mentally ill. An additional 23 percent of jails acknowledged holding people who have serious mental disorders on minor charges like disorderly conduct or vagrancy. According to the study, jailers said they often have no alternative because of the absence of emergency mental-health treatment or reliable local treatment programs.[60] According to the national survey, approximately 30,000, or 7.2 percent, of all those now in jail are manic-depressive or schizophrenic or have other serious mental disorders.[61] Another impact to consider if these individuals transfer over to the criminal justice system is that we can expect additional costs to the city for court fees, costs of processing and possibly incarceration. Also, mental-health experts and legislators in both parties predict that the cuts will mean more homelessness or at least an erosion in any progress made in moving the mentally ill off the streets.[62]

Cuts in Community Treatment Programs

The proposed budget will curtail a wide range of community programs to identify and treat mental illness.

Community-Based Programs. The Coalition of Voluntary Mental Health Agencies, Inc. estimates that more than $115 million will be cut from existing community mental-health services and a $25 million cut to reinvestment funds, which are used to expand community mental-health services to accommodate patients returning to the community from state facilities. Community based treatment services and residential programs are designed to help patients become independent and remain out of state institutions. These programs provide services that are much less expensive than state mental hospitals or acute-care psychiatric wards in City hospitals. Without these community programs, many seriously ill patients are likely to become lost to the system of care and possibly go untreated. They may ultimately show up in local emergency rooms or go back in state hospitals. State mental-health officials project that a significant number, 10 to 40 percent of the estimated 227,000 New Yorkers with severe and persistent mental illnesses, currently do not receive adequate treatment, largely because of insufficient community support and residential programs.[63] The estimated 12 percent cut in community mental-health programs will result in the provision of less services by the state. A spokesman for SOMH stated that his department will allocate 40 percent fewer outpatient treatment positions and 43 percent fewer new housing slots than originally allowed for under the Community Reinvestment law.[64]

Freeze on CPEP Expansion. Freezing the planned expansion of the Community Psychiatric Emergency Program (CPEP), a crisis-intervention program aimed at avoiding the need for hospitalization, coupled with a potential increase in psychiatric emergencies from downsizing state institutions, is likely to lead to overcrowding in local emergency rooms. More important, to the extent that the program keeps patients out of mental hospitals, the failure to expand CPEP as planned would ultimately cost the State and the City more money in hospitalization costs.

Reduction in Contractual Services. DMHMRAS administers over 300 contracts for approximately 300,000 clients each year, including the developmentally disabled, substance abusers, children, people with AIDS, prisoners, the homeless and the chronically mentally

ill. The proposed $6.7 million reduction in City funds for contractual services which represents the $4.2 million reduction for nonprofit or voluntary providers and the $2.5 million cut for services to the public through HHC, would not, according to a DMHMRAS spokesman, substantially effect mental-health services. However, the state budget proposal would sharply reduce state funds to DMHMRAS, cutting by $14 million major programs that serve an estimated 15,000 clients and could result in the closure of more than 50 community based programs.[65] Reductions in the City's DMHMRAS contractual services coupled with proposed state cuts will limit the mentally disabled access to care in the community.

Managed Care. Mandatory managed care could adversely effect the delivery of special care services such as psychiatric rehabilitation and substance abuse, AIDS, etc. For example, as part of the managed care proposal, psychiatric patients would get prescription medicine every 90 days, rather than every 30 days as they do now. The Alliance for the Mentally Ill of New York State points out that 90-day prescription supply would adversely effect some people in treatment. Prescription refills force clients to keep follow up appointments and, according to Dr. Richard Wyatt, Visiting Professor of Psychiatry at Columbia University, the vast majority of patients need to be seen monthly, weekly, and sometimes more often.[66] Restricting community-based clinical care and treatment could reduce the effectiveness of treatment.