The Republican-led House Oversight Committee has accused New York state of misusing federal Medicaid funds by withholding money from local health care providers, including hospitals serving low-income communities.
In a letter sent this week to Governor Kathy Hochul, Oversight Committee Chair Rep. James Comer (R-Ky.), along with Reps. Nick Langworthy and Mike Lawler, requested documents and communications related to what they described as a scheme to divert federal Medicaid dollars to cover state budget shortfalls.
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“The abuse of federal taxpayer funds intended to ensure health care coverage for the most vulnerable to cover up your state’s budget shortfall is unacceptable,” the lawmakers wrote.
Medicaid at the Center of Budget Dispute
Roughly 6.9 million New Yorkers — about one-third of the state’s population — are currently enrolled in Medicaid. Although enrollment is down about a million from last year, the program remains the largest single expense in New York’s $254 billion budget. The state anticipates spending $35 billion of its own funds and receiving $72 billion from the federal government through April 2026.
At the heart of the controversy is a 2023 budget change that allowed the Hochul administration to retain an increased share of federal Medicaid funding provided through the Affordable Care Act (ACA) — money that critics argue was intended to support county-level Medicaid costs.
According to Stephen Acquario, executive director of the New York State Association of Counties, local governments in New York shoulder $8 billion annually in Medicaid costs — more than all other U.S. counties combined.
“These funds were meant to ease the property tax burden on counties, not to patch up state finances,” Acquario said. He also warned of deeper cuts if the proposed federal budget reconciliation bill moves forward.
Hospital Lawsuit Brings Issue to Light
The funding dispute escalated in December, when Nassau University Medical Center sued the state Department of Health. The hospital, which serves a large low-income population, alleged the state manipulated Medicaid funding by requiring it to first transfer money to the state, which then used that contribution to falsely claim it met the federal matching requirement — unlocking more funds without spending its own.
“The state’s scheme was both simple and nefarious,” the lawsuit alleges, accusing the administration of misrepresenting the origin of the non-federal contribution to Centers for Medicare & Medicaid Services (CMS).
The suit, pending in state Supreme Court in Nassau County, claims this maneuver allowed the state to retain millions of dollars intended for the hospital and county.
In response, state attorneys argued that participation in the federal matching program was optional. In legal filings from March, they wrote:
“(The state) never demanded that the non-federal share be remitted. Instead, it notified Nassau County that it may remit the non-federal share if it wished to obtain the federal share.”
Fallout and Political Tensions
The Oversight Committee warned that this and similar funding strategies have forced local governments to raise property taxes and cut services.
The letter demands all documents related to:
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The Nassau University Medical Center lawsuit
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The 2023 budget changes
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New York’s participation in federal Medicaid matching programs
The Hochul administration has until July 16 to comply.
Though Governor Hochul has not publicly responded, a spokesperson told the New York Post that the inquiry is a distraction from the ongoing push to pass President Donald J. Trump’s “One Big Beautiful Bill” — the pending federal spending package.
State officials estimate the bill could strip 1.5 million New Yorkers of Medicaid and Essential Plan benefits due to new eligibility conditions, including work or volunteer requirements for non-disabled enrollees.
“This isn’t anything radical,” Rep. Langworthy said on the House floor. “We’re restoring the same common-sense work requirements that President Bill Clinton signed into law in the 1990s.”
The clash highlights growing tensions between state and federal lawmakers over the future of Medicaid, as both sides accuse the other of undermining care for vulnerable populations.
