AI – Part I
- Paul Francis
- 3 days ago
- 15 min read
Commentary # 28 by Paul Francis
PDF Available Here:
Something happened two days ago that I thought was worth writing about for two reasons. First, because it bears on a few topics that are timely and which the Step Two Policy Project has been focused on, namely, Democratization of Analysis, the Essential Plan, and the FY 27 Executive Budget. Second and foremost, because what I lay out below is both an example of the power of AI and coincides with a burst of recent observations suggesting that we may be at a tipping point where the potential implications of AI will become more broadly visible to the general public.
Let me start with the background.
As we noted in our Commentary on the FY 27 New York State Executive Budget, the “$2 billion question” in the Budget – as well as the fate of healthcare coverage for approximately 700,000 non-citizens who currently are enrolled in the Essential Plan whose continued coverage is threatened by provisions of the One Big Beautiful Bill Act (HR 1) – is whether New York State will be permitted to use reserves in its Basic Health Program Trust Fund to cover the costs of this non-citizen population in the Essential Plan. If the answer to that is “no,” the State will be required to spend approximately $2 billion in FY 27 to provide State-only Medicaid to at least the portion of this population with incomes up to 138% of FPL, while leaving those with incomes between 138%-200% of FPL to potentially lose their healthcare coverage.
Because use of the Trust Fund reserves requires CMS approval of the State’s request to terminate its section 1332 waiver and return the Essential Plan to its original authority under section 1331 of the Affordable Care Act, the Division of the Budget assumed for purposes of the FY 27 Executive Budget presentation that the approval would not be granted – thus inflating Medicaid spending by approximately $2 billion over what would be necessary if the approval is granted.
Of the three New York State health policy pundits who have written about this issue, one, Bill Hammond of the Empire Center, expressed the view that it was unlikely CMS would grant the approval, relying in part on a statement from a CMS official who emphasized that federal funds would no longer available to pay for coverage of non-citizens who were ineligible for federal subsidies solely because of their immigration status. We have taken the opposite position, arguing that it’s likely the Trust Fund can be used for this purpose. Michael Kinnucan of the Fiscal Policy Institute also expressed the view that Trust Fund reserves would be available, avoiding the need for the State to use State-only Medicaid funds to cover the non-citizen population previously enrolled in the Essential Plan.
Despite the uncertainty and implications for the entire 1.7 million-member population enrolled in the Essential Plan, the Department of Health was reported as saying that it would have no further comments about the Essential Plan. I surmise that DOH does not want to talk about the Essential Plan because doing so would attract attention to its request to use Trust Fund reserves – the source of which was federal funding – to provide healthcare benefits to non-citizens, given how loaded this issue is politically. The end result of this posture, however, is continuing uncertainty about a critical issue.
Given this backdrop, the publication in the Federal Register by CMS on February 11, 2026 of its proposed Notice of Benefit and Payment Parameters rule for 2027 (the “Notice”) regarding the implications of HR 1 on Advanced Premium Tax Credits under the ACA and payments by the federal government to states that have a Basic Health Program (which in New York is called the Essential Plan) was a highly anticipated event.
Rather than wading through the 195-page document, I thought it would be interesting to ask two of the leading Large Language Models (LLMs) for their interpretation of the proposed regulations and what inferences they would draw from the Notice about whether New York State’s request to use Trust Fund reserves would be granted. The responses did not take into account one of the pillars of our conviction that the State’s request will be granted – i.e., the fact that the Trump administration does not want to impose a substantial financial burden on New York before the midterms. I was blown away by the sophistication of the AI model responses.
I was taught in my college writing classes that writers should “show” rather than “tell” in making their points. In that spirit, I’m going to include below my prompt and the verbatim responses I received from Claude Opus 4.6 and the ChatGPT 5.2 (Thinking) model. It took about 15 minutes to get these responses, including the time it took to write the prompt.
As an aside, I would note that in reaching their conclusions, the responses did not take into account one of the factors we believe will lead to the State’s request being granted – i.e., the fact that the Trump administration does not want to impose a substantial financial burden on New York before the midterms. I could have asked about that in my prompt, but I assumed (perhaps incorrectly) that an LLM would have less to offer on an issue as subjective as that. In any event, as it relates to the interpretation of the implications of these complex regulations, I doubt I could have done a better job.
It still is not a foregone conclusion that CMS will approve the State’s request. Moreover, with more time, I could do more in-depth research on certain legal issues relating to the use of Trust Fund reserves. For example, ChatGPT wrote:
“If you paste (or upload) the NY trust-fund statutory language (or the relevant trust-fund section of NY’s BHP enabling law), I can map the “allowed uses” language to the inferences above and give you a tighter, more lawyerly analysis of the strongest and weakest arguments.”
However, the primary purpose of this Commentary is not to research every possible angle of this issue, which is something I’m sure the State’s lawyers have done. Rather, it is to illustrate how these AI tools are able to infer sophisticated insights from even the most complex documents. These insights can significantly improve public understanding of complicated and important issues with respect to which there may not otherwise be much transparency.
As alluded to above, one of the reasons I was moved to write this Commentary is that just in the last week, there has been a burst of opinions from people I greatly respect about the latest breakthrough in AI, ushered in by the release of Claude Opus 4.6, Claude Code, and Claude Co-Work. The great Peggy Noonan wrote a Wall Street Journal column titled, Brace Yourself for the AI Tsunami. Her column is based in part on an X post that went viral titled Something Big is Happening by an AI developer and software engineer named Matt Shumer, who compares the current moment to the complacency we all felt in February 2020, three weeks before the Covid pandemic turned the U.S. upside down. Nate Silver, America’s leading interpreter of political polling, wrote a Substack post titled The Singularity Won’t Be Gentle. And Ross Douthat of the New York Times interviewed Dario Amodei, the founder of Anthropic (the company that owns Claude), about Amodei’s recent essay – The Adolescence of Technology – in which he wrote: “I believe we are entering a rite of passage, both turbulent and inevitable, which will test who we are as a species.”
I’m not sure where I fall on the AI optimism versus pessimism spectrum – including how quickly and in what situations AI’s functionality will displace human beings. But I can say that the responses I received this morning from Claude and ChatGPT were surprisingly comprehensive and insightful, and probably better than what they would have produced even a few months ago. These responses certainly increased my productivity today.
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The following includes my AI model prompt regarding the Notice (which I attached to the prompt) and the verbatim response by Claude and ChatGPT. Note that I gave a second prompt to Claude, asking it to check a document it suggested in its initial response might be relevant (it wasn’t).
This was my prompt exactly as submitted (i.e., not cleaned up for typos):
essential Plan: the federal government recently released proposed regulations regarding the Basic Health Plan and advanced premium tax credits. These proposed regulations are attached. The regulations Address payments by the federal government under section 1331 of the ACA for advanced premium tax credits or to state governments who have a basic health plan As it relates to individuals who are not eligible for Medicaid because of their immigration status. New York State has sought clarification from CMS that while in understands that new tax credits will not be made available Are payments made by the federal government to state to have a BHP in respect of individuals who are ineligible for Medicaid because of their immigration status, The State could nevertheless use funds within the basic health program trust fund To pay for the costs of this population until his reserves ran out. Please interpret these regulations and how they bear on this issue. Please specify if it is explicitly addressed and if not how you are making inferences.
Here is the Claude 4.6 Response:
I'll start by reading the uploaded PDF to understand the proposed regulations, then analyze the specific issue you've raised. Now let me look at the regulatory impact analysis section for the BHP payment calculations: Now let me search for any mention of trust fund, reserves, or state use of BHP funds: Now let me search for the actual ACA section 1331(d) trust fund provision to understand the statutory framework: Now let me look at the December 2025 CMS Informational Bulletin referenced in the regulations: Now let me look at the specific section about New York's question. Let me also check for any language about what happens to existing BHP trust fund balances: Now let me also look at section 1331(d) of the ACA itself for the trust fund provisions, which I know from my training: Now let me check the summary provisions at the beginning about BHP: I now have a thorough understanding of the regulations. Let me write the analysis.
Paul, here's my interpretation of these proposed regulations as they bear on New York's question about using existing BHP trust fund reserves to continue covering individuals who are ineligible for Medicaid due to immigration status.
What the Regulations Explicitly Address
The proposed rule is quite clear on two distinct points, and the gap between them is precisely where New York's question lives.
First, enrollment eligibility is preserved. The regulations explicitly state, multiple times, that lawfully present noncitizens who are not "eligible aliens" under the WFTC legislation's new definition "remain eligible for enrollment in the BHP, provided they meet the eligibility requirements of section 1331(e) of the Affordable Care Act and 42 CFR 600.305." The proposed definitional amendment at 42 CFR 600.5 is described as not impacting "underlying eligibility for BHP" — rather, it provides "clarity in future guidance regarding the payment methodology for the BHP." This language is repeated at least three times throughout the preamble (in sections III.D.8, IV.F.1, and the regulatory impact analysis).
Second, new federal BHP payments attributable to these enrollees will cease. The regulations are equally explicit that "Federal BHP payments to States that operate a BHP attributable to such enrollees will cease beginning with plan years starting on or after January 1, 2027." For section 71302 populations (those below 100% FPL, ineligible for Medicaid due to immigration status), payments stop even earlier — effective January 1, 2026, because that provision is described as "self-effectuating." The regulatory impact analysis estimates approximately 12,000 affected BHP enrollees and projects the federal government "would not make a payment for these individuals if enrolled in a BHP."
What the Regulations Do NOT Explicitly Address
The regulations are silent on the question of whether a state may use previously accumulated balances in the BHP trust fund — funds already deposited by the federal government for prior periods — to continue covering this population after new federal payments cease. This is the precise gap New York is probing.
My Inference on How This Would Play Out
There are several layers to consider:
Under section 1331(d)(2) of the ACA, federal BHP payments are deposited into a trust fund established by the state. Section 1331(d)(2)(A) specifies that funds in the trust must be used "to reduce the premiums and cost-sharing of, or to provide additional benefits for, eligible individuals enrolled in standard health plans within a State." The critical question is whether "eligible individuals" in that statutory provision encompasses the full universe of people eligible to enroll in the BHP (which includes this population, as the proposed rule confirms), or only those for whom a federal payment is calculated (which would exclude them going forward).
The proposed rule's careful distinction between enrollment eligibility and payment eligibility actually works in New York's favor on this reading. CMS goes out of its way to say the definitional update "would not impact underlying eligibility for BHP." If these individuals remain "eligible individuals enrolled in standard health plans," then the statutory trust fund use-of-funds language arguably permits expenditure of existing trust fund balances on their behalf.
However, there are significant counterarguments and risks:
CMS could take the position that the trust fund provisions must be read in conjunction with the payment methodology — that while enrollment eligibility is one thing, the purpose of the trust fund is to deploy federal BHP dollars, and the federal government has now determined that no federal dollars should support coverage for this population. CMS has substantial oversight authority over BHP trust fund expenditures under 42 CFR part 600 subpart E and could issue sub-regulatory guidance or impose conditions on trust fund draws that would effectively prevent this use.
The proposed rule references a December 10, 2025 CMCS Informational Bulletin on the BHP federal funding methodology for PY 2026 (footnote 104). That document may contain more specific guidance on how trust fund balances may or may not be used, and it's the kind of sub-regulatory vehicle CMS typically uses to address implementation details like this. New York's request for clarification from CMS is likely being channeled through this kind of guidance process rather than through the formal rulemaking.
Additionally, the regulatory impact analysis treats the cessation of payments as straightforwardly meaning the federal government "would not make a payment for these individuals" — it does not model any scenario in which states draw down existing trust fund reserves for this purpose, which suggests CMS is not contemplating that outcome.
Bottom Line
The regulations as proposed neither explicitly authorize nor explicitly prohibit New York from using existing BHP trust fund reserves for this population. The strongest textual argument in New York's favor is the repeated confirmation that these individuals remain eligible for BHP enrollment, combined with the statutory trust fund language tying permissible uses to coverage of "eligible individuals enrolled in standard health plans." The strongest argument against is that CMS clearly intends to cut off federal financial support for this population's BHP coverage, and permitting states to spend down trust fund reserves would partially circumvent that intent. The answer will almost certainly come through sub-regulatory guidance from CMS rather than through this rulemaking, and the December 2025 CIB is the first place I'd look for early signals on CMS's position.
My second prompt to Claude:
Can you provide a link or citation for the following –December 10, 2025 CMCS Informational Bulletin on the BHP federal funding methodology for PY 2026 (footnote 104)
Claude’s response to my second prompt:
The citation from footnote 104 of the proposed rule is:
CMCS Informational Bulletin, December 10, 2025, "Basic Health Program; Federal Funding Methodology for Program Year 2026," available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib12102025.pdf
Let me see if that URL is actually accessible: The URL from the proposed rule is confirmed and live. The full citation is:
CMCS Informational Bulletin, December 10, 2025, "Basic Health Program; Federal Funding Methodology for Program Year 2026," available at: https://www.medicaid.gov/federal-policy-guidance/downloads/cib12102025.pdf
One very important detail from the search results that's relevant to your broader analysis: the CIB contains a footnote stating that "While New York implemented its BHP in July 2015, it suspended operations on April 1, 2024." This means New York is not currently operating a BHP — it suspended the Essential Plan's BHP component in early 2024. That context significantly reframes New York's inquiry: the state would presumably need to reactivate its BHP before the question of spending down trust fund reserves even becomes operative, and any reactivation would occur under the new payment rules where federal funding for this population has been zeroed out.
The CIB also confirms the statutory payment framework: federal BHP payments are equal to 95 percent of the PTC under section 36B and CSRs under Section 1402 of the ACA that would have been provided to eligible individuals enrolled in BHP standard health plans if such eligible individuals were allowed to enroll in QHPs through an Exchange. It further notes that the statutory change eliminating PTC for non-"eligible aliens" applies starting January 1, 2026, pursuant to Section 71302 of the WFTC legislation.
Here is the verbatim response of Chat GPT 5.2 (Thinking) to my prompt:
What the proposed rule explicitly does (and does not) say
1) It explicitly says Federal BHP payment eligibility will shrink for two immigration-related groups, because BHP payments are pegged to the PTC/CSR the person “would have” received in Marketplace coverage.
The proposed rule repeatedly states (in the preamble) that:
Beginning 1/1/2027, only “eligible aliens/eligible noncitizens” (as newly limited by the 2025 Working Families Tax Cut (WFTC) law) will generate PTC, and therefore only they will generate Federal BHP payments. It says: because Federal BHP payments are based in part on PTC… only… ‘eligible aliens’ will generate Federal BHP payments to the State and that BHP payments for other “lawfully present” noncitizens “will cease” starting 1/1/2027.
Beginning 1/1/2026, for the specific group you flagged—lawfully present noncitizens who are ineligible for Medicaid due to immigration status and have income <100% FPL—the rule says they are no longer eligible for PTC due to repeal of the prior “<100% FPL but barred from Medicaid” PTC pathway, and then states will stop receiving Federal BHP payments attributable to that population as of 1/1/2026.
2) It explicitly says underlying BHP enrollment eligibility is not what they’re changing—only Federal payment eligibility.
For the 1/1/2027 “eligible alien” change, the preamble says the update is relevant for Federal funding and “would not impact underlying eligibility for BHP.”
Similarly, for the 1/1/2026 change tied to the repeal of the <100% FPL PTC pathway, the preamble frames the consequence as: no PTC → no Federal BHP payment attributable to those enrollees.
3) What it does not explicitly address:Nowhere in the excerpt you provided does CMS explicitly answer the question NY is asking CMS—i.e., whether a State may use money already sitting in a State’s BHP trust fund to continue covering that population after Federal BHP payments for them go to $0.
So, the key question you’re asking me to interpret is necessarily an inference question.
How these provisions bear on NY’s “can we spend trust-fund reserves anyway?” question
A. The cleanest inference from the proposed rule’s logic
The rule’s internal logic is:
Federal BHP payments to States are a formula amount equal to 95% of the PTC (and CSR) the enrollee would have received in Marketplace coverage.
If Congress makes that enrollee ineligible for PTC, then the Federal BHP payment rate for that enrollee becomes $0.
CMS then says, in substance: States won’t receive Federal BHP payments attributable to that population as of the effective date.
That logic is all about Federal payment authority, not about what a State may do with its own dollars (or with funds it controls once received). The proposed rule does not purport to regulate State budgeting choices for non-federal dollars; it’s about aligning Exchange/BHP payment mechanics to the WFTC changes.
Inference # 1 (strong): The proposed rule itself is best read as: “No new Federal dollars for that population via the BHP payment methodology,” not “the State is forbidden to cover them.” That is consistent with the preamble’s statement that BHP eligibility itself is not being changed (only payment eligibility).
B. The part that turns on non-federal law (and why CMS may be punting)
Whether NY can use BHP trust fund reserves depends on two legal layers the proposed rule doesn’t resolve:
1. State law governing the trust fund.If NY’s statute says trust-fund dollars may be used “for the Basic Health Program,” “for BHP eligible individuals,” or similar, then continuing to pay for coverage for people who remain BHP-eligible under ACA 1331(e) would generally fit that purpose. The proposed rule suggests those individuals remain eligible for BHP even though they don’t generate Federal payments.
2. Any Federal conditions that “run with” Federal BHP payments once paid to the State.The proposed rule excerpt you attached does not lay out restrictions on use of previously paid Federal BHP amounts (it focuses on who generates payments going forward). So the proposed rule doesn’t supply an explicit Federal prohibition on using previously accumulated reserves for otherwise-BHP-eligible enrollees whose Federal payment rate has dropped to $0.
Inference # 2 (moderate, but important): If NY law allows it, and if the trust fund’s allowable uses are framed around operating BHP / paying for BHP enrollees (not “only for enrollees who generate a Federal payment”), then using reserves to cover that population should be legally coherent with the rule’s premise that they can remain BHP-eligible even when they no longer generate Federal funding.
C. The key risk/ambiguity point (what opponents might argue)
Because BHP is a federally authorized program with a specific Federal payment methodology, an adversarial reading could argue:
Federal BHP payment dollars are appropriated to support the BHP structure as designed, and
when Congress affirmatively removes PTC eligibility for a category, it is signaling a policy choice that Federal affordability support is not available for that category, and
therefore Federal BHP dollars shouldn’t be “cross-subsidized” to cover the newly unfunded category.
But—that cross-subsidy argument is not made anywhere in the proposed rule’s text you provided; it would be an external policy argument, not something the proposed rule squarely adopts.
Practical “bottom line” reading for NY’s question
Explicitly in the proposed rule: Federal BHP payments for that population (lawfully present; barred from Medicaid due to immigration status; <100% FPL) go to $0 as of 1/1/2026.
Not explicitly addressed: Whether NY may use existing BHP trust fund reserves to keep covering them after that date.
Best inference from the proposed rule: CMS is changing the Federal payment permissibility, not dictating a State spending prohibition. Because the preamble stresses “underlying eligibility for BHP” isn’t what they’re changing, it’s consistent to infer that States may keep them enrolled and can fund them with non-federal dollars—which could include trust-fund reserves if State law allows and if there’s no separate Federal restriction on the use of already-received funds (not discussed in the excerpt).
What I would recommend NY ask CMS to clarify (based on this proposed rule’s gaps)
If NY is preparing comments or a formal inquiry, the clean “ask” that aligns with the rule’s structure is:
1. Confirm no Federal BHP payment may be claimed for the population after 1/1/2026 (CMS already signals this).
2. Confirm that States retain discretion to continue covering otherwise BHP-eligible individuals using State dollars (including reserves) without violating BHP rules—or specify what legal constraint CMS believes would prevent that.
3. If CMS believes trust-fund dollars that originated as Federal BHP payments are restricted, ask CMS to cite the specific statutory/regulatory provision imposing that restriction and explain whether it applies to:
o expenditures for BHP-eligible people generally, or
o only to the subset who continue to generate Federal payment.
If you paste (or upload) the NY trust-fund statutory language (or the relevant trust-fund section of NY’s BHP enabling law), I can map the “allowed uses” language to the inferences above and give you a tighter, more lawyerly analysis of the strongest and weakest arguments.
