40231755535_aceecab826_q-2336527The largest revenue-raiser in the just-completed state budget, worth $2 billion over four years, is not a tax or a fee or even a legal settlement. It takes the form of semi-voluntary “grants” squeezed mostly out of a Catholic Church-affiliated health insurance plan.

In an unusual side deal with Governor Cuomo, the state’s Catholic bishops agreed to provide the state with $1.4 $1.5 billion in proceeds from their pending sale of Fidelis Care, also known as the New York State Catholic Health Plan. The buyer, Centene Corp., is putting in another $600 $500 million.

These payments were crucial to balancing the state’s $168 billion budget, but they were not formally mandated in the “big ugly” revenue bill approved early Saturday or in existing law. Instead, the bishops and Centene executives are effectively buying their way out of a high-pressure standoff with Cuomo and the Legislature.

Fidelis, with 1.6 million members, is the largest provider of the major state-funded health plans for poor and low-income New Yorkers—Medicaid managed care, Child Health Plus and the Essential Plan. It’s also the single biggest seller of federally subsidized “Obamacare” coverage through the state’s insurance exchange.

In September, Centene agreed to buy Fidelis’ assets for $3.75 billion, and the bishops announced they would put the money into a charitable foundation to support health care for the needy.

In his January budget proposal, however, Cuomo argued that state government, as the source of most of the company’s revenues, was entitled to most of the sale price. He cited the precedent of Empire Blue Cross Blue Shield, which converted from non-profit to for-profit status in the mid-2000s with 95 percent of the proceeds going to the state treasury.

But that transaction required a change in the state’s insurance law that was tailor-made to one transaction. As an HMO incorporated under the public health law, Fidelis did not technically need the Legislature’s approval for its deal.

But the sale to Centene did require approval from two state regulators—the Departments of Health and Financial Services—which the Cuomo administration threatened to withhold. Meanwhile, Cuomo targeted Fidelis with a pair of budget proposals: The first entitled the state to claim 80 percent of proceeds if it went through with the sale; the second empowered the state to skim hundreds of millions of dollars in supposedly “excess” reserve funds if Fidelis continued as a non-profit.

Those provisions were not guaranteed to pass the Legislature—or stand up in court—but neither did lawmakers of either party signal opposition to Cuomo’s plan.

Finding seemingly no allies in Albany, the bishops and Centene submitted to a compromise with Cuomo. The first $1 billion is to be paid by the end of July, contingent on DOH and DFS approving the sale to Centene.

The bishops were left with $3.2 billion for their foundation—including the remaining proceeds of the sale and several hundred million in Fidelis reserves.

A statement from Cardinal Timothy Dolan, as quoted by Politico, accentuated the positive: “My brother bishops and I are excited to create a $3.2 billion charitable foundation, which will be the state’s largest foundation supporting the poorest and most vulnerable New Yorkers and one of the largest charities in the country. This is an extraordinary result that will improve the health and well-being of New Yorkers of all faiths, or no faiths at all, from all corners of the state.”

A press release from Cuomo’s office said the state’s $2 billion would go into a “Health Care Shortfall Fund,” where it would be used “to ensure the continued availability and expansion of funding for quality health services to New York State residents and to mitigate risks associated with the loss of federal funds.”

However, the actual budget legislation calls it a “Health Care Transformation Fund” and says the fund will be used “to support health care delivery, including for capital investment, debt retirement or restructuring, housing and other social determinants of health, or transitional operating support to health care providers.” It makes not mention of the possible loss of federal aid.

The outcome sets several troubling precedents.

The state is asserting the right to claw back money it pays to private companies for services rendered—without even an allegation of wrongdoing.

Plus, the state is effectively making its regulatory approval of the Fidelis-Centene deal—affecting the health care of 1.6 million New Yorkers—contingent on the payment of a 10-figure sum.

Also concerning is how the $2 billion is to be spent: Part FFF of the revenue bill, as ratified mere hours after it became public, provides that the funds “shall be available for transfer to any other fund of of the state as authorized and directed by the director of the budget”—in other words, at the discretion of a gubernatorial appointee.

The Assembly and Senate, which ostensibly control the purse strings of state government, can be notified as much as 15 days after the fact.

UPDATE: This post has been updated to correct dollar figures in the second paragraph.

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

You may also like

Remembering the scandal that brought down Health Commissioner Howard Zucker

The resignation of Dr. Howard Zucker as state health commissioner marks the end of a term marred by scandal over his role in managing the coronavirus pandemic. The much-debated compelling nursing homes to admit COVID-positive patients, though it origi Read More

After 10 weeks, all but five of the Empire Center’s 63 requests for pandemic data remain unfulfilled

Over the 10 days that Hochul has been in office, there has been no further progress on the Empire Center's record requests. Read More

New York’s health benefits remain the second-costliest in the U.S.

New York's health benefit costs increased faster than the national average in 2020, leaving it with the second-least affordable coverage in the U.S. The state's average total cost f Read More

Another Hochul To-Do: Timely Financial Reporting

The state will spend a record $212 billion in the current 2022 Fiscal Year, under the budget its elected leaders adopted in April. Read More

Can Cuomo still be impeached?

Andrew Cuomo and Donald Trump have more in common than boyhood homes in Queens. Like Trump, Cuomo could still face impeachment and an impeachment trial despite a promise to resign as Governor later this month. Read More

The Gov’s pension

There are several (dozens? hundreds?) of unanswered questions as the fallout from Andrew Cuomo's resignation earlier today continues. Among those are questions related to his pension, some of which can be answered, sort of. Read More

The Health Department’s FOIL Responses Signal an Indefinite Wait for Pandemic Data

The quest for comprehensive data on New York's coronavirus pandemic hit a bureaucratic roadblock this week Read More

A Study of COVID-19 in Nursing Homes Raises Doubt About New York’s Minimum Staffing Law

A newly published study of COVID-19 in nursing homes links larger numbers of employees to higher rates of infection and death for residents – raising fresh doubts about New York's recently enacted "safe staffing" law. Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100

General Inquiries: Info@EmpireCenter.org

Press Inquiries: Press@EmpireCenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.

Empire Center Logo Enjoying our work? Sign up for email alerts on our latest news and research.
Together, we can make New York a better place to live and work!