Northern New York farmer Russ Finley is one of the millions of Americans who make do without health insurance. So when a tree limb fell on his head last month, piercing his cheek and jaw, he knew he would have to pay the full cost of getting his face stitched up.

What he didn’t expect was being walloped all over again by a hefty tax.

His emergency room bill included a “NYS surcharge” of $184.17 on top of the $1,900 he owed the hospital.

“I’m expected to pay a tax I can’t afford, because I don’t have insurance I can afford, due to the fact I have property taxes I can barely afford,” was how Finley summed up the insult added to his injury.

What he had stumbled onto was one of Albany’s dirtiest little secrets — an addiction to taxing health care, which has gotten steadily worse over the past quarter-century.

And now there’s a danger that the coronavirus crisis will become an excuse for state lawmakers to hike the taxes and hit consumers even harder.

Most New Yorkers don’t realize it, but every time they go to the hospital, whether for a minor scrape or major surgery, the state adds a 9.6 percent surcharge to their bill. Every time they or their employers buy health insurance, the state imposes a per-person assessment, ranging from $9 a year in Utica to $174 in Manhattan.

Health plans pay the surcharges on behalf of their enrollees, but consumers and employers ultimately bear the cost in the form of higher premiums. For those without coverage, like Finley, the 9.6 percent surcharge comes straight out of pocket.

The two levies bring in almost $5 billion a year, which makes them the state’s third-largest source of revenue, after income and sales taxes.

Few other states tax health care this heavily, and for good reason. The practice needlessly adds to the spiraling medical costs and effectively penalizes people for getting sick.

The current levies date back to 1996, when then-Gov. George Pataki led the charge to deregulate hospital fees in a law known as the Health Care Reform Act, or HCRA. To smooth the transition, the law granted subsidies for hospitals that were financed with the two surcharges on health insurance.

The taxes started relatively small — about a quarter of their current size — and the revenue was mostly dedicated for specific purposes, such as free care for the uninsured and training for young doctors. They were also meant to be temporary.

Over the ensuing years, however, the Legislature in Albany repeatedly expanded HCRA, and hiked its taxes, almost every time there was a fiscal crisis, figuring that insurers would conveniently take the blame for the resulting premium hikes. Increasingly, the revenue was diverted to balance the budget instead of doing anything that could be called “reform.”

Today, three-quarters of the HCRA money simply flows into Medicaid, effectively serving as a general source of cash. Much of the rest goes to dysfunctional or unnecessary programs, such as subsidizing the state’s broken medical-malpractice system.

Meanwhile, HCRA surcharges and other smaller insurance taxes add between 6 percent and 9 percent to the cost of health coverage, which is a big reason why New York has the highest costs for employer-sponsored insurance in the lower 48 states.

The unhealthy cycle could repeat this year. In January, Gov. Cuomo floated the idea of raising “additional industry revenue” — Albanese for health-care taxes — to close a state budget gap. And that was before the coronavirus played havoc with the state’s economy and blew an additional multibillion-dollar hole in state finances.

Taxing health-care in this moment, when New Yorkers are likely to need a lot more of it, would be a travesty. It also misses the point.

The problem with New York’s Medicaid program isn’t a shortage of revenue but an excess of spending, which has gotten markedly worse in recent years due to mismanagement and cronyism. Even if the state does require a cash infusion to weather the pandemic, taxing health care would be among the worst ways to raise it.

For the good of accident victims like Russ Finley — and all New Yorkers struggling to afford coverage — Albany should be trying to kick its addiction to health-care taxes, not increasing the dose.

© 2020 New York Post

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

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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.