gettyimages-846536784-300x200-2912916In approving the $69 billion merger of CVS and Aetna, the state Department of Financial Services attached a noteworthy condition: The two companies must forward $40 million to the state of New York.

It was the second time this year that the Cuomo administration has leveraged its regulatory authority over a health insurance company to extract a large sum of cash. This spring, the state commanded $2 billion in proceeds from the sale of Fidelis Care to Centene.

Although smaller in scale, the CVS-Aetna payment shares problematic features of the Fidelis deal: The state is again squeezing money from companies in the context of a regulatory review, which smacks of a shakedown. And the governor has again arranged to spend the money without consulting the Legislature, which is an end-run around constitutional checks and balances that opens to door to abuse of public funds.

In the Fidelis transaction, the state’s receipts included $500 million from Centene and $1.5 billion that were effectively diverted from charity. Fidelis had been a non-profit health plan controlled by the state’s Catholic bishops, who used proceeds of the sale to endow a foundation. The resulting Mother Cabrini Health Foundation ended up receiving about $3.2 billion instead of almost $5 billion.

The state has no specific entitlement to any share of proceeds when insurers are sold. Nor have the parties to these deals been accused of wrongdoing. Rather, the companies are agreeing to make the payments voluntarily, albeit under an implicit threat that their high-stakes transactions could be blocked or delayed.

Receipts from both Fidelis and CVS-Aetna are flowing to the so-called Health Care Transformation Fund, established as part of this year’s budget, which the governor and his appointees can use for health-related purposes without consulting the Legislature.

The first such expenditure, revealed earlier this month, is going toward a Medicaid rate increase earmarked to increase the pay and benefits of hospital and nursing home workers – many of whom are represented by a politically influential union allied with Cuomo. Although the rate increase was effective Nov. 1, full details have not yet been made public.

The governor’s rationale for the Health Care Transformation Fund has shifted over time, and the rules governing its use give him flexibility to spend it on almost any health-related purpose.  

The payments are one of 14 conditions included in DFS’s “decision and order” approving the CVS-Aetna transaction:

The applicants agree to pay $40 million over three years to New York State, subject to a plan approved by the superintendent of financial services and the director of the Division of the Budget. Such plan shall include, but not be limited to: (i) funds paid to organizations to support health insurance education and enrollment activities; and (ii) funds to strengthen New York health care transformation activities, which may include payments to the New York State Health Care Transformation Fund.

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.