The past year has been a roller-coaster for New York’s health-care system, as Congress tried repeatedly to scale back Medicaid and dismantle the Affordable Care Act while allowing other health-related programs to lapse. Because New York depends so heavily on federal health dollars, it had more to lose than almost any other state.

Now that the smoke has cleared, it must be said that the state dodged almost every bullet.

Efforts to repeal-and-replace the ACA appear dead for now. Federal funding for Child Health Plus has been reauthorized. Restoration of funding for community-health centers and safety-net hospitals was included in the budget deal passed late last week.

In fact, virtually all of the ACA programs pumping extra billions into New York’s health-care system remain intact. Yet Gov. Cuomo’s budget for 2018-19 is written as if the health-care system were facing an immediate crisis — using the threat of future cuts to justify significant tax hikes now.

Worse, one of the proposed hikes — a 14 percent surcharge on underwriting gains of for-profit insurers — would add to the state’s enormous tax burden. Since most large employers are self-insured, the tax would mainly affect individual and small-group policy holders, the more fragile and price-sensitive sectors of the market.

The governor calls his proposal a “windfall surcharge,” since the companies who’d pay benefit from the recent 14-point cut to federal corporate-tax rates. But the cut applies to all corporations. The only apparent reason for singling out a subset of insurers is Albany’s tradition of taxing health care to pay for it.

This is self-defeating. One big reason a third of the state’s population needs a government-funded health plan is because they can’t afford private coverage. Taxing insurance only makes that problem worse, and drives more New Yorkers onto the Medicaid rolls.

The state already collects $4.4 billion a year from insurers through the Health Care Reform Act — making their customers the state’s third-largest source of revenue, and helping saddle New Yorkers with some of the highest premiums in the country. The state should be rolling back those taxes and doing everything it can to improve affordability.

In addition, the gov wants to glom $3 billion over four years from the conversion of nonprofit health plans to for-profit ownership. This plainly targets the pending acquisition of nonprofit Fidelis Care to for-profit Centene, with a sale price of $3.7 billion.

Fidelis is controlled by the state’s Roman Catholic bishops, who planned to put the proceeds into a foundation for health care for the needy. In effect, the state would be swiping from the collection basket.

The governor argues the state is entitled to compensation because Fidelis made much of its money from government contracts while enjoying tax-free status. It also points to the precedent set when Empire Blue Cross Blue Shield became a for-profit in the early 2000s, with 95 percent of the proceeds going to the state treasury.

But that was an anomaly. The norm with such conversions is a court-approved transfer of charitable assets to a private foundation, as is proposed with Fidelis. Cuomo’s plan would require a change to state law, details of which he has not yet disclosed.

The state shouldn’t discourage the Fidelis conversion. The new tax-paying company would add to state and local revenue, and the proposed foundation would become a source of charitable giving in perpetuity. The budget, by contrast, would treat most of the proceeds as a “one-shot,” spending the short-term windfall on long-term costs for Medicaid and other health programs, burning through the billions in a few years.

The budget calls for putting $250 million a year of the Fidelis proceeds in a “health care shortfall account” to offset a sudden, unforeseen loss in federal aid. But nearly all of the proposed cuts contemplated over the past year would’ve been phased in slowly, giving the state plenty of time to adjust.

Yet a third health tax in the budget is a surcharge on prescription opiates. Cuomo says it would raise $125 million a year, which would be dedicated to addiction prevention and treatment. Since his budget doesn’t include a corresponding increase in spending on those programs, it’s not clear whether the surcharge would supplement existing funds or replace them.

Cuomo has done a generally good job of slowing the growth of Medicaid costs, but New York still spends way more per recipient and per capita than average. The pipeline from Washington continues to flow, as do the billions in existing taxes on health care. Cuomo should find a way for his health system to live within its ample means.


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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