doctor-1461912176mgq-300x200-1649017Facing a multibillion-dollar gap in state finances, Governor Cuomo has turned to one of Albany’s favorite piggy banks: the health care industry.

Out of $1 billion in “revenue actions” proposed by Cuomo on Tuesday, $750 million would be extracted from health insurers and drug manufacturers and earmarked for various health-related spending programs.

In effect, the state would be taxing health care to pay for health care—in keeping with a long-standing habit that helps give New York some of the nation’s highest health premiums.

Topping Cuomo’s list would be proceeds to be reaped from the conversion of health insurers from non-profit to for-profit status, which he projects at $750 million per year for the next several years. Although it’s a short-term source of revenue, Cuomo proposes to use it for ongoing expenses. He would earmark $500 million a year for Medicaid and $250 million for a “health care shortfall account” to hedge against future cuts to federal health care funding.

The biggest conversion to be made public so far is the pending purchase of non-profit Fidelis Care by for-profit Centene, with a sale price of $3.75 billion.

The state’s Catholic bishops, who control Fidelis, had planned to plow those proceeds into a charitable foundation that would, in the words of Timothy Cardinal Dolan, “continue Fidelis’ founding mission of providing for the health- and health care-related needs of those most in need throughout New York State.” Under the governor’s proposal, however, the church would have to forfeit some large share of the money to the state treasury.

Such payments to the state are already required for non-profit insurers organized under Article 43 of the Insurance Law. However, Fidelis is an HMO under Article 44 of the Public Health Law. To make his plan happen, Cuomo needs new statutory language—which for some reason was not included in budget-related legislation unveiled on Tuesday.

Cuomo is also proposing a 14 percent tax on the underwriting gains of for-profit health insurance companies, which would bring in an estimated $140 million a year.

He characterized the tax as a “windfall profit fee,” since those companies are expected to reap substantial savings from the recently passed federal tax cuts. However, the fee does not apply to all corporations that are in line for a tax cut, or even all insurance companies, but only health insurers.

Cuomo’s third health-related tax is an “opioid epidemic surcharge” on opioid-based pain medications. The revenue would flow into a newly created fund for support of “ongoing prevention, treatment, and recovery services.”

It appears that the new money will mostly replace rather than add to what the state already spends on such services. The tax is expected to bring in $127 million in the first year, but the state’s overall spending on alcohol and drug treatment would increase by just $18 million.

Mostly, the new money will go toward financing Medicaid, the state’s massive health plan for the poor and disabled. Among the bills to be paid is the cost to hospitals and other Medicaid providers of complying with Cuomo’s increase in the state minimum wage – the impact of which keeps getting bigger.

screen-shot-2018-01-17-at-4-45-33-pm-2759436
Source: NYS Division of the Budget (click to enlarge)

On Tuesday, the state estimated that the wage hike would add $703 million to Medicaid costs in fiscal year 2019. That’s two-and-a-half times more than projected when the wage hike passed in 2016, and about 20 percent more than projected as recently as November.

By fiscal year 2020, the annual impact will approach $1.2 billion, enough to buy Medicaid coverage for some 400,000 children.

Albany has a long practice of taxing health insurance to pay for healthcare – which is how various surcharges and fees levied under the state’s Health Care Reform Act have grown to become the state’s third largest source of revenue, after income and sales taxes.

A parallel to this year’s proposals unfolded in 2002, when the state faced a budget crisis after 9/11 and its largest insurer, Empire Blue Cross Blue Shield, was preparing to become a for-profit company.

Then-Governor George Pataki claimed most of the Empire conversion proceeds for state coffers, hiked taxes on health insurance, and used the money not just to balance the budget, but to increase pay and benefits for hospital and home-care workers. The leader of the healthcare workers union 1199, Dennis Rivera, endorsed Pataki for reelection in the aftermath.

The counterproductive side effect, then as now, was to drive up the cost of private insurance, making it that much harder to afford, and ultimately increasing demand for government-sponsored coverage.

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

Nursing Home Vacancy Rate Soars, Hinting at a Higher Coronavirus Toll

The vacancy rate in New York's nursing homes has more than doubled since the start of the coronavirus pandemic, suggesting that the death toll among residents may be thousands higher than officially reported. Read More

Unsure of COVID Impact, NY Insurers Roll Dice on Rate Hikes

The health insurance industry's rate applications for 2021, , reveal deep uncertainty about the long-term impact of the coronavirus pandemic on medical costs. Some companies anticip Read More

Hospitalization rising in some areas

Coronavirus hospitalizations are surging in parts of upstate, including three regions that the Cuomo administration authorized to begin reopening today. Read More

Uneven ‘relief’ for NY providers

A review of federal emergency payments to New York health-care providers reveals a striking disparity: Four of Manhattan's most prosperous private hospitals collected more individually than the 11 city-owned hospitals combined. Read More

Essential Plan surplus hits $3B

As Governor Cuomo pleads for financial help from Washington, one of his state's programs is sitting on $3 billion in unspent federal aid: the Essential Plan. Read More

A grim toll gets worse

The full toll of the coronavirus pandemic in New York is likely thousands higher than the official death tallies, according to newly released federal data. Read More

More fiscal turmoil for Medicaid

In a sign of pandemic-related strain on state finances, the Cuomo administration is postponing a series of multi-billion-dollar Medicaid payments over the next three months. Read More

Upstate escapes the worst

With the coronavirus pandemic hitting some parts of New York much harder than others, Governor Cuomo has signaled that he will begin to relax shutdown restrictions in low-virus parts of the state. Here's a closer look at how infection and fatality rates vary from region to region. 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
Fax: 518-434-3130
E-Mail: info@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.