With judicious use of her veto pen this month, Governor Hochul could draw a line against spiraling health expenses for consumers and taxpayers.

Several health insurance-related bills passed by the Legislature earlier in the spring are awaiting action by Governor Hochul before the end of the year. Four would constrain the methods that health plans use to save money on prescription drugs. A fifth would impose a new tax on insurers in the name of financing services for disabled children.

Each is likely to further increase costs in a state that already has some of the highest health premiums and Medicaid spending in the country.

The first of these bills to reach Hochul’s desk is S. 4111 (Breslin)/A. 4668 (Peoples-Stokes), which prohibits mid-year changes to preferred drug lists, also known as formularies, which insurers use to steer their members toward lower-cost medications.

Health plans and employers object that this law would hamstring their ability to manage drug costs, because it would allow manufacturers to hike prices early in the year without losing their preferred drugs status until months later.

The bill’s stated purpose is not to enrich pharmaceutical companies but to protect patients from unexpected coverage changes. However, the sponsors made a noteworthy exception, specifying that their proposed law “shall not supersede the terms of a collective bargaining agreement.” This exempts all union-operated or union-negotiated health plans, including those that cover every employee of the state and all local governments.

This loophole raises an obvious question: If unions and their members are allowed to save money with formularies, why shouldn’t non-union employers and consumers have the same option?

That question also applies to S. 3566 (Breslin)/A. 5854 (Joyner), which effectively prohibits plans from mandating the use of mail-order pharmacies to control their drug costs.

Again, the proposed restriction “shall not supersede the terms of a collective bargaining agreement” – conceding that the appropriate use of mail-order pharmacies for long-term prescriptions is not a sinister plot but a reasonable way to save money.

Another drug-related bill is S. 3762 (Breslin)/A. 1396 (Gottfried), which would establish state regulation pharmacy benefit managers, which negotiate with drug manufacturers on behalf of health plans.

These go-between companies, also known as PBMs, play a major role in the murky process of setting drug prices, and they are widely distrusted by other players in the health-care system and state lawmakers of both parties.

The language of this bill, however, includes problematic provisions.

It confusingly says that PBMs must operate “for the best interests of the covered individual, and the health plan or provider,” when the interests of those three groups are typically in conflict. It adds that “the duty or obligation to the covered individual shall be primary,” without clarifying whether that means the broadest possible coverage or the lowest possible premiums.

The bill also empowers both providers and customers to sue PBMs for “for any injury or loss … caused by any violation of such duties, obligations or requirements,” which is likely to unleash a flurry of costly litigation.

The fourth pharmacy-related bill, S. 6603 (Skoufis)/A. 7598 (Gottfried), would boost dispensing fees paid to pharmacies by Medicaid managed care plans. The legislation specifies that the direct expense should be borne by health plans and PBMs, but the added cost would inevitably fall on taxpayers in the long run.

A fifth piece of legislation, S. 5560 (Reichlin-Melnick)/A. 5339 (Paulin), would increase one of the state’s heavy taxes on health insurance by $40 million, nominally to finance “early intervention” services for developmentally disabled preschool children. However, the money would directly flow to New York City and the other 57 county governments, with no limits on how they use the funds. This leaves open the possibility that the new revenue stream would replace rather than supplement what local officials already spend on early intervention.

Each of these bills is part of a long-standing Albany tradition of regulating and taxing health insurance without regard to the long-term cost – which is one reason New Yorkers pay some of the highest health premiums in the U.S.

By issuing vetoes, Hochul would be doing her part to disrupt that dynamic and protect consumers and employers from further financial hits.

 

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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