New York, you have a problem. You’re addicted to health taxes.

The habit hooked the state government 20 years ago this month, when the Health Care Reform Act took effect.

The main purpose of that law was to do a good thing: end state-imposed price controls on hospitals, giving free-market competition a chance to tame spiraling health-care costs. To smooth the transition, state lawmakers sent hospitals extra aid.

And they financed that aid, fatefully, with new taxes on health insurance.

The deregulation part of the law worked — at least modestly. New York’s per-capita hospital spending, which had been the highest in the country, gradually trended closer to the national norm.

But the other parts of the law — the taxes and spending — took on a life of their own.

Over the 12 years from 2000 through 2011, lawmakers either hiked the HCRA taxes or created new ones 14 times — causing annual receipts to almost triple. The addiction had taken hold.

Including the nation’s heaviest state tax on cigarettes, HCRA now brings in $5.5 billion per year, making it the third-largest tax in the nation’s highest-taxed state.

Insidiously, the surcharges on health insurance are collected in ways that hide them from public view. Yet they add as much as 6.2 percent to a typical New York City resident’s insurance costs, compounding the pain of high premiums and deductibles.

One of the surcharges, known as the “covered lives assessment,” varies wildly from one part of the state to another. In 2016, it ranged from $10.24 per year in the Utica-Watertown region to $202.82 in New York City, a difference of 1,880 percent.

Plus, the surcharges make no allowance for ability to pay, hitting families in the working and middle classes just as hard as the wealthy.

Nor is all the money well spent. Over the years, state lawmakers have funneled billions of it into programs that have no direct public-health benefit — like subsidizing doctors’ malpractice premiums, boosting pay and benefits for health-care workers or plugging holes in the state budget.

Today, two-thirds of HCRA monies flow into the state’s Medicaid health plan for the poor and disabled, which now covers one out of three New Yorkers. Those funds pay 17 percent of the state’s cost for the program, effectively freeing up money for lawmakers to use elsewhere.

Especially problematic is HCRA’s $1 billion Indigent Care Pool, which supposedly compensates hospitals for treating the uninsured. While the pool pays some institutions three or four times the value of charity care they provide, most safety-net institutions get pennies on the dollar.

Statistical analysis shows, in fact, that hospitals serving a higher percentage of Medicaid patients tend to be reimbursed for a lower percentage of their charity work — a reverse Robin Hood effect.

For many years, lawmakers earmarked seven-figure pots of HCRA money for legislative leaders to dole out as they wished, with virtually no oversight — a practice that played a key role in the federal corruption conviction of long-time Assembly Speaker Sheldon Silver. While the pork-barrel accounts have since been closed, parts of HCRA remain opaque to even the most seasoned observers of the state budget.

In the name of “reform,” in short, New Yorkers struggling to afford health coverage are paying billions in regressive taxes to finance programs that do little to improve health care — and, in some cases, enable dysfunction.

Many of the law’s key provisions are due to expire at the end of 2017, putting the future of HCRA squarely at the heart of this year’s budget negotiations between Gov. Cuomo and the Legislature.

Lawmakers should take the opportunity to weed out wasteful, politically driven boondoggles, redirect indigent-care dollars to support patients rather than institutions and enact a long-term plan to wean the state away from taxes on health care as a major source of revenue.

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.