Cuomo’s plan to tax health insurance industry raises concerns

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Cuomo’s plan to tax health insurance industry raises concerns

Lawmakers on both sides of the aisle are questioning the governor's proposal.
February 5, 2018

In the coming fiscal year, New York faces a $4.4 billion state budget shortfall, looming cuts from the federal government thanks to the new tax law and potential threats to health care spending from Republicans in Congress.

One significant way Gov. Andrew Cuomo has proposed to address those concerns is by turning to the health insurance industry to get some extra cash. He suggests doing this through a new 14 percent windfall tax on health insurers to address the estimated 40 percent cut they are expected to get under the federal tax law, and by taking a cut of the proceeds from nonprofit to for-profit insurance conversions to create a health care shortfall fund.

This isn’t the first time Cuomo turned to the health care industry to help close a deficit. In 2011, when the state faced a $10 billion deficit, Cuomo worked together with the sector to create a Medicaid Redesign Team in order to find ways to cut costs and control spending growth.

But this year, health insurers feel like they have been left out in the cold.

“Health plans feel that they have really stepped up to the plate to be partners with the state in terms of its ambitious Medicaid reform programs … setting up the health insurance exchange, which is held out there as a model for the nation for its successes in terms of reducing the number of uninsured and increasing access to quality insurance for people,” said Leslie Moran, senior vice president with the New York Health Plan Association. “And we feel like … it diminishes the partnership, it diminishes the efforts, the plans (that we) have put forward to help New York state realize its goals.”

Moran added that although health insurers will see some benefit from the federal tax cut for corporations, it doesn’t necessarily translate to the state level, as New York already imposes steep taxes on the industry. She said if the state tax goes through, the costs will likely get passed on to the insured, increasing premiums and health insurance costs overall.

State lawmakers on both sides of the aisle raised similar concerns.

Assemblyman Kevin Cahill, who chairs the Insurance Committee, acknowledged that lowering the federal corporate tax rate could potentially result in runaway profits for the health insurance industry. But the Democratic lawmaker said that rather than imposing a new tax, the state should simply let the health plans translate their savings to customers through lower prices.

“When people identify those things they cannot afford in New York state, they come up with three things: the cost of housing, the cost of taxes and the cost of health insurance,” Cahill said. “And if we are going to add a New York state tax to health insurance, we should fully expect that that will wind up coming out of the ratepayers’ pocket rather than the shareholders’ pocket.”

Cahill suggested that the state should instead look at spreading that windfall tax among a number of corporations that will also see a benefit under the federal plan, so it doesn’t only target health insurers. He said this would also allow for lower tax rates by spreading out the burden.

State Sen. Catharine Young, who chairs the Finance Committee, said Republicans are opposed to any tax hikes because they take the state in the wrong direction. State Senate Insurance Committee Chairman James Seward, a fellow Republican, said he instead favors recently introduced legislation that would require health insurers to pass on the savings they get from the federal tax cut to policyholders through rate reductions or refunds.

“This measure, in my mind, both protects a significant segment of our economy and also protects consumers,” Seward said. “And so that’s the approach we’d like to take in the Senate, let’s return that money to health insurance premium payers.”

Bill Hammond, director of health policy at the Empire Center for Public Policy, said the main problem with the governor’s tax proposal is that it keeps revenue for health care “in the family” by taxing the industry, when it should be coming from multiple sources.

“I feel like that it’s one of the reasons why we have some of the most expensive health insurance in the country, so I don’t see it as a healthy way to go,” Hammond said.

Fewer details are known about the governor’s second major revenue source: money taken from health insurance conversions. Cuomo expects to garner $750 million per year from those conversions, with $500 million earmarked for Medicaid and the rest going into a shortfall fund in the event of significant federal funding cuts. Currently, the only deal the public currently knows about is Centene Corp.’s plan to buy the nonprofit insurer Fidelis Care for $3.75 billion. The Citizens Budget Commission noted that this is an uncertain revenue stream that relies on conversions that might not happen, thus potentially widening the budget shortfall.
Cahill had no problem with the state benefiting from such conversions if they do happen. The way he sees it, a large portion of nonprofit health insurance income is derived from public sources, so it only makes sense for the public to see some of the money when they convert to a for-profit company.

“The question is not whether this company is going to convert, because I believe that under the current law, the state can’t stop them from converting,” Cahill said. “What we can do, however, is regulate where the proceeds of that sale benefit. Will it benefit the public, or will it benefit entities associated with the parties involved in the transaction?”

Seward said the conversion fee remains an open question in the state Senate, since details are still sparse. Young added that state Senate Republicans are not opposed to the conversion fee, but similarly said they are still awaiting further details.

However, Moran warned the conversion fee would increase the price of doing business, potentially limiting a practice she said benefits New Yorkers.

“Some of the reasons plans look to convert from not-for-profit to for-profit are things like it significantly increases a plan’s ability to access capital, which allows them to then invest in the community and build on their existing infrastructure,” Moran said. “If you don’t have increased access to capital, your ability to grow your business and to improve services to your members is greatly curtailed.”

Health care issues

Opioid abuse

Gov. Andrew Cuomo proposed a surcharge of two cents per milligram of the active opioid ingredient in prescription drugs, which would raise an estimated $127 million in the first year. The money would go to a new Opioid Prevention and Rehabilitation Fund, which would expand prevention, treatment and recovery services. But the Empire Center for Public Policy’s Bill Hammond points out that the budget only increases overall spending on alcohol and drug treatment by $18 million. He told City & State this appears to mean that Cuomo is simply shifting revenue sources without increasing spending by much – although the budget also adds $26 million for the Office of Alcoholism and Substance Abuse Services.

Recreational marijuana

Easing his opposition to recreational marijuana, Cuomo proposed a state-funded study on the impact of regulating the drug for wider, legal use. This proposal aligns Cuomo closer with Democrats in the state Legislature, who have been trying to pass the Marijuana Regulation and Taxation Act since 2013. Assemblyman Richard Gottfried, a bill co-sponsor, told City & State that while he believes the available information is enough to legalize the drug for regulated recreational use, he saw the study as a step in the right direction.

Women’s health

Cuomo’s budget advances his women’s agenda with several items on women’s health. The first would codify the U.S. Supreme Court ruling in Roe v. Wade into state law to safeguard New York abortion rights regardless of federal action. Another measure would protect a women’s right to contraception and create a maternal mortality review board within the state Department of Health to review every maternal death in the state. The U.S. has the worst maternal death rate of any developed nation, and New York ranked 30th in the country in 2016 with a rate of 20.9 maternal deaths per 100,000 births.

Safe staffing

The Safe Staffing for Quality Care Act, which has been bouncing around the state Legislature since 2010, is on the docket again this year. It passed the Assembly in 2016, the furthest the bill has made it, but failed to come to a vote in the state Senate. The legislation, which has been a top priority for the New York State Nurses Association for years, would create a nurse-to-patient ratio to ensure nurses are not overworked and patients receive better care. However, it faces opposition from hospitals and business groups.

Medicaid redesign

The budget continues to advance the work of and implement the recommendations of the state’s Medicaid Redesign Team established in 2011. Many of the recommendations are aimed at helping those with long-term care needs and addressing Medicaid’s aging population, and include controlling drug prices. One new proposal is meant to support Medicaid’s youngest users through the development of what is called the First 1,000 Days on Medicaid initiative. The 10-point plan would provide better access to services for all children covered by Medicaid and improve their health outcomes through initiatives like statewide home visits for expectant mothers.

Rebecca C. Lewis
is an editorial assistant at City & State.
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