New York Governor Aims To Tax Health Insurers

Faced with potential cuts to federal funding of major health programs, Gov. Andrew M. Cuomo in his budget address this month proposed a new state fund aimed at keeping the programs afloat.

Speaking in Albany on Jan. 16, Cuomo said it's health care "where the real potential shortfall is."

The state is facing a potential loss of federal funding through a number of avenues outlined in the governor's budget, including cuts to Medicaid; the loss of the cost-share reduction payments that fund the state's popular Essential Plan coverage option; and cuts to the Medicaid Disproportionate Share Hospital program, which provides federal dollars to hospitals that serve a high percentage of Medicaid or uninsured patients.

Cuomo also said federal funding for the Child Health Insurance Program was at risk in his budget outline, but the program subsequently has been funded through the next six years when Congress passed a short-term spending bill on Jan. 22 that included funding for the popular CHIP program.

In his speech, Cuomo acknowledged the budget difficulty and uncertainty ahead. He proposed setting up a $1 billion reserve fund to offset any loss in federal funding.

"Depending on who you talk to, they say they're going to be restored, they're not going to be restored," Cuomo said of federal health care program cuts. "If they're not restored, they are in the billions of dollars and affect millions of New Yorkers. So, it's something that's going to change over time and that we have to watch, but we would set up the reserve fund now."

To help launch that Healthcare Shortfall Fund, Cuomo proposed new taxes targeting the state's health insurance industry. The state is facing an overall budget shortfall estimated at more than $4 billion.

"It's just too big a deficit and the choice of cutting education or cutting health care, I don't think is a place anyone wants to go this year," Cuomo said. "So we have to raise revenue."

INSURER CONVERSIONS

The shortfall fund could be kick-started initially by a new source of revenue the Cuomo administration estimates will be $500 million annually for the next three years. That money would come from nonprofit health insurers that convert to for-profit ventures.

While not a new tax, the state is counting on there being more of this type of transactions from which to draw revenue in the next few years.

"This is about not-for- profit health care companies that we financed through Medicaid primarily," Cuomo said in his address. "They want to sell to a for-profit or convert. The state already has a statute where we get the majority of the revenues."

The most prominent example is the pending deal that would have Centene Corp., a Fortune 500 company and the largest Medicaid managed care organization in the country, take over the assets of Fidelis Care, a nonprofit Catholic health plan.

In the $3.75 billion deal, Centene will acquire the largest provider of qualified health plans on New York's Affordable Care Act health exchange.

The New York Catholic bishops that run Fidelis pledged to use the sale proceeds to launch one of the largest charitable foundations in the state. As described by Cardinal Timothy Dolan when the transaction was announced in September, the charity would be "dedicated to serving vulnerable and at-risk populations regardless of their faith."

A blog post from the Albany think tank Empire Center for Public Policy said the state would be pulling money away from that charitable endeavor. The blog's author post also argued that because Fidelis is a health maintenance organization, the state will need new statutory language to collect on the sale of Fidelis to Centene that was not included in initial budget legislation.

The governor's budget outline estimates the state can reap $500 million annually over the next four years from conversions of nonprofit health insurers to for-profit ventures, based on current market conditions.

The decision to count on the conversion revenue was criticized, however, by Citizens Budget Commission President Carol Kellermann, who noted that the "conversions may not occur and the method for estimating the revenue they would generate is not specified," leaving the possibility the budget could be left short more than a billion dollars.

TAXING THE'WINDFALL'

Cuomo would also like to see New York adopt a 14 percent tax on the profits of the state's health care insurers.

Called the Healthcare Insurance Windfall Profit Fee, Cuomo's 2018-19 budget outline estimated the new tax could raise $140 million in revenue in the next state fiscal year that starts April 1. That money would be reinvested in state health care services, Cuomo said.

The governor in his budget address said the tax would attempt to capture some of the money health insurers are expected to save with the new federal tax bill that lowers the corporate tax rate from 35 percent to 21 percent.

"There are health insurance companies that just got a 40 percent windfall profit from this federal plan," Cuomo said. "They weren't expecting it. The health care costs wind up getting shifted to us. I think it's totally justifiable to have a tax to recoup part of their windfall benefit."

But the state's insurers have warned the tax will only raise costs for New Yorkers. Eric Linzer, president and CEO of the New York Health Plan Association, a trade organization promoting managed health care plans, said the windfall tax "treats health insurers differently than other insurers in New York and creates an uneven playing field in the state."