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Legislative Memo

T 518.465.7511
www.bcnys.org

BILL:

S.7509 / A.9509 Part DD (Budget)

Support

SUBJECT:

Health Insurance “Windfall Profit” Fee

 

DATE:

February 6, 2018

 

The Business Council opposes this legislation which would impose a healthcare insurance windfall profit fee in the amount of 14% on the net underwriting gain from the sale of health insurance in the State in a cynical attempt to “recapture” money retained by insurers as a result of federal tax reform.

Simply put, this is bad policy at a terrible time. Creating new taxes is never an effective way to address a financial crisis or the State’s perceived budget deficit. The administration posed this tax as a means to help close a budget gap created by reduced federal Medicaid money and stated that the projected annual revenue from the tax will be used to pay for vital health care services in $140 million in the state. However, the proposed budget simply allocates this money to the general fund.

On its own, this tax is a myopic policy that will ultimately result in furthering the perception and reality that New York is a difficult place to try to do business, but in light of the billions of dollars in already existing taxes on health insurance, the state looks downright draconian. For years the health insurance industry has been one of the state’s favorite places to turn to for revenue. The Health Care Reform Act (HCRA), which was originally an effort to drive change and efficiency to New York’s hospital industry, has evolved into a revenue generating machine and ranks as the state’s third largest tax. The State currently collects over $5.5 billion per year in tax revenue in hidden surcharges that add as much as 6.2 percent to a typical family’s insurance costs, compounding the impact of premiums and deductibles to working and middle class families.

The revenue collected by the HCRA was originally allocated to fund graduate medical education and training, now is funding programs that have little or nothing to do with direct patient care. Two-thirds of HCRA monies flow into the state’s Medicaid health plan and the remaining balance subsidizes doctors’ malpractice premiums, boosts pay and benefits for health-care workers, or simply used to plug holes in the state budget.

Again, although the $140 million is stated to help pay for vital health care services in the state, the budget states this projected revenue is allocated to be to the general fund and there is no evidence it will be used for its stated purposes. This new “windfall profit” tax would be used to just further plug holes in the state budget.

The health insurance industry is already subject to medical loss ratios and is highly regulated by the Department of Financial Services and any increase in rates must be approved each year. While this is an attempt to keep costs low, since 2010 when DFS assumed prior approval authority, New York state plans went from being the thirteenth most expensive among the 50 states to the fourth, much of which is driven by taxes, mandates and fees that health plans cannot control. This new tax would ultimately do the same.

The Business Council recognizes the challenges New York State is facing with balancing the FY 2019 budget and addressing a significant state budget deficit, but increasing taxes and fees, especially on an already highly taxed and regulated industry, is not the solution. Health insurers are large employers in the state, with offices in regions of the state that lack high-paying jobs.  Further assault on this industry puts these jobs in jeopardy. Singling out this industry for a new and massive tax, under the guise of serving “vital health care services” is bad policy that does not serve the interests of working New Yorkers who pay the premiums that are ultimately being taxed here.

For these reasons, The Business Council respectfully opposes this legislation to create a Health Insurance Windfall Profit Fee.