The Public Policy Institute

Misguided Money

A Reexamination Of The $2.6 Billion In Subsidies Provided By Taxpayers And Insurance Surcharges To Help Finance New York's Medical Institutions

When New York joined 48 other states in lifting its regulation of hospital rates, it put in place $2.6 billion in subsidies for hospitals - including some $1.38billion in "temporary" health-care taxes to pay for graduate medical education and other costs. Those taxes are now set to expire-and it's time to consider whether they should be reduced, or even eliminated. (Introduction)

The 1997 deregulation of New York's hospital rate-setting mechanism was intended to let marketplace forces deal with high costs and excess capacity in the state's health-care sector. (Section 1)

Health-care costs in New York are well above the national average. These high costs add to the state's competitive economic disadvantage. High costs also make it harder for individuals and employers to afford health insurance-which helps explain why our population of uninsured persons is higher than average, and growing. (Section 2)

A significant component of our high cost of health-care is the burden of special taxes and surcharges that were adopted to help hospitals make the transition to a deregulated environment. The largest single subsidy goes to support graduate medical education, forcing New Yorkers to subsidize the education of doctors for the rest of the nation. This cost is especially burdensome for employers in New York City. (Section 3)

Since these temporary taxes were adopted, hospitals in New York have received billions of dollars in additional windfalls that were not anticipated at the time-and the hospitals are financially strong. (Section 4)

New York should carefully examine each of its hospital subsidies and surcharges, through the framework of zero-based budgeting. It is better to target subsidies to individuals, rather than institutions. (Section 5)

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