Governor Pataki and the legislative leaders announced on Friday afternoon , December 17, that they had reached agreement on a proposal that will make modest reductions in the surcharges that employers pay to support hospitals-and that will also expand health insurance coverage in the state, financed in part by a stiff increase in cigarette taxes.

The agreement commits New York State to potentially major increases in public spending on health insurance-with new subsidies for low-income families, with stop-losses for care for the uninsured, and with a subsidized new program to help small businesses provide a basic health-care plan for their employees. Initially these health-care expansions are to be financed through tobacco lawsuit monies and through a 55-cent increase in cigarette taxes. But The Business Council warned that those new taxes would hurt retailers, increase sales by out-of-state and untaxed vendors, and ultimately undermine the very cash flows that are supposed to pay for the new programs.

Business Council President Daniel B. Walsh said the package is "a mixed blessing." He said "we disagree with the method of financing this dramatic expansion of government-provided health care," and "have consistently opposed taxes on any commodity, whether it is energy or tobacco products."

"Unless employer-provided health care becomes more affordable, there will be more and more New Yorkers on taxpayer-supported health insurance-and fewer and fewer businesses and individuals paying the taxes," Walsh said.

The deal is supposed to be enacted next week, before the scheduled expiration of the $2.7 billion a year in health-care surcharges that the Legislature enacted in 1996 when it deregulated hospital rates. The Business Council had argued that the surcharges were intended all along to be a transitional measure, and should be reformed and significantly reduced. But hospital interests began lobbying more than a year ago for a major increase in those surcharges.

The agreement announced by the Governor, Assembly Speaker Sheldon Silver and Senate Majority Leader Joseph Bruno will instead make modest reductions in the surcharges. An 8.18 percent surcharge on laboratory fees will be eliminated, saving patients (and those who pay for their health insurance) $54 million a year. The so-called "covered lives assessment" that subisidizes teaching hospitals will be reduced by 8.7 percent, which the Governor's office estimated would save employers about $60 million a year.

Under the existing subsidies for teaching hospitals, New York trains twice as many resident physicians-in-training per capita as the national average-and half of those physicians go on to practice in other states. The Governor's news release on today's agreement said it continues "the state's national leadership in training doctors."

The HCRA surcharges now amount to New York's second-largest business tax, totalling about $1.3 billion a year. As described by the Governor and the leaders, today's agreement will reduce that cost by a total of about $104 million.

Full details of the legislation were not initially available. But news releases said the deal would:

• Create a "streamlined benefits package," subsidized by the state through a stop-loss provision, for HMOs to sell to businesses with fewer than 50 employees.
• Allow uninsured individuals and families to purchase
• Expand Medicaid coverage to more families, by making those with incomes at 150 percent of the federal poverty level eligible.
• Make some unspecified reductions in the automatic escalators that drive up the taxpayers'costs for Medicaid each year, and extend some existing Medicaid cost-containment measures thatare alreadyon the books.
• Rework state's program of subsidies for bad debt and charity care to make it work "more equitably."