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Below is the text of the memorandum delivered December 27, 1999 to all members of the New York State Senate:

To: The New York State Senate
From: Daniel B. Walsh, President and CEO
Re: Our concerns about new mandates and new entitlements

I am writing to recommend that the Senate reject the health-care bill before you, at least until the Legislature and the public have had time to analyze fully the long-range cost implications of this bill, and to consider alternative ways of expanding health-care coverage.

As currently presented, the bill seems certain to force up state and local taxes, and to ignite a new round of health-care cost inflation. It adopts broad new entitlements that are very likely to cost far more than now projected—while the tobacco revenues that are supposed to finance these entitlements seem likely to be less than projected.

We fully understand the immense political pressures on you to adopt this bill. It is being pushed by what we believe to be the biggest, the best financed, and the most bluntly threatening lobbying campaign in the history of the New York State Legislature.

It is common knowledge in the Capitol that the representatives of these interests have promised to mount expensive, all-out campaigns to defeat individual members of the Legislature unless their demands are met. It is only human to consider voting "yes" in the face of such pressure.

Human, but not necessarily wise. Because a little history teaches us that the hasty adoption of mammoth, inadequately researched programs like this can have consequences that come back to haunt their authors.

Consider the members of the New York State Senate who voted overwhelmingly on April 29, 1966, to adopt then Governor Rockefeller's proposal for what we now know as Medicaid. They were told the net new cost would be little or nothing—and the benefits sounded wonderful. For a day or so, they were heroes!

But then reality set in, and a statewide storm of criticism arose as it gradually became clear that there would be immense costs for both state and local taxpayers. Within 18 months, Governor Rockefeller himself was campaigning to scale back Medicaid, and was complaining that some counties had been forced to raise property taxes by 50 percent. Today that Medicaid program costs the state 10 times the initial budget estimate (in constant-dollar terms). And Medicaid is "the mother of all mandates" on local governments, responsible for a large share of New York's excess property-tax burden.

You know the warning of George Santayana: "Those who cannot remember the past are condemned to repeat it." I would think that in New York's recent political past, the thing we would all find hardest to forget is the fact that again and again, new health-care entitlements have always cost far more than anybody thought they would at the time of adoption.

To date, little public information has been offered to document the cost estimates associated with this bill — few details as to the methodology for calculating the numbers of potential beneficiaries for each new program, the projected cost per beneficiary, how that per-beneficiary cost estimate compares with the experience in comparable programs, and so on. Members of the Legislature have even asked The Business Council for this kind of information.

The few numbers being offered to back up this bill raise more questions than they answer.

For example, the projections suggest that it will cost less to insure the parents of those now covered by Child Health Plus than it costs to insure the children. Yet the experience of every health-care plan is that adults are more expensive to insure than are children.

We've seen sheets from the Budget Division that purport to show that this new mandate will somehow save money for New York City and the county governments. But those numbers are based on the circular logic that if we don't increase certain other Medicaid costs imposed on them, well then, that represents a "savings" that can be counted as offsetting these new costs.

We're told that changes in the 1996 health-care surcharges will save employers and other payers $100 million a year. The press release on the bill says the so-called "covered lives assessment" will be reduced by 8.7 percent per year. In fact, the legislation provides no reduction in the first year, a little relief in the second and third years, with the modest 8.7% reduction not taking place until the fourth year.

When there are so many questions about a governmental cost estimate (especially one dealing with a health-care entitlement), that to me is a sure sign the costs will be far higher than projected.

And what of the revenues? The "spin" is that this will all be paid for by tobacco — the lawsuit monies, plus a 55-cents-per-pack increase in the cigarette tax. The Business Council opposes all commodity-based taxes, whether on energy or tobacco. But even if you favor higher cigarette taxes, you must be struck by this irony: New York is now trying to make health-care financing dependent upon a revenue stream- tobacco- which its official public health policy is to reduce, indeed eliminate.

This is a policy that cannot succeed unless it fails! Because if people cut back on smoking, projected revenues will fall short.

For these reasons and more, this plan cries out for a detailed, careful analysis — not a sudden rush to enact it, unaudited and unchallenged.

The real tragedy is that New York does have the resources to expand health-care coverage for the uninsured, if only we would try to do it rationally. Our existing Medicaid program's costs are so far out of line with competing states that if we moved even partway to the national average we could free up enough money to cover many more families. But this bill doesn't re-engineer our bloated Medicaid program — it basically just expands it.

And in a few years, when these new costs start escalating rapidly, you're going to have to choose between cutting this program back (in defiance of health-care lobbyists who in the meantime will have become even stronger), or increasing not only local but also state taxes to pay for it. Why set yourselves up for that confrontation? There's still time to rethink this bill, and re-engineer Medicaid, to expand coverage while containing costs.