The Business Council opposes S.7587, which would require for-profit healthcare insurance companies to pay out any revenue realized as a direct result of the Tax Cuts and Jobs Act of 2017 to consumers in the form of rate reductions. While well intentioned, the bill unfairly chooses one industry to impact, is nearly impossible to implement, is excessively expensive, and will negatively impact both for-profit and not-for-profit health insurers in the state.
Due to the enacted federal tax cuts, health insurers – like all other corporations – are expected to benefit from a decrease in the federal corporate tax rate, from 35 percent to 21 percent. This bill has two fundamental flaws pertaining to the corporate tax rate reduction. First, treating a tax cut as a windfall presumes that a tax-payer had less claim to its earned money than a taxing government entity in the first place. Second, to further exacerbate the first flaw, this bill singles out one industry sector for special treatment.
On its own, this 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 tax and regulate. 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.
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 bill would ultimately do the same and further keeping rates rising.
Furthermore, with the revenue being returned to the for-profit consumers in the form of rate reductions, this could cause a significant rate imbalance between for profit and not-for-profit health insurance providers rendering the not-for-profit plans much more expensive.
It is bad public policy for state law to enact further charges to the complex health insurance industry. This rate reduction would be impossible to administer due to the complexity of the industry and the ability to separate savings attributable to New York State commercial lines of insurance and all other income in and out of the state.
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 strongly opposes S.7587.