Hochul urged to reject $4B tax on managed care organizations

(The Center Square) – A coalition of New York business groups is urging Gov. Kathy Hochul to reconsider a proposal setting a new tax on managed care organizations, which they say will drive up rates for employers and workers.

In a letter to Hochul, the group calls on Hochul to hold New York employers "harmless" from any tax increase under the new Medicaid Investment Fund, which was included in the FY 2024-25 fiscal year budget.

The new program, which seeks to reduce health care costs by contracting with MCOs to deliver Medicaid program health care services to their beneficiaries, could help the state draw another $4 billion in federal funding to reduce its Medicaid costs, if it receives approval from the U.S. Centers for Medicare & Medicaid Services.

But the coalition, which includes insurers, several chambers of commerce and the Business Council of New York State, points out that employers are already under the "heavy burden" of surcharges and assessments on health insurance under the Health Care Reform Act, which they said add nearly $6.5 billion to the cost of coverage – and increase policy premiums by up to 14% for the average family.

"We are deeply concerned that the creation of a new tax on managed care organizations and commercial health insurance will ultimately result in rate increases on employers and employees throughout New York," they wrote.

The coalition said Hochul has several mechanisms "to ensure that commercial health insurance is not burdened with any new tax," such as tapping into surplus funds or other subsidies and providing tax offsets for commercial insurers.

"We know that you are sensitive to the needs of New Yorkers to refrain from raising taxes and making the cost of doing business in the State even more expensive," they wrote. "This is why we ask that you ensure that the Medicaid Investment Fund does not negatively impact privately purchased health care coverage."

The Citizens Budget Commission, a fiscal watchdog, said the proposal repeats the state's pattern of "relying on speculative, temporary revenue to seed permanent spending increases," which has caused its structural budget gap to grow from $16 billion to $20 billion.

"The state should not budget money it does not have; there is a risk that the State does not get the money," Andrew Rein, the commission's president, said in a statement. "Federal funds would be time-limited and should be only used to finance one-time programs. It is never smart budgeting to spend short-term money to start or boost recurring programs."

The program is based on a similar law recently enacted by California as part of a broader strategy to exploit Medicaid's open-ended funding system, which requires the federal government to pay a fixed percentage of each state's costs. In New York and many other states, every dollar in state funds spent on Medicaid costs is matched by another dollar from Washington.

New York already has two Medicaid-related taxes under its Health Care Reform Act. One is a surcharge on hospital services of 9.63% for commercial patients and 7.04% for Medicaid patients, another is a per-enrollee assessment that varies by region.

Controlling rising health care costs is one of the very top issues for employers, and New York’s health care taxes already far exceed national averages," the coalition wrote. "Adding a new tax on top of the already exorbitant HCRA assessments exacerbates the challenge employers, particularly small businesses, face to make high-quality, affordable coverage available, increasing premiums for every individual, family and employer buying a policy in New York."