Coaltion to Hochul: Reject $4 billion tax on managed care organizations

ALBANY, N.Y. (NEXSTAR) — A coalition of New York chambers of commerce and other business groups said they're worried about a potential hike in medical insurance premiums. To that end, they wrote another letter asking Gov. Kathy Hochul to reconsider new taxes on managed care organizations (MCOs).

The proposal would establish a Medicaid Investment Fund out of taxes on managed care organizations. MCOs are health plans or insurers that aim to provide quality care at lower costs. "By contracting with various types of MCOs to deliver Medicaid program health care services to their beneficiaries, states can reduce Medicaid program costs and better manage utilization of health services," according to Medicaid.gov. "Improvement in health plan performance, health care quality, and outcomes are key objectives of Medicaid managed care."

You can read the letter below. A new tax on MCOs and commercial health insurance, it argues, would increase rates for employers and employees throughout the state. They sent a letter outlining similar concerns in late March.

Proposed in the 2024-2025 state budget, the tax on health insurance stacks with the Health Care Reform Act (HCRA) that already made coverage over $6 billion more expensive, the letter said. The letter writers—including the Business Council of New York State, the Buffalo-Niagara Partnership, the Business Council of Westchester, and the Capitol Region Chamber—want Hochul to reject what they called $4 billion in new healthcare taxes.

They said she could do so when finalizing the budget. If the new tax on MCOs gets Hochul's approval, the federal government would need to give it the green light for it to take effect.

"This tax is expected to yield approximately $4 billion in additional federal financial participation per year for three years," read an analysis of the proposal from the Home Care Association of New York State. Such funding could pay for healthcare proposals from Hochul that they called harmful. "This proposal is based upon actions taken in at least two other states that allow them to draw down federal share on these taxes, which can then be reinvested into services outside of the Medicaid cap."

But heavy surcharges already assessed on health insurance through the HCRA upped the bill for the average family policy by anywhere from 7% to 14%, the letter said. Letter writers also aid the "exorbitant" fees hurt individuals and small businesses. Moreover, New York's taxes on health care far outpace the national average.

With affordability for end-users in mind, they said, the coalition suggested relying on surplus funds or other subsidies and providing tax offsets for commercial insurers. “Healthcare costs make up a significant portion of the expenses of small businesses at a time when inflation is squeezing their revenues,” said Ashley Ranslow, New York State Director at the National Federation of Independent Business. “Even greater taxes on healthcare premiums only hurts employers and their employees.”

The MCO tax purportedly apes similar programs in states like California. According to the Fiscal Policy Institute, it "could be a good way to meet near-term funding needs of the state while conceiving of a more sustainable long-term solution."

Take a look at the letter below:

Dear Governor Hochul:

On behalf of a broad group of organizations representing employers that are committed to ensuring access to quality and affordable health care for employees, we are once again writing to you regarding the Medicaid Investment Fund that was including in the FY 2024-25 State Fiscal Budget. 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.

As the State works with the Centers for Medicare & Medicaid Services (CMS) to obtain the necessary waivers to enact the taxes associated with the Medicaid Investment Fund, it is important to keep in mind that we as employers are already under the heavy burden of existing surcharges and assessments on health insurance collected under the Health Care Reform Act (HCRA) that add nearly $6.5 billion to the cost of coverage - adding seven to fourteen percent to premiums for the average family policy.

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. 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. 

This is why, we ask that whatever outcome results from CMS’s decision on a waiver for the establishment of a Medicaid Investment Fund and its associated taxes, that commercial health insurance and ultimately the businesses and New Yorkers who pay health insurance premiums, be held harmless and see no increases from any tax increase. We believe that there are several mechanisms that could be utilized, such as offsets on the taxes on commercial insurers, utilizing Essential Plan surplus funds or other subsidies to ensure that commercial health insurance is not burdened with any new tax.

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. This is why we ask that you ensure that the Medicaid Investment Fund does not negatively impact privately purchased health care coverage.

Sincerely,

The Business Council of New York State
Partnership for New York City
Associated General Contractors of NY State
Buffalo-Niagara Partnership
The Business Council of Westchester
Big I New York
Chamber Alliance of NYS
Capitol Region Chamber
Food Industry Alliance of NY
National Federation of Independent Businesses-NY
NYS Conference of Blue Cross and Blue Shield Plans
National Association of Benefits and Insurance Professionals – New York State
Albany Gastroenterology Consultants
Capital District Transportation Authority
Fehr Bros.
Brown & Brown Insurance
HMS Agency
Marshall & Sterling
The Reis Group
Ryan & Ryan
The Ten Eyck Group
Wyndham Benefits LLC
Upstate United
Northeast Dairy Foods & Suppliers Associations