Cuomo’s ‘half-baked’ health care revenue proposals

Gov. Andrew Cuomo with Health Commissioner Howard Zucker and Budget Director Robert Mujica
Gov. Andrew Cuomo with Health Commissioner Howard Zucker and Budget Director Robert Mujica
Kevin P. Coughlin/Office of the Governor
Gov. Andrew Cuomo with state Health Commissioner Dr. Howard Zucker and Budget Director Robert Mujica.

Cuomo’s ‘half-baked’ health care revenue proposals

Experts warn that the governor's plan to tax the health care industry is a risky bet.
March 26, 2018

Budget analysts and industry advocates are puzzled by Gov. Andrew Cuomo’s proposals to raise revenue for the state by drawing $1 billion from the corporate veins of the state’s health care industry. They call the raft of taxes and fees unreliable resources and poor policy. Lawmakers, likewise, have scrubbed elements of those proposals from their budget plans.

Health care dollars are a significant portion of Cuomo’s proposed revenue generators to close the state’s $4.4 billion budget gap. The executive budget contains three key initiatives that target the health care industry for just over $1 billion. A 14 percent health insurance windfall tax would garner an estimated $140 million per year, a fee for any health insurance company converting from a nonprofit to a for-profit could bring in $750 million per year and a surcharge of two cents per milligram on active opioid ingredients in prescription drugs would raise $127 million per year.

Morris Peters, a spokesman for the state Division of the Budget, defended the proposals in a series of statements. “Governor Cuomo’s budget protects health care for New Yorkers and supports everyday taxpayers over increased profits for health insurers,” he said of the windfall tax, adding that pharmaceutical companies should pay for “the opioid crisis that they created.”

But to critics, those budget items don’t add up.

“Like a lot of things that are proposed by governors, not just Cuomo, this seems a little half-baked, like it wasn’t really fully thought through,” said Bill Hammond, director of health policy at the Empire Center for Public Policy.

Moreover, the consensus economic and revenue forecast released earlier this month shows revenues to be between $675 million to $750 million above the executive budget’s estimate, meaning that some proposals to increase revenues may not be needed to close the gap.

In an interview with City & State several weeks ago, state Budget Director Robert Mujica said the key consideration in drafting this year’s executive budget was controlling for hostile and erratic behavior in Washington, D.C., that could upset New York’s fiscal plans.

“The federal unknowns are the things that concern me the most because I can’t control for those things,” Mujica said. “That is probably the biggest challenge that we have.”

In terms of the ongoing negotiations, Mujica said, “The hardest part and also the biggest challenge is figuring out how to fund all the needs and still stay within both our revenue numbers and making sure our revenues actually come in.”

But in seeking out some certainty for the year’s revenue projections, budget experts said Mujica made some odd choices considering that the revenue streams the governor relies on are inherently risky bets. An examination of the two largest revenue-generating proposals, experts said, illustrates how uncertain those revenues are.

The health insurance windfall tax is designed to recapture money saved by corporations as a result of the federal tax cut. But it singles out just one class of corporations: for-profit insurers. Taxing such a relatively small group, experts said, is inherently volatile when a few corporations may take actions, such as choosing to leave the state, that would have a large impact on revenues.

The health insurance conversions revenue garnered by taxing health insurance companies when they reorganize from nonprofit to for-profit status, experts said, is likely based entirely on speculation that Centene Corp. plans to buy Fidelis Care. With that one deal, it appears the state estimates that it would bring in $3 billion in revenue over four years. If the deal falls through, that $750 million the state is counting on will vanish from this year’s balance sheet,  leaving a $500 million hole in annual revenue projections and $250 million per year missing from a proposed health care shortfall fund.

In fact, Bishop Edward B. Scharfenberger, a governing member of Fidelis Care, testified this month that the deal may be scuttled. “The state’s announced action would of course make it impossible for us to move forward with this transaction,” he said. He also criticized the executive budget proposal as “the state seizing virtually all of these funds that are otherwise intended for New York’s poor,” arguing that the move is “illegal and unconstitutional” and an “unprecedented confiscation” of money from a faith-based institution.

Peters, the budget spokesman, responded to the bishop’s criticism by noting that the government would evaluate the transaction through a critical lens, noting that “just like the not-for-profit’s fiduciary responsibility is to protect the interests of insured policyholders, the state’s primary concern is ensuring access to quality health care for all New Yorkers.”

But David Friedfel, director of state studies at the Citizens Budget Commission, said that given all the unknowns, “The state should really be doing a better job of building up its reserves and being conservative in its spending.” Taking the broad view, he noted that New York is in the midst of one of the largest economic expansions since 1850, but it won’t last forever.

Taking into consideration the more immediate political context, Mujica may be wise to be worried about how to pay for the state’s initiatives, Hammond added.

“It’s an election year,” Hammond said. “This is the year they play Santa Claus. They say yes to spending and no to taxes.”

The proposals may be part of a political gambit, Hammond said, as the executive budget is essentially an opening bid in the budget negotiations with the state Legislature, with the final document often diverging from the governor’s plan. Nevertheless, the governor’s budget is also a statement of his priorities. Meanwhile, health care companies are left wondering what slice of their pie Albany lawmakers would take.

“While the horse-trading continues, we are just focused on being as present as possible with as many members as possible to make sure they understand the impact this would have on health plans’ ability to provide health care services to those constituents they care about,” said Leslie Moran, senior vice president of the New York Health Plan Association, an industry lobbying group.

While Moran races from lawmaker to lawmaker, she said she’s baffled as to why her sector was singled out. “We’ve asked for some explanation, but we haven’t gotten any explanation. It’s somewhat puzzling, and more so frustrating, because there doesn’t seem to be a solid rationale, particularly in light of federal actions that have restored health care funds.”

In addition, she notes, the underlying reasoning for targeting the health care industry with new revenue-raising measures – that Congress would cut off health care funding to New York – has not happened.

“Now the argument is, ‘Well, they haven’t happened yet but we still have an administration that could impose them at any time. So we need to be prepared. We need a piggy bank, in the event something would ever come. And if it doesn’t, well, it’s nice to have a health care piggy bank,” Moran said.

Frank Runyeon
Frank G. Runyeon
is City & State’s senior reporter. He covers state politics and investigations.