Proposed HMO tax would boost premiums
Gov. Eliot Spitzer”™s proposal to increase taxes on HMOs in his 2008 budget would ultimately be passed onto insurance policyholders, further compromising the affordability of health insurance.
Specifically, the governor is proposing to change the way for-profit HMOs are taxed, according to Leslie Moran, senior vice president at the New York Health Plan Association, a trade organization representing the managed care companies. “Instead of paying a franchise tax, he wants to change their structure and impose a 1.75 percent tax on their premiums,” she said. The tax would generate $200 million, compared with $100 million under the current structure, she said.
Moran said her organization opposed the proposal. “It would ultimately increase the cost on policy holders,” she said. “We think it”™s inconsistent, when (the state) is trying to increase coverage overall, that you”™re making coverage more expensive.”
In addition, insurance companies in the state pay what”™s called a Section 332 assessment, which the governor is proposing to increase for the health plan carriers, said Moran. The proposal represents a $37 million increase over what the health care insurance companies are currently paying. Morgan said the tax pays for operations of the state insurance department.
The governor is also proposing to increase the amount on covered lives assessment, which is a tax on every insurance policy sold in the state, Moran said. The total amount levied from the tax is $850 million, most of which was supposed to pay for medical graduate school education. In recent years, she said less than half is actually spent for this purpose, which most of the money instead funneled to general funds.
Last year the covered lives assessment levies increased by $75 million, an amount that would more than double ”“ to $190 million ”“ this year, under the governor”™s proposal. Moran said that individuals in Dutchess and Ulster counties currently pay $24 in covered lives assessments tax on their policies, while the fee for a family policy is $81. Those amounts under the current proposal would increase 22 percent, to just under $30 for an individual policy and just under $100 for a family policy.
The pain from these increases would definitely be felt by insurance policyholders, said Moran and other sources representing the health insurance industry. “At a time when the governor is working to achieve universal health care, he is not only increasing the tax on all privately insured in the state to nearly $1 billion, he is instituting a 1.75 percent premium tax on all HMO policies, which are primarily purchased by individuals and small businesses, those people who are having the most difficult time affording coverage,” said Mark Wagar, president and CEO at Empire Blue Cross Blue Shield, based in New York City. However, Wagar said in a statement there”™s plenty of room for compromise. “As with all budgets, we do not expect that the current budget will be finalized in its current form.”
Amy Allen, managing director of advocacy and international business at the Westchester County Association, which has made health care insurance reform a key priority, said she wasn”™t specifically aware of the proposed tax increases, but suspected whatever extra tax was levied on the HMOs would automatically be passed onto policy holders, as part of the HMOs”™ m.o. “In the HMO world, everything they”™re ever asked to do with a tax is passed onto premiums,” she said.
Allen said given the HMOs”™ $8 billion in reserve funds, which is money set aside in case of a pandemic or other crisis that could cause a run on insurance, this practice is questionable. “It”™s a great way to hide profits, rather than investing back into hospitals and physicians,” she said. “There”™s such an imbalance in the money they have taken from hospitals, physicians and business employers. It”™s all designed to increase shareholder value.”