Business organizations to Hochul: Negotiate MCO tax properly

Employers across the state want Gov. Kathy Hochul and federal officials to implement an expected new tax on health providers in a way that will not lead to increased insurance premiums for New Yorkers after it takes effect.

The last budget created a new tax on Managed Care Organizations, which the state Health Department pays for Medicaid services. New York lawmakers decided to cash in on a loophole that other U.S. states like California have used to generate billions of additional dollars in federal Medicaid reimbursements to support health providers. 

State leaders have applied with the Centers for Medicare & Medicaid Services to create a new funding mechanism for the tax, but remain in a holding pattern as they await its approval. State Budget Division officials Tuesday said a decision is expected by the end of the year.

“We’re deeply concerned that within this tax, we could see serious increases,” said Lev Ginsburg, executive director of the state’s conference of Blue Cross & Blue Shield plans. “They’re talking about billions of dollars. We really don’t know how to begin to calculate what that would look like.”

New York’s Conference of Blue Cross & Blue Shield plans was one of about two dozen business groups to send Gov. Kathy Hochul a letter Monday urging commercial health insurers and premium payers be held harmless when the tax takes effect.

Ginsburg said the state will risk higher insurance costs for New Yorkers if the new tax does not also permit a larger tax on Medicaid plans, which would will saddle commercial plans with the additional cost.

“It’s an interesting scheme,” Ginsburg said. “The main issue is that you just can’t tax an MCO plan, which the federal government will essentially pay that tax baked into the rates. You must also, at the same time, tax commercial plans.”

It’s unclear how much the tax will bring to New York. California’s MCO tax is expected to generate $20.9 billion to the Western state when it took effect April 1, 2023, until it expires Dec. 31, 2026, according to the California Department of Health Care Services.

“These revenues will be used to support the Medi-Cal program and maintain a balanced budget,” according to California’s health department. “… Each state may face unique considerations when designing or implementing a[n] MCO tax.”

New York collects nearly $6.5 billion per year from a variety of taxes on insurers and providers under the Health Care Reform Act, according to the letter.

New York’s proposal is similar to California’s formula, which imposes differential rates between Medicaid plans and non-Medicaid plans to minimize the impact on the commercial insurance market, according to New York’s 2025 enacted financial plan.

Business leaders want Hochul and the federal Centers for Medicare & Medicaid Services to use other funding to offset additional costs to employers and commercial health plans. 

Lawmakers and fiscal experts share their concerns.

“There’s still a couple of things that the state needs to be cautious about,” said Patrick Orecki, the Citizens Budget Commission director of state studies. “The way that this tax would have to be set up is that it’s not only on Medicaid, but it’s on every commercial plan, too.”

Orecki said with negotiations expected to continue later this year, it’s the perfect time for businesses to sound the alarm.

New York families pay about $1,000 more per year for health insurance to cover the over $6 billion in taxes on hospitals.

“So adding to that is something to watch, too,” Orecki said. “The goal is going to be maximizing the money we get from the federal government and minimizing the impact on commercial plans.”

Assemblyman John McDonald, a pharmacist, supported the state applying for the MCO tax to boost federal reimbursements, but shares employers’ concerns about higher premium costs.

“It’s still got a ways to go,” McDonald, a Cohoes Democrat, said of negotiations. “It’s not something that’s done casually or haphazardly by any stretch of the imagination.

“We understand what you’re doing,” he added of ongoing talks between Hochul and federal officials. “We understand you’re trying to leverage federal funds, but at the same token, be ultra sensitive to the fact that if this is not done properly, it could have an impact on residents who have health care. And that’s a valid concern.”

State lawmakers did not budget for MCO tax revenue in the 2024-25 financial plan, and will not plan for the anticipated funding without federal approval.

“It has to be done right, and I think that’s where we’re at now at this stage of the game,” McDonald said.

Funds from New York’s MCO tax will go into a Healthcare Stability Fund created in the latest budget 

The budget allocated $350 million from the general fund to the Healthcare Stability Fund for $200 million in hospital investments and $150 million for nursing homes, assisted living and hospice care, according to the state Budget Division. 

State budget officials Tuesday declined to discuss details of the proposed tax as negotiations continue with the federal government.

“The state is still in the application process to create a tax on Managed Care Organizations, and we hope to receive approval by the end of the year,” a spokesperson with the Budget Division said. “It is premature to comment on the details of any such tax, as negotiations with the federal government are ongoing.”

California Gov. Gavin Newsom’s proposed 2024-25 budget includes $12.9 billion to maintain existing Medi-Cal services and minimize cuts, and $8 billion for targeted reimbursement rate increases for providers, according to the California Department of Health Care Services.

California received federal approval from the Centers for Medicare & Medicaid Services for the tax Dec. 15, 2023.