On the heels of last year’s double digit increases, many New York health plans are sending out mid-year rate increases to their clients reflecting the premium tax increases that were pushed through the State Legislature as part of February’s Deficit Reduction Package (DRP) and the recently passed state budget. For those carriers not doing mid-year adjustments, it appears these taxes will be rolled into next year’s renewal increases, so a temporary reprieve for some employers will only lead to added pain in 2010.
When these tax increases were originally proposed, Governor Patterson asserted that they would be simply be absorbed by the health carriers and not passed on to employer groups. While that may have been a convenient way to avoid difficult questions at the time, it apparently was not an informed or realistic assessment of how things would play out.
For the wonkish among us, premium taxes on health insurance in New York fall into four distinct categories:
- Surcharge on Hospital and Other Health Services – This functions basically like a sales tax on certain health services. This tax rate increased to 9.73% under the FY 2009/10 state budget. For comparison sake, it was 8.18 % in 2003.
- Covered Lives Assessment (CLA) - This is collected from insurance companies based on the number of single and family policies they issue. For NY insurers, this amounts to $1.16 billion in assessments. Again, for comparison sake, just three years ago the CLA was $775 million.
- Premium Taxes on Health Insurers – Collected from a 1.75% tax on total premiums paid. This money is directed to the NYS General Fund and is not necessarily earmarked for health related programs.
- NYS Department of Insurance Assessments – Paid by insurers in New York, including HMOs, Non-Profit Insurers and For Profit Commercial Insurers. According to the NYS Business Council, this amount has increased by at least $300 million because a number of budget items previously funded by the General Fund have been moved into the Insurance Department budget and are now funded through these so called “Section 332″ Assessments.
These taxes add up – according to the NYS Conference of Blue Cross and Blue Shield Plans:
New Yorkers who voluntarily purchase private health insurance coverage pay approximately $3.752 billion in state health taxes. Because employers pay for most New Yorkers’ health benefits, the various private insurance surcharges are viewed as a business tax. Compared to other state business levies, private health coverage taxes would rank as the largest business tax.
Combining the effects of these taxes and the 50 or so mandated services that are required to be included in each health policy, you really start to see the impact of government regulation on the cost of health insurance in New York.
When you start to look at the numbers for actual employers, it quickly becomes clear why many people claim that excessive taxes have lead to a stagnant business environment in upstate New York. Lee Drake, the owner of OS-Cubed, Inc., a local software development firm, says that the increase will cost him about $2,800 more this year for his five covered employees.
According to Drake, “It encourages business owners to drop insurance benefits and/or pass additional costs to employees.” He continues, “In effect, it’s a negative raise and penalizes companies who pay a higher percentage of their employees’ health benefits.”
A company that pays no health insurance benefit, or has capped this benefit ends up with no direct cost. Those that pay a full benefit or a portion of an employee’s benefit based on a percentage of the total cost is penalized by having to pay all or some of the tax [increase]. According to Drake, there is a negative incentive for the business to do right by their employees.
Is your company impacted by a mid-year rate increase? If so, are you passing it on to employees or absorbing it as a cost of doing business?
About the Author:
Matthew McDermott, SPHR is an experienced Employee Benefits Consultant with The Landmark Group in Rochester, NY. If you wish to reach him regarding this or any other benefits related issue, please contact him at (585) 272-1956 x206 or by email at mmcdermott <at> landmarkinsurance.net.
