New York Institutes new tax on health plans for insurers, administered

BACKGROUND: THE CALIFORNIA MODEL

The New York state tax introduced in the 2024-2025 budget is widely recognized as being modeled after a similar tax introduced in California starting January 1, 2024. In California, the state has introduced a scheme whereby:

1. The state would tax health insurance companies a certain amount.
2. Those tax revenues would be spent by the state Department of Health and Human Services on Medi-Cal, California’s Medicaid program, which would use those funds to reimburse claims filed by taxed health plans.
3. The federal government, through the Centers for Medicare & Medicaid Services (CMS), would then reimburse the state for that same amount of the tax due to dollar-for-dollar funding for Medicaid reimbursement.

The interesting feature of this arrangement is that the health plans can be created entirely for the initial tax once the federal funding is received by the state. Given that health plans contract with the state to receive poll payments, a state can increase its poll payments to the value of the tax, and then pay the health plans out of the federal funds received to make the health plans complete for the tax they have paid. .

Basically, if the state taxes health care plans with $Xand it spends that value on Medicaid reimbursement, then the federal government will pay the state a corresponding $Xwhich earns $2X for just $X of the tax revenue collected, with the additional feature mentioned above; namely, that taxes collected from health care plans would effectively be returned to those entities through tailored capitation payments. The effect of the tax is to provide additional federal funding at no cost to the state or its health plans.

California’s method of harnessing the purchasing power of the federal government is well known at this point. California announced its approach and CMS approved it.

However, CMS’s approval of the California health plan tax provision was reluctant. The approval letter sets a 2026 end date for reimbursement from CMS, and included an additional cover letter expressing disapproval of California’s arrangement. The cover letter explicitly stated, “CMS intends to develop and propose new regulatory requirements through the notice and comment rulemaking process to address this issue.” However, New York appears to have taken advantage of the loophole before CMS closed it through regulations.

ANALYSIS: THE NEW YORK MODEL

The adopted New York State Budget provides for amending the New York Public Health Law to include a new section 2807-ff, entitled “New York Managed Care Organization ((MCO)) provider tax.” While the legal name for the tax is the “MCO provider tax,” it applies more broadly to health insurance. That section provides that the Commissioner of Health of the State of New York, subject to approval of the Director of the Budget, shall:

1. Request a waiver or waiver of the broad and uniformity requirements regarding the establishment of a New York health care organization administrator tax to secure federal financial participation for the costs of the medical assistance program.
2. Promulgate regulations to implement the health plan tax.
3. Subject to approval by CMS, impose the health plan tax as an assessment on insurers, health care organizations, and managed care organizations that offer Medicaid managed care plans, Children’s Health Insurance Program (CHIP) plans, essential plans, exchange plans, and other managed care or insurance plans.

The only other treatment of the health plan tax in the budget legislation is a requirement that the health plan tax comply with all relevant provisions of federal laws, rules, and regulations.

Rates and other information regarding the tax have not been identified and will be determined later through regulation, but the current expectation is that the health plan tax will generate $4 billion through a federal reimbursement scheme similar to California’s, as discussed. above. To keep concerned healthcare industry participants informed, we will continue to monitor and review upcoming regulations as further details regarding the health plan tax become available.

READ FURTHER

The health care plan’s fiscal budget provision aligns with recent efforts in New York to reshape and restructure the state’s Medicaid program. In January 2024, CMS approved a Section 1115 waiver for New York, which we discussed in a previous article About the subject article. We will continue to provide updates on the developing trends in the New York Medicaid space.