Testimony on the New York Health Act (A5248/S3577)
Submitted to The Joint Senate and Assembly Standing Committee on Health
The Citizens Budget Commission (CBC), a nonprofit, nonpartisan think tank devoted to achieving constructive change in the finances and services of New York State and New York City government, submits this testimony on the New York Health Act (NYHA).
While long a national leader in health policy, New York continues to share with the nation a set of health care challenges—inadequate and inequitable access to insurance coverage and care; high costs to families, businesses, and government; and poor and inequitable health outcomes.
The NYHA seeks to address some of these challenges, particularly by improving access to insurance coverage and reducing financial barriers to care. The NYHA’s goals are laudable. However, CBC does not support passage of the NYHA because it is not feasible currently and would have significant unintended and possibly negative impacts on the State budget and some New Yorkers.
Nevertheless, the public’s interest in improving the health system is a great opportunity that the State should leverage. CBC recommends the State pursue a set of targeted initiatives, including efforts to expand access. These are addressed at the end of this testimony.
The NYHA is not feasible for three reasons.
First, the federal government will not approve the waivers necessary to fund the NYHA. Waivers would be needed for New York to continue to receive federal financial support for the more than one-half of New Yorkers who participate in Medicare, Medicaid, the Children’s Health Insurance Program, and the Essential Plan. Additionally, the State would need a waiver to collect the Affordable Care Act subsidies the federal government provides New Yorkers for enrolling in qualified marketplace plans. In total the federal government would have to agree to reprogram the projected $119 billion of annual funding in 2022, which would grow to $179 billion in 2031.
Second, the NYHA would require an unprecedented and substantial tax increase in order shift spending from the private to the public sector. The economic and behavioral effects of such a dramatic tax increase are unknown and may be significant.
According to the RAND Corporation, the NYHA would require at least a 156 percent tax increase, totaling $139 billion in the first year and growing to $210 billion annually within 10 years.1 These estimates do not include the tax increase to support roughly $20 billion in annual long-term care costs now included in the NYHA. They also are based on assumptions about health care costs that are likely optimistic, including significant administrative savings and relatively low growth and reimbursement rates.2 The NYHA’s costs may be higher, which would require an even larger tax increase.
While not defined in law, the structure of these taxes is likely to be progressive. Given the substantial resources needed, the significant and unprecedented tax increase on high income earners escalates the risk that they may change their residence, resulting in New York State losing substantial tax revenue. This would exacerbate the mobility risk already raised by the federal cap on the deduction of state and local taxes—the infamous SALT Cap enacted in December 2017. Taxes paid by the top 1 percent of earners in New York support one out of every five dollars of State operating spending. The RAND Corporation reported that if just 0.5 percent of filers left New York and were from the top income bracket, the State would lose $33.5 billion in tax revenue annually, which is greater than what the State currently spends on school aid.3
Other New Yorkers’ costs also may increase. The taxes on some lower- and moderate-income New Yorkers, as well as on those enrolled in plans without coinsurance, including some public sector workers, could be higher than their current costs. Furthermore, small firms that currently do not provide health insurance would now be subject to the NYHA tax.
The third reason that the NYHA is not feasible is that self-insured firms are likely to mount legal challenges. Approximately half of New Yorkers receive their health care coverage through employer-sponsored plans, many of which are self-insured. Self-insured plans are regulated by the federal government under the federal Employee Retirement Income Security Act (ERISA), which precludes their regulation by states. It is likely that any State proposal to directly alter these plans would be challenged legally due to improper federal preemption.
In addition to not being feasible, the NYHA would have significant and potentially negative impacts on the state budget. The NYHA would result in allocating approximately 76 percent of the State budget to health. While not a direct obstacle to implementation, this could affect State policymaking in unforeseen ways. For example, the focus on health in the budgeting process and on operations could divert attention from other priorities.
Additionally, more than 10 million New Yorkers would be required to switch from private plans to a public plan. This may not be welcome by some New Yorkers.
Still the State can pursue the NYHA’s goals to improve access and affordability. Feasible options exist. The energy generated by the national and New York State discussions should be channeled to pursue targeted reforms, some of which would lay the groundwork for future changes, possibly including expanding public coverage. These include:
- A State mandate requiring individuals to have insurance. This likely would increase coverage, reduce costs for some individuals, and lower the State’s uncompensated care costs;
- A new, low-cost public plan that a defined population of individuals and groups could purchase at their own expense; and
- Increased use of mechanisms that promote competition and transparency, such as reference pricing and value-based provider payments.
The State also could explore other targeted reforms. These could include expanding insurance subsidies to noneligible immigrants and to those earning between 200 percent and 400 percent of the federal poverty level—an initiative that would not increase aggregate State spending if the offsetting savings generated by providing these subsidies are supplemented with savings identified elsewhere in the budget. Also, the State could pilot a geographic global budget—paying a coalition of providers a lump sum to care for the population in their area. This could be a testing ground for everything from direct State provider payment to newer models of value-based care and quality metrics.
In conclusion, options exist for New York State to build on its recent successes in expanding health care coverage to millions of New Yorkers. Some of these are feasible to enact and implement reasonably soon. Others are worthy of accelerated exploration and evaluation. Together, these would improve access and quality and restrain costs, while providing the experience New York would need to implement additional transformative changes successfully in the future.
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- These and all estimated fiscal impacts from Jodi L. Liu and others, An Assessment of the New York Health Act: A Single-Payer Option for New York State (RAND Corporation, August 2018), www.rand.org/pubs/research_reports/RR2424.html.
- The RAND analysis assumes administrative costs will be 6 percent, lower than the current 7 percent administrative costs for New York State’s Medicaid program and Medicare, and the 18 percent administrative costs of private insurance. RAND also assumes provider payment rates would be at the average of current payers. RAND assumes the growth in provider payments would be at the recent rate of public coverage, which is low in relation to other historical rates and lower than growth in private reimbursement rates.
- The potential loss is based on what these New Yorkers would pay after the tax increase needed to support the NYHA, and therefore is greater than these taxpayers’ current liability.