New York Legislature Turns Down Tax On Obamacare Policies

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The New York legislature voted down Gov. Andrew Cuomo’s proposal to tax health insurance policies to fund the state’s Obamacare exchange, calling the fees system used by the Obama administration and other states counterintuitive. 

The shrinking number of state-run Obamacare exchanges are facing a new problem this year — how to fund their ongoing operations now that start-up grants from the federal government are running out.

In New York, like many other states, Cuomo proposed a tax on health insurance premiums to fund the state-run exchange’s operations. That tactic comes with its own concerns: some states, such as Hawaii, have smaller-than-expected enrollment and the per-policy fees aren’t bringing in enough money.

Rhode Island is considering adopting a tax itself, but due to small enrollment in the tiny state, fees per Obamacare enrollee would likely climb higher than $30 every month, according to Modern Healthcare. Even California, which boasted the highest enrollment of any state in 2014 (but has recently been dethroned by Florida), has had to raise its monthly premium tax.

But according to the New York Post, members of New York’s state legislature refused the extra tax on premiums because the plan would drive up the cost of health insurance for Obamacare customers, defeating the purpose of the exchange and its often-subsidized coverage.

“We rejected that. Insurers would simply pass along the costs to customers,” Democratic assembly member Richard Gottfried, chairman of the general assembly’s health committee, told the NYPost.

That criticism applies not only to the other state-run exchanges that are struggling to fund their operations, but the federal government’s own Obamacare exchange. In the 34 states with exchanges at, customers are taxed an extra 3.5 percent on top of their monthly premiums.

Even that isn’t enough for most states, however. A handful of state exchanges are trying to solve a further funding gap by taxing all insurance plans sold in their jurisdictions to fund their Obamacare marketplaces — including plans sold off the exchange. That move, unsurprisingly, has led to legal challenges from insurance companies, who fear losing customers as the bottom line for health coverage grows.

“We are grateful the final budget agreement looks to fund operation of New York’s marketplace out of existing taxes on health care. The goal is to help ensure New York has affordable health coverage, and adding a new ‘exchange tax’ would have been a bitter pill to swallow for New York families and small businesses,” New York Health Plan Association spokeswoman Leslie Moran told the Post.

Currently, the funding for New York’s exchange is coming from federal grants and two state offices’ general revenue. A state spokesman said earlier this year the new tax would “provide a dedicated and sustainable revenue source to support the continued operations of the exchange,” according to the Post. It’s not clear where the funding for ongoing operations will come from now that the legislature has turned the tax down.

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