Federal health officials have greenlit New York’s plan to enact a tax on health insurers, securing what could amount to billions for the state’s Medicaid budget.
The U.S. Centers for Medicare and Medicaid Services approved a state proposal to tax managed care organizations – a type of health insurer – and boost New York’s federal Medicaid reimbursements, according to a memo that the industry group Greater New York Hospital Association sent to its members on Monday.
“New York Gov. Kathy Hochul just called to share the fantastic news that New York’s managed care organization (MCO) tax was approved,” Ken Raske, president and CEO of GNYHA, said in the memo.
“This critical development provides a pathway to addressing our dual goals of eliminating health care disparities in vulnerable communities and addressing Medicaid underpayments to hospitals and other providers,” Raske said.
GNYHA posted the memo on its website, but took it down a few hours later. Hochul has yet to comment publicly on the approval and the Department of Health did not respond to a request for comment from Crain’s before publication.
New York’s proposal was closely modeled after a similar tax in California that took advantage of a federal loophole to impose a higher toll on some health insurers, recoup that money through a higher reimbursement from the federal government and allow New York to pocket whatever proceeds were left over.
Officials at one point estimated that the tax could generate up to $4 billion a year, but a copy of the state’s proposal estimated that revenues would likely fall somewhere between $1.4 billion and $1.8 billion.
State lawmakers introduced the tax plan during the final weeks of budget negotiations in a last-minute effort to address fiscal pressures.
The federal approval secures funding to address New York’s ballooning Medicaid spending, which was estimated to reach $34.7 billion in the 2024 fiscal year, roughly 15% of the total state budget. The timing reflects Hochul’s push to get the measure approved before Donald Trump becomes president next month and Medicaid funding expansions become less probable, experts have speculated.
The approval was never guaranteed, even under a Democratic administration. CMS officials in 2023 begrudgingly authorized California’s tax, implying in a letter that it violated the spirit of the Medicaid program. The agency pledged to address regulatory loopholes that allowed for the tax, leaving New York up in the air on whether its proposal would be approved.
New York became even more uncertain of the tax when Trump won the presidential election in November, with experts speculating that a proposal that took advantage of federal Medicaid funds would not be authorized under the incoming administration. Hochul said the day after the election that she was working to get the tax approved before the end of the year.
It remains to be seen if the incoming Trump administration will uphold the decision.
It’s also unclear when the tax would go into effect and what new rate health insurers will be charged. Health plans have expressed concerns about a higher tax rate, warning that it could result in higher premium costs for employers and patients.
