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Gov. Spitzer Looks To Insurance Industry To Help Meet State Budget

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Gov. Eliot Spitzer of New York has proposed a $124.3 billion budget that would include increases to more than 30 fees and fines paid by insurance agencies and companies in the state.

The charges are part of a package of $740 million in new or increased fees on business aimed at closing an expected $4.4 billion state deficit.

In addition, the budget seeks to close a loophole that has exempted health maintenance organizations from being taxed as insurance carriers in the state.

Many of the fines affect P&C agents only, but one would increase a current $1,000 penalty to $10,000 for any agents who fail to apply for or renew their license. Another would fine agents and brokers $10,000 for representing an insurer not authorized to operate in the state, an increase from $500.

The budget also would impose heavier surcharges on health insurance policies sold in the state under a program to subsidize certain state health initiatives.

By reclassifying for-profit health maintenance organizations as insurance companies, these HMOs would be subject to the premiums tax under state law, currently 1.75%, instead of the lower business corporation tax. Spitzer projects that measure would generate $247 million in 2008-09, then $288 million in following years.

“Since HMOs are similar in operation to traditional health insurers and compete with these businesses, it is appropriate to treat them similarly for tax purposes,” the budget document states.

The budget would also raise fines in lieu of license revocation, and increase penalties for such offenses as failing to file certain mandatory statements, violations of the state’s prompt-pay laws by health insurance carriers and violations by an insurer of the state’s workers’ compensation law.

“We feel that some of those increases are pretty extreme,” says Tim Dodge, director of research and external communications for the Independent Insurance Agents & Brokers of New York Inc., Dewitt, N.Y “Our concern about increases of that size is that, for an innocent mistake, agents could be put out of business.”

For example, he argues, licensing in the state can be so complicated that many agencies appoint one person to coordinate all the P&C and life licenses for their producers.

“There may be 10 producers and one who didn’t renew on time because he thought someone had taken care of it, but it didn’t get done. So you’re going to penalize someone like that $10,000? You’d hope that common sense would prevail in such a case, but you can’t be sure,” Dodge says.

The IIAAB of N.Y. wants to work with the state Insurance Department and the Governor’s office to meet budget goals, he says, but to temper penalties for insurance agents and brokers “with common sense.”

Kathryn Wylde, president and CEO of the Partnership for New York City, a business group, criticized other parts of the budget that would change the tax treatment of a number of industries.

“For example, the executive budget includes a new tax on income generated by out-of-state subsidiaries of financial services firms,” Wylde stated. “This industry generates 20% of the tax revenues in New York State, and coming down on financial firms with new assessments comes close to killing the goose that lays the golden egg.”

Other industry groups leveled similar criticisms at the budget provision that would reclassify for-profit HMOs as insurers subject to premium tax.

“Health care can’t get more affordable if New York State keeps making it more expensive by increasing taxes on health insurance,” argues Heather Groll, a spokeswoman for the New York State Conference of Blue Cross and Blue Shield Plans, Albany. “New Yorkers–both individuals and businesses–who currently purchase health insurance now pay over $2 billion in hidden taxes which are included in their health insurance premiums. Now the Governor is proposing to increase that amount by another $350 million.”

“We don’t believe [the fee] would raise as much money as the governor’s proposal estimates,” adds Leslie Moran, senior vice president of the New York Health Plan Association, Albany. “It ultimately becomes a tax on people who purchase health insurance. At a time when the governor is trying to expand coverage, we’re not sure adding new taxes and increases at this time are going to further that goal.”

Groll and Moran also criticize another budget proposal that would raise the state’s covered-lives assessment, which is a surcharge imposed on health insurance policies to build a pool of funds for certain state medical programs, such as hospital care for uninsured low-income residents.

Moran estimates that for a family policy costing $5,000 annually, the existing surcharge may add $500 to the cost in New York City.

“Under the budget, the governor is talking of increasing the covered-lives assessment by $140 million across the state,” Moran notes. “That’s over last year’s increase of $75 million.

“We believe some of these proposals will make health insurance less affordable. That seems counterintuitive when we are trying to expand coverage in the state.”


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