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.
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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.