Hike in HMO Fee Engineered to Boost Funding of Hospital Charity Care

Lilo H. Stainton | June 20, 2019 | Health Care
Measure would raise state tax on what consumers are charged for certain health policies, but companies would be prohibited from passing on extra cost

charity care
New Jersey lawmakers are poised to increase a state assessment on certain health insurance premiums through a measure designed to raise $66 million to supplement the hospital charity care program.

The legislation — developed as part of the Legislature’s budget plans and slated for final passage in both the Senate and Assembly today — would hike from 2 percent to 3 percent a state tax on what Health Maintenance Organizations charge consumers for health policies, starting next month. If passed and signed by the governor, it would take effect in July.

The bill, which was introduced on Monday and cleared budget committees in both houses that afternoon, prohibits the additional expense from being passed on to patients. But some suggest this cost, which would need to be absorbed by the insurance companies in certain cases, could make them less likely to offer HMO plans, leaving consumers with fewer coverage choices.

The bulk of HMO plans in New Jersey today cover Medicaid members — almost all the 1.7 million residents covered have these managed-care plans. Premiums for these plans are paid by taxpayers — and under the law, so would the tax increase. But since Medicaid expenses are split with the federal government, New Jersey would be able to share the additional associated cost.

Impact unclear for people with non-Medicaid HMOs

According to the nonpartisan Office of Legislative Services, the 3 percent tax would enable the state to collect an extra $100 million annually; of this, approximately $34 million would be needed to pay the state’s portion of the additional assessment, with the federal government covering the rest. That would leave the state with $66 million in new revenue, OLS said, which lawmakers want to commit to the charity care.

The impact is less clear for the roughly 100,000 residents who have commercial HMOs that are not part of the Medicaid program. While they won’t be responsible for the extra cost, it could sour their insurance companies on offering these kinds of plans in the future, observers note.

Gov. Phil Murphy had allocated $262 million in funding for charity care in the budget proposal he outlined in March; a mix of state and federal dollars, charity care funding is designed to help hospitals cover the cost of treating patients with little or no insurance. (Under the government’s budget proposal, acute care facilities were slated to share at least $670 million in state and federal assistance.)

But lawmakers have historically sought to boost this funding pool, and on Monday they introduced the plan to do so. Democratic leaders also that day introduced their own $38.7 billion spending proposal for fiscal year 2020, which is scheduled for a final vote in both houses Thursday.

“There are no new taxes in this (budget) bill,” Senate Budget Chairman Paul Sarlo, (D-Bergen), said at Monday’s budget hearing. “There is an HMO assessment that we’ve worked on with the business community,” he noted.

The HMO assessment bill, (S-3957/A-5603) — sponsored by Sen. Nellie Pou (D-Passaic) and Assembly members John McKeon (D-Union) and Patricia Egan Jones (D-Camden) — would amend a 2004 bill that created a “special interim assessment” of 1 percent. By 2007, the fee had doubled to 2 percent. The new bill would hike it to 3 percent starting in FY2020.

Credit: NJTV News
Sen. Declan O'Scanlon (R-Monouth)
“It’s my understanding that rather than a cost to rate payers, this will enhance our federal reimbursement (for Medicaid premiums) more than the cost (to the state) of the assessment,” Sen. Declan O’Scanlon (R-Monmouth) said Monday; Sarlo and budget committee staff assured him this was correct.

The measure received no other discussion, and no one testified about it in committee; the New Jersey Association of Health Plans did not take a position on the bill.