By: HUB’s EB Compliance Team
New York state’s Department of Health (NYDOH) has recently posted on their website the updated regional covered-lives assessment (CLA) rates and percentage surcharges for 2024. These amounts serve to cover graduate medical education (GME) costs. The GME amounts have been updated every year, and along with the indigent care surcharge, constitute separate payments to the NYDOH under New York’s Health Care Reform Act (HCRA).
Even though New York first enacted its surcharge law decades ago, employers are still sometimes surprised to encounter the issue. What exactly are these surcharges?
Background
In a nutshell, this New York state law applies surcharges on hospital bills that are ultimately passed through and absorbed by group health plan sponsors. The law was challenged back in the 1990’s but the U.S. Supreme Court ultimately ruled that ERISA did not preempt the state law, even though the law might have some impact on ERISA plans. That means that both insured and self-funded plans operating in New York will encounter surcharge duties as implicated by this law.
New York’s HCRA was originally enacted to better regulate payments from insurers to health care providers, allow hospitals and private insurers to negotiate reimbursement rates, and create new revenue streams to fund certain public interests, like graduate medical education, hospital charity care and rural health facilities.
Similar surcharge laws are in effect in a handful of other states (Alaska, Connecticut, Idaho, Maine, Massachusetts, New Hampshire, New Mexico, Rhode Island, Vermont and Washington) and although the surcharges across these states are used for various purposes, most often to subsidize vaccination programs, surcharge laws are not pre-empted by ERISA, meaning that they apply even to self-funded group health plans.
GME Rates and Percentage Surcharges
The HCRA imposes two types of payments, the annual GME rate and percentage surcharge, and the indigent care surcharge. The annual GME rate and percentage surcharge is a covered-lives assessment (CLA) based on the number of covered individuals and families who live in New York, and the amounts differ on a regional basis depending on where the individual resides or received in-state hospital care. For example, the surcharge rate in Manhattan is significantly higher than the rate with hospitals in Albany. The CLA is owed by any “electing” health claim payors, and health claim payors (as noted above) include both fully-insured plans, as well as self-funded group health plans. A state health claim payor chooses to “elect” to pay this CLA by paying it directly to the state’s Professional Educational Pool on an annual basis. Otherwise, any non-electing payor that incurs a covered service or hospital admission will be subject to significantly higher percentage surcharges on certain in-state hospital expenses.
Indigent Care Surcharges
The HCRA also requires that health claim payors pay an indigent care surcharge. This surcharge is not updated annually, but current rates can be found here. This surcharge applies to payments for New York hospital inpatient and outpatient services, comprehensive diagnostic and treatment centers, and ambulatory surgery centers. This surcharge applies even if the patient resides out-of-state, or the employer or group health plan is also based out-of-state. Again, a state health claim payor chooses to “elect” to pay this amount directly to the state’s Public Goods Pool or otherwise be subject to significantly higher surcharges on certain in-state hospital expenses.
Employer Considerations
Why would a Texas (or other faraway employer) with no New York employees still voluntarily choose to become an “elector”? Although the two surcharges are subject to slightly different operating guidelines, including reporting obligations, both apply to all health claim payors, which includes self-funded employer-sponsored group health plans. To that end, even out-of-state plan sponsors with no or few covered New York residents may want to consider becoming an electing payor to avoid uncapped and unpredictable surcharge amounts, which would include both the GME surcharge and the indigent care surcharge. For example, this could easily occur if an employee unexpectedly visits New York and has an accident, or even if an employee’s spouse suddenly has a heart attack while waiting to change planes at JFK Airport. Even a smaller surcharge rate applied on a $40,000 hospitalization bill could generate a significant unexpected expense.
A registered elector can significantly slash the overall financial risk by avoiding the non-elector surcharge rates (which can be more than double the regular rates). Plus, since fees only accrue based on actual services rendered, an out-of-state employer can reasonably anticipate “zero” covered lives and “zero” covered services reported annually, thereby avoiding any applicable payment due. In addition, once a self-funded group health plan does choose to “elect” and contribute into either pool, they would likely rely on their third-party administrator to assist in adhering to any reporting requirements.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
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Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.