Health insurance tax reform bill backed by large coalition of unions

Amid a $5.4 billion city budget crunch, unions across the state are backing legislation that could shift a tax burden from away from local municipalities and onto private employers, potentially saving New York City hundreds of millions of dollars a year.  

The Health Care Reform Act, originally instituted in New York State in 1997, levies a tax on health insurance benefits provided by employers based on the number of workers with healthcare coverage, called a “covered lives assessment.” The tax, as well as a surcharge on hospital costs for these employees, were instituted with the goal of regulating healthcare payments and financing public healthcare programs. 

According to New York State's figures, the HCRA raises between $5 and $6 billion a year, including almost $400 million from New York City’s coffers. The tax pays 15 percent of the state’s share of Medicaid costs, as well as other healthcare programs and investments. 

Recognizing the importance of the funds raised by the HCRA to the state’s bottom line, the New York State HCRA Reform Coalition made up of municipalities, unions and labor groups is backing legislation that would repeal the surcharge on employers in the public and private sector that provide healthcare and replace it with levies on insurance premiums, corporate business income and pass-through entity income. 

Critics of current tax who back the  legislation to reform the HCRA, including Teamsters Local 237, Local 3 of the International Brotherhood of Electrical Workers and the New York State Public Employee Conference, argue the tax disincentives employers from providing healthcare benefits and has contributed to ballooning healthcare costs. Further, critics like Buffalo Mayor Sean M. Ryan argue the tax places an undue and unequal burden on local municipalities like Buffalo, that must pay millions in HCRA taxes each year.

Shifting the weight

John O’Malley, the legislative director of Local 1180 of the Communications Workers of America, which supports the Health Care Tax Reform Act, says the legislation is a matter of "fairness."

"There are unions and employers that provide healthcare that are paying this fee and are covering the cost of it for other employers that are not paying the fee,” he said.  "If we switch it around so that its paid for by pass-through corporations and insurance companies and it’s a more broad-based tax instead of the relying on employers who provide people with healthcare, well then it broadens it out so everybody pays a smaller share of it and we still get to provide the important services that it does provide for." 

James Parrott, a labor economist at the Center for New York City Affairs at The New School, said that the legislation is “long overdue," and makes it so employers who don't provide health insurance pay the surcharge, instead of those that do.

"It's a perverse notion to tax employers and people who have health insurance in order to provide Medicaid coverage to employees of companies that don't provide health insurance," he said.

The proposed bill, he noted, would also institute a 10 percent payroll tax on employers like Uber and Amazon that misclassify workers as independent contractors instead of as direct employees. 

Tax a 'no-brainer' for NYC

Mayor Zohran Mamdani has made his demands for increased taxes on large corporations in New York a central part of his agenda to pay for a $127 billion city budget. But Mamdani has not yet come out in support of the HCRA reform bill and a spokesperson for City Hall said he does not currently have a comment on the legislation. 

Richard Winsten, a lobbyist at State and Broadway pushing the legislation, said that it’s a “no-brainer” for Mamdani and other officials looking to close the city's budget gap to support the measure.  

“It baffles me frankly since we're completely repealing the tax on these public entitles why the City of New York isn’t jumping out of its skin to support the bill in Albany,” he said.  

Negotiations for the state budget are currently ongoing between legislative leaders and Governor Kathy Hochul, a spokesperson for whom did not respond to a request for comment. In Hochul’s preliminary Fiscal Year 2027 budget, the governor proposed a three-year extension of the current HCRA tax. 

If the legislature and Governor are unable to pass the reform legislation now, coalition partners are requesting that Hochul only extend the current HCRA tax for one year in order to study the issue further and potentially pass the reform next year. 

But the bill’s backers, including its sponsor Assemblymember Andrew Havesi, want to see the legislation passed this session.  

“For decades, New York’s health care financing system has effectively required unionized employers and responsible business who provide health coverage to subsidize our state’s health systems, while corporations that fail to offer health care to their worker pay nothing and then benefit when those worker rely on public coverage,” Havesi said in a statement. “The Health Care Tax Reform Act corrects this imbalance by requiring corporations to contribute their share, while recognizing the employers who already do right by their workers. That’s why we are seeing strong support for the bill across all sectors, and why momentum behind this bill continues to grow as more people understand what it does.”