22 May 2017 New York inches closer to single-payer health care system funded in part by payroll taxes In yet another attempt to implement health care reform, legislation is again making its way through the New York legislature that would establish a single-payer system funded in part by premium taxes, including a payroll tax. (New York Health Act, A04738.) Those federal funds the state currently receives for Medicare, Medicaid, Family Health and Child Health Plus would be combined with these premium taxes in a New York Health Trust Fund for the operation of the single-payer system. The New York Health Act was passed by the Assembly on May 16, 2017, and now heads for the Senate where, as in the last two prior years, it is expected to face challenges. Similar to the Additional Medicare Tax and Net Investment Tax enacted as part of the federal Affordable Care Act (ACA), the New York Health Act calls for funding through two premium taxes, one assessed on all payroll and self-employment income (the payroll premium) and the other on interest, dividends, and capital gains (the non-payroll premium). Unlike the ACA's Additional Medicare and Net Investment taxes that have a fixed rate, New York's premium taxes would be progressively graduated. Additionally, New York's payroll premium would be shared between employers and employees, with employers paying 80% of the cost as compared to the Additional Medicare tax of 0.9% that is paid only by employees. Self-employed individuals would pay 100% of the payroll premium. The bill provides no details concerning the tax rates that would apply except that premium taxes would be assessed to the extent needed to cover the cost of the program. A revenue proposal would include a mechanism for determining the applicable tax rates. The bill also directs that the percentage of tax increases with higher brackets of income. In a report published in April 2015 analyzing the economic impact of the proposed New York Health Act, Gerald Friedman, PhD, Professor and Chair, Department of Economics with the University of Massachusetts at Amherst, recommended the following income brackets and marginal tax rates:
The bill anticipates in detail how the payroll premium tax would work pursuant to residents working outside of the state and nonresidents employed within the state. — New York residents employed out-of-state. If a New York resident employee is employed outside of New York and the employer is subject to New York state law, the employer and employee would be subject to the payroll premium the same as if the employee worked in New York. If the employer is not subject to New York state law, either the employer, the employee, or both can voluntarily pay the payroll premium or the employee would pay the premium as though self-employed. — Out-of-state residents employed in the state. The payroll premium would apply to any out-of-state resident who is employed or self-employed within New York; however, a credit against the premium would be available for qualified health expenses provided pursuant to the nonresident employee. The bill language adds the caveat that if this nonresident provision is found to violate the federal Employee Retirement Income Security Act (ERISA), it will be null and void. As the nation grapples with whether to repeal or replace the Affordable Care Act, escalating health care costs and continued uncertainty are driving some states to push forward on their own. This year, for instance, the Massachusetts legislature is close to resurrecting something similar to its previous "fair-share contribution" to partially cover a $600 million shortfall in the state's health care system. Massachusetts Governor Baker originally proposed a $2,000-per-employee assessment on companies where at least 80% of full-time worker equivalents do not take the company's offer of health insurance and the employer fails to make a minimum annual contribution of $4,950 for each full-time worker. In May 2017, the Massachusetts Senate Ways & Means Committee proposed giving the Baker Administration a choice of increasing the current Employer Medical Assistance Contribution (EMAC) or creating a stand-alone quarterly assessment on employers. The Massachusetts Senate envisions raising $180 million from these assessments versus the $300 million that would be generated under Governor Baker's proposal. (See Tax Alert 2017-362.) Also this year, California, like New York, is considering legislation that would install a state single payer system. SB 562, Californians for a Healthy California Act, was referred to the Senate Committee on Appropriations on May 16, 2017. (See Tax Alert 2017-418.) Absent a federal health care system that addresses state budget challenges and individual health care needs, chances are states will create a patchwork of health care laws with inconsistent taxing schemes and reporting requirements. While these independent systems may meet the needs of states and their residents, multistate employers would be burdened with a dramatic rise in workforce management complexity. For this reason, employers will need to monitor state health care developments closely and consider how they might impact on cost and workforce management processes.
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