Warmed-Over RendellCare Includes a New Tax on Health Insurance

The Pennsylvania State House has been debating HB 1, which would expand the state’s Adult Basic program, to make more individuals eligible for government health care. The Commonwealth Foundation has not said much about the bill, for a couple reasons:

  1. It isn’t going anywhere – the legislation couldn’t pass in previous years, when Pennsylvania had a surplus. Now, with a deficit likely to exceed $3 billion, I see no way the legislature will pass a quasi-entitlement.
  2. It isn’t substantially different than previous editions, which we critiqued – the original “Cover All Pennsylvanians” (aka RendellCare 1.0), and last session’s PA ABC.

That said, there are a couple of important things to note about the funding schemes. The talking points on the legislation notes it will rely on “surplus monies” in the Health Care Provider Retention Account (as well as shortening the period before the state can take ownership of unclaimed property). Budget watchers would note that the HCPRA surplus could only fund the program for one year, and Gov. Rendell already has plans to use that pot of money to fill the current budget gap.

More importantly, the legislation includes a provision to charge a 2% gross receipts tax on insurance premiums. This appears to be a tax only on plans not currently being taxed, i.e. HMOs and some PPO plans (though that hasn’t been entirely clear), but effect should be pretty clear: this will make health insurance more expensive.

If you are wondering, given all this, how HB 1 even got to the House floor, John Micek sums it up, noting that the House adopted new rules on June 1, and were able to go back to some of their old tricks, before the 2007 rules reforms.