Gov. Lawrence J. Hogan Jr. (R) built his political brand by thundering against tax hikes enacted during the administration of his predecessor, Democrat Martin J. O’Malley. It’s a topic he raises relentlessly in public appearances and on social media.
More recently, and to provide even greater contrast, Hogan has boasted that he has never raised taxes.
“Before I took office, Maryland saw 43 consecutive tax hikes that caused our state to lose thousands of businesses and hundreds of thousands of jobs,” Hogan wrote on a Facebook post Tuesday. “This broke my heart and frustrated me enough to step up and do something about it.
“Since then, we have not had a single tax increase. We have cut taxes, tolls, and fees seven years in a row, and we put all of that money back into the pockets of hardworking Marylanders.”
Hogan has raised money off this narrative. His choice to succeed him as governor, former Maryland Commerce Secretary Kelly M. Schulz, in vowing to hold the line on taxes if she’s elected, has expressed pride at having been part of an administration that did not raise taxes. In a recent tweet, she recalled a Democratic colleague in the legislature during the O’Malley era telling her that Democrats raised taxes “because we can.”
But the claim that Hogan hasn’t raised a single tax during his seven years in office is debatable. And legislation introduced this week by the Hogan administration serves as a reminder of the one time Hogan, in the view of many Democrats and health care advocates, among others, agreed to a tax increase.
The bill, cosponsored by nine Republican senators and four Republican House members, would, according to its title, stabilize the state’s individual health insurance market “by extending to calendar year 2028 the assessment of a health insurance provider fee.”
That “assessment,” first implemented in 2019, looks, in plain English, like a tax hike on the health insurance industry.
It requires insurance companies — not health care providers — to contribute a small slice of each premium they sell to state government. It was designed to provide adequate funding for Maryland to provide catastrophic care, through the federal Affordable Care Act, to the state’s neediest residents.
“It can be characterized as an assessment, a fee or a tax,” said Stan Dorn, director of the National Center for Coverage Innovation at Families USA, a nonprofit health care consumer advocacy organization.
In the first year of the law, the insurers were paying a 2.75% assessment to the state, though that’s been scaled back to 1% in every subsequent year.
The Baltimore Sun, in reporting four years ago on the legislation that created the funding scheme, ran a headline that read, “Maryland legislature approves plan to stabilize state’s Obamacare market with new tax on insurers.”
“It is an assessment, a tax, and not a small one,” said Sen. Brian J. Feldman (D-Montgomery), who was part of the negotiations in Annapolis. “But I think it was the right kind of policy, the right kind of legislation.”
Agreement ‘helped save the individual market in Maryland’
In 2018, fearful that the state’s insurance markets would see catastrophic rate increases due to a provision in the federal tax overhaul enacted the previous winter by President Trump and the Republican Congress, Hogan and the General Assembly’s presiding officers at the time, the late House Speaker Michael E. Busch (D) and the late Senate President Thomas V. Mike Miller Jr. (D), worked out a deal that would stabilize the marketplace and provide more state funding for catastrophic care. All three officials at the time praised the bipartisan nature of the agreement.
Because the federal tax law, which drove down corporate taxes considerably, also eliminated the mandate to purchase insurance from the Affordable Care Act — more commonly known as Obamacare — state officials warned that insurance pools wouldn’t have enough money to provide coverage to poor, indigent and sick people.
Even before the federal tax measure kicked in, high premiums were forcing many Marylanders to do without health insurance. Between 2017 and 2019, enrollment in the state insurance program dropped from 224,921 to 171,526 people.
When the federal mandate was in place, healthy individuals were required to buy insurance, and some of that money went to fund insurance coverage for high-risk Marylanders.
To make up the shortfall, Hogan, the presiding officers and their lieutenants, devised a plan to make health insurance companies doing business in Maryland pay a 2.75% “assessment” on their premiums, which they estimated would generate about $380 million — roughly equivalent to the tax cut they had received from the federal government — and use the funds to prevent exorbitant increases in insurance rates.
Hogan, Miller and Busch didn’t just hail the legislation at the first bill signing immediately after the General Assembly session in 2018. They came together again to celebrate in the State House lobby that August, when the federal government signed off on the deal to stabilize the state’s insurance market. Maryland became the first state in the nation to take such an approach.
“These problems should have been solved long ago in Washington, but they haven’t been,” Hogan said during the ceremony. “Here in Annapolis, we have taken a different path.”
The reinsurance market, as it’s known, has been set up through the Maryland Insurance Administration. The 2.75% assessment on insurers produced $326,606,485 in revenues for the state insurance fund in 2019, according to government records. The next year, the legislature dropped the assessment to 1%, which generated $118,662,884 in 2020 and is projected to have generated more than $124.1 million in 2021.
“Maryland has used this revenue to make important changes that benefit consumers substantially,” Dorn said. “Originally, it helped finance the state’s reinsurance program, which helped save the individual market in Maryland.”
The windfall is now being used not just to buttress the insurance market, but for other public health programs, including $20 million a year over the next three years to establish and implement a pilot program that reduces the amount that young adults pay for health benefit plans in the individual health insurance market, and $15 million over four years to establish a health “enterprise zone” program around the state.
Maryland’s insurance industry largely views the financial arrangement as a success.
“The State Reinsurance Program has achieved its goal of stabilizing individual market premiums. Since the implementation of the program in 2019, not only did the reinsurance program stem increases, but premiums have also decreased by an average of nearly 32%,” CareFirst BlueCross BlueShield, the largest health care insurer in Maryland, said in a statement provided to Maryland Matters on Thursday.
‘The state successfully leveraged a pre-existing federal assessment’
But the Hogan administration resists the idea that the 2018 legislation amounted to a tax increase. Michael Ricci, a spokesman for the governor, said this week that the state’s assessment on the health insurers was not an increase because it replaced payments they were previously making to the federal government.
“The state successfully leveraged a pre-existing federal assessment, kept it at the same rate, and then actually subsequently lowered it for future years,” Ricci said in an email to Maryland Matters. “This financing mechanism is one of the reasons the program is considered an innovative model for lowering health care costs.”
Ricci cited a January 2021 study from an entity called State Health & Value Strategies, which is affiliated with Princeton University and funded by the Robert Wood Johnson Foundation, that praised Maryland’s “successful bipartisan innovation” for making the Affordable Care Act work. The report described how the state established “a state-based health insurance assessment to fund the reinsurance program.”
Dorn said Maryland’s approach is a model that a handful of other states are beginning to replicate.
“We are encouraging advocates and policymakers in other states to follow Maryland’s example,” he said.
Yet there have been other policy debates in Annapolis where the Hogan administration has flipped the storyline and attempted to label as a tax what political opponents viewed as an assessment or fee.
Hogan in 2020 vetoed legislation designed to fund the state’s fledgling Prescription Drug Affordability Board by assessing an annual fee on prescription drug manufacturers in the state. In his veto message to House Speaker Adrienne A. Jones (D-Baltimore County) and Senate President Bill Ferguson (D-Baltimore City), Hogan called the measure “misguided” and said it would “raise taxes and fees on Marylanders at a time when many are already out of work and financially struggling.”
The legislature overrode the governor’s veto the following year.
And during his first year in office, Hogan overturned a law requiring the state’s 10 most-populous jurisdictions to charge their residents a stormwater remediation fee that funded systems to limit runoff pollution from rainwater before it reached the Chesapeake Bay. He famously called it the “rain tax.”
The legislation that passed in 2018 called for the assessment (or tax) on insurers to run through 2023. But the measure introduced by the Hogan administration this week seeks to extend it until 2028.
In its statement to Maryland Matters, CareFirst BlueCross BlueShield said it supports the legislation.
“The [p]rogram is still very much needed to maintain enrollment and keep premiums stable,” the company said. “Losing the state’s funding source for the State Reinsurance Program would lead to large spikes in premiums and healthy individuals leaving the market, returning the market to the downward spiral we experienced prior to 2019.”
Asked this week whether he considered the health insurance assessment a tax increase, Sen. Robert G. Cassilly (R-Harford), one of the co-sponsors of the new Hogan administration bill, said he was unsure.
“Not every burden is a tax,” he said.
Regardless of how it’s labeled, the measure to extend the program is almost certain to pass with widespread and bipartisan support. But Hogan’s desire to refrain from acknowledging it as a tax increase still rankles some lawmakers and advocates.
“This ‘no-tax’ policy timeline [of Hogan’s] is hard to square with the reality,” Feldman said.