The High Cost of "Pay-to-Play": Health Insurance Contributions Drive Up Insurance Rates

8/14/2019 The High Cost of "Pay-to-Play": Health Insurance Contributions Drive Up Insurance Rates

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A Report by Citizen Action of New YorkSeptember, 2008

Citizen Action of New York

94 Central Avenue

Albany, NY 12206

(518) 465.4600

www.citizenactionny.org

The High Cost of Pay-to-Play:

Health Insurance ContributionsDrive Up Insurance Rates


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This report was written by Bob Cohen of Citizen Action of New York, Inc. (Citizen Action)

based on data provided by the National Institute on Money and State Politics. Citizen Actionalso gratefully acknowledges the contributions of Jessica Wisneski, who wrote the campaign

finance reform section and provided data analysis, Laura Cisco, who provided substantialresearch assistance, Robert Donald, who also worked on the data analysis, and Charlie

Albanetti, who designed the report.

Citizen Action is a statewide grassroots organization that fights for social, racial, economic,and environmental justice. To order more copies of this report, please contact us as follows:

Citizen Action of New York94 Central Avenue

Albany, NY 12206(518) 465-4600 (ext. 104)

(518) 465-2890 (fax)www.citizenactionny.org

(This report is also posted at: www.citizenactionny.org)


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I. Introduction

Ever since the release of a 2004 report by the respected Brennan Center for Justice, it has becomean accepted truism that New York has the most dysfunctional state legislature in the nation.1 We

believe the Legislatures response to that report missed the mark,2 because it failed to address one

of the central causes of that dysfunction: the influence of campaign contributions on the laws that

are ultimately passed.

As an earlier campaign finance report said: [c]ampaign money -- not votes -- is now the currency

of our democracy, determining who is able to run a viable campaign for office, who usually wins,and who has the ear of elected officials.3 This explains to us better than anything else why,

despite the general agreement that we face a crisis of health insurance coverage and affordability,

the Legislature has consistently been unable to pass even common-sense incremental steps toaddress the health care crisis, such as reining in escalating health insurance rates and profits thatgouge consumers.

This report examines the role of contributions by health insurance interests in blocking regulationof health insurance rates in the New York State Legislature, and particularly the State Senate,

despite the high cost to New Yorkers of the rapid escalation of health insurance premiums. We find

a strong correlation between campaign contributions and State Senate opposition to reforms thatwould benefit health insurance consumers, including the reinstitution of rate regulation. 4 Thereport concludes that campaign finance reform, particularly full public funding of campaigns, is

necessary to reduce the undue influence of corporate contributors on the legislative process.

1 Brennan Center for Justice at NYU School of Law, The New York State Legislative Process: An Evaluation andBlueprint for Reform (2004), http://brennan.3cdn.net/1f4d5e4fa546eaa9cd_fxm6iyde5.pdf.

2 For example, after the release of the report, members of the Assembly were required to be in their seats tovote on all bills, and Senators on important ones. Jay Gallagher, The Politics of Decline: A Chronicle of NewYorks Descent and What You Can Do To Save Your State, Albany: Whitston Publishing Company Inc., 2005,at xii (hereinafter, The Politics of Decline).

3 Public Policy and Education Fund of New York, The Color of Money in New York, Federal Campaign

Contributions and Race (Jan. 2004), at 3.

4 Examples of bills to benefit health insurance consumers that have passed the Assembly in recent years butnot the Senate are: A.3597-A (Gottfried), which would facilitate enrollment of eligible children under ChildHealth Plus (CHP) and Medicaid through school based health centers, A.9354 (P. Rivera)/S.5929 (Morahan),which would require CHP and Family Health Plus (FHP) to cover mental health services and alcohol andsubstance abuse services on the same terms and conditions as for physical health services (known as mental

health parity), and A.5932 (P. Rivera)/S.8413 (Parker), which would for provide outreach, information andeducation services to immigrant communities in regard to the availability of health care services like FHP andCHP.

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The High Cost of Pay-to-Play

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II. Executive Summary

New York State reduced its regulation of health insurance rates and profits in the late 1990s. Sincethen, health insurance rates have risen rapidly, as have insurance company profits, as summarized

in section IV. In response, legislation (A.7485/S.2740) was introduced to restore significant

oversight of health insurance rates and industry profits. The bill would require prior approval of

rate increases by the New York State Insurance Department, public hearings for increases ofgreater than 5%, and greater limitations on profits. The rate regulation bill was passed by the

State Assembly every year from 1998 to 2006, but never passed by the State Senate.

We looked at campaign contributions by health insurance interests -- providers of health insurance

and their representatives such as trade groups and PACs -- to the State Senate and the State

Assembly and found that health insurance interests alone contributed $900 thousand to the

State Legislature from 2003 to 2007. We also found thatSenate Republicans receivedmore than three times the campaign contributions from health insurance interests as the

Assembly Democrats in the 2003 to 2007 period: $618 thousand as compared to $178

thousand.

At the same time as they were receiving the lions share of insurance industry contributions, former

Majority Leader Joseph Bruno and his Republican colleagues failed to pass insurance rateregulation. The Senates failure to pass this proposal has meant that New Yorkers have had to paylarge health insurance rate increases. This is a clear example of how New York States pay-to-

play campaign finance system is taking money out of the pockets of New Yorkers by preventing

pro-consumer legislation from passing. The investment the health insurance industry makes incampaign contributions is paid many times over in the form of higher profits. To consumers, thecost of the states failure to act is measured in higher rates, and in some cases, inability to afford

any insurance, and poorer health outcomes.

This pattern of money and influence also demonstrates why supporters of health insurance reform

cannot just work on health insurance legislation to achieve their goals. They must also address

New Yorks pay-to-play system, which one veteran Albany reporter described as a system thatallows lobbyists to buttonhole a lawmaker at the Capitol at 4:00 pm to discuss an issue, then writehim a check three hours later at a fund-raiser held just across the street.5 This system gives

health insurance industry interests an unfair advantage over consumers through campaigncontributions. This report therefore calls for passage of clean elections, full public financing ofcampaigns (clean elections), which would enormously help to even the power imbalance between

the industry and consumers.

5 The Politics of Decline, at xvi.

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III. Findings

Citizen Action analyzed campaign contributions received by state legislators from January 1, 2003to December 31, 2007 from health insurance interests. We included contributions to the four

official party leadership committees controlled by the legislative leaders in each house (Senate

Republican Campaign Committee, Democratic Senate Campaign Committee, Democratic Assembly

Campaign Committee, Republican Assembly Campaign Committee), which are one of the principalmeans by which the leaders of each legislative conference control the flow of legislation and the

positions of members.

FINDING 1 - Total Spending: From 2003 to 2007, the health insurance industry gave a

total of $.9 million to members of the State Legislature -- to individual members andparty leadership committees combined. (Figures 1 and 2)

Of the $899,175 total given to the Legislature, $670,918 went to individual members of theLegislature, and $228,257 went to the party committees controlled by the leadership (SenateRepublican Campaign Committee, Democratic Senate Campaign Committee, Democratic AssemblyCampaign Committee, Republican Assembly Campaign Committee).

FINDING 2 - Division Between Senate Majority and Assembly Majority: The $.9 million

contributed by the health insurance industry to the State Legislature in this period was

not divided evenly between the parties. The Senate Republicans, the majority party inthe Senate, received more than three times as much as the Assembly Democrats, the

majority party in the Assembly. (Figures 1 and 2)

The Senate Republicans (individual members and Senate Republican Campaign Committee combined)received $618,152, or 69 percent of the total contributions, while the Assembly Democrats, the othermajority party, received only $177,798, or 20 percent of the total contributions.

FINDING 3 - Power of the Majority Conferences: The majority conferences of the

Legislature received 9 of every 10 dollars contributed. In each house of the Legislature,the amount given to the majority conference was several times what the minority

received. (Figures 1 and 2)

The Senate Republicans and Assembly Democrats combined received 89 percent of the totalcontributions, while the minority conferences (Senate Democrats and Assembly Republicans)combined received only 11 percent.

The amount the Senate Republicans received ($618,152) dwarfed the amount received by the SenateDemocrats ($63,900).

Similarly, the amount the Assembly Democrats received ($177,798) dwarfed the amount received bythe Assembly Republicans ($39,325).

The Senate Republican Campaign Committee received nearly 6 times as much as the DemocraticSenate Campaign Committee ($174,257 vs. $31,000).

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Figure 1. Health Insurance Industry Contributions to Assembly & Senate, 2003-2007

Figure 2. Health Insurance Industry Contributions to Assembly & Senate, 2003-2007

SenateRepublicans

AssemblyDemocrats

SenateDemocrats

AssemblyRepublicans

All FourLegislative

Conferences

Contributions

to Members

$443,895 $161,298 $32,900 $32,825 $670,918

Contributionsto LeadershipCommittees

$174,257 $16,500 $31,000 $6,500 $228,257

Totals $618,152

69%

$177,798

20%

$63,900

7%

$39,325

4%

$899,175

100%

Senate Republicans$618,152

69%Assembly Democrats

$177,798

20%

Senate Democrats$63,900

7%Assembly Republicans

$39,325

4%

Total Contributions: $899,175

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FINDING 4 - Top Ten Legislative Recipients of Health Insurance Industry Contributions:Senate Republicans dominated the list of the top recipients of health insurance industry

contributions in the 2003 to 2007 period. (Figure 3)

The top 6 recipients of health insurance industry contributions were Senate Republicans, as were 7 ofthe top 10 recipients.

Former Senate Majority Leader Joseph Bruno -- the 3rd highest recipient of industry cash -- receivedover 5 times as much as Assembly Speaker Sheldon Silver ($55,500 vs. $9,990), who was 10

th

.6

Many of the top legislative recipients of health insurance industry contributions had significantleadership positions that enabled them to steer legislation of interest to the health insurance industry.For example:

o Senator James Seward (the largest recipient of health insurance industry cash) chairs theSenate Insurance Committee, and Senator Kemp Hannon (no. 2) chairs the Senate HealthCommittee.

o Former Senate Majority Leader Bruno (no. 3) of course, was the leader of the Senate and themost critical decision-maker on health insurance legislation for that house. Assembly Speaker

Sheldon Silver, the highest decision-maker in the Assembly, was 10th in contributionsreceived.

o Assemblyman Joseph Morelle (no. 7) chairs the Assembly Insurance Committee.

Figure 3. Top Ten Legislative Recipients of Insurance Industry Campaign Contributions, 2003-2007(Doesnt include leadership committee contributions)

6 The contributions to Mr. Bruno and Mr. Silver must be understood in light of the fact that they also indirectly

receive donations from business interests and others to the leadership committees they control. We foundthat the Senate Republican Campaign Committee received $174,257 in the 2003-2007 period, and theDemocratic Assembly Campaign Committee received $16,500. (See Figure 1)

Legislator Party & House Amount

SEWARD, JAMES Senate Republican $60,700

HANNON, KEMP Senate Republican $58,750

BRUNO, JOSEPH Senate Republican $55,500

LIBOUS, THOMAS Senate Republican $54,750

SKELOS, DEAN Senate Republican $50,250

BALBONI, MICHAEL Senate Republican $34,800

MORELLE, JOSEPH Assembly Democrat $23,350

FLANAGAN, JOHN Senate Republican $16,250

BRESLIN, NEIL Senate Democrat $15,350

SILVER, SHELDON Assembly Democrat $9,990

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FINDING 5 - Top Ten Health Insurance Industry Contributors: The top ten healthinsurance industry contributors are a selection of large health insurers and their trade

groups. They are heavily affected by actions of the State Legislature, and generallyactive in health insurance matters before the Legislature. (Figure 4) (Of course,sometimes health insurers, like other businesses, make campaign contributions indirectly through

trade organizations.)For example:

WellCare, the largest campaign contributor in our study, with contributions of $201,000 over the2003-2007 period, is a leading provider of managed care services dedicated to government-sponsored health care programs, including Medicaid and Medicare. In New York State, it runs ChildHealth Plus and Family Health Plus programs.7

The New York Health Plan Association (HPA), 4th on our list of contributors with contributions of justover $102,000, calls itself an industry voice for 30 health care plans across the state that providecoverage for more than six million New Yorkers.8 It serves as the lead representative of the industryon numerous health care and health insurance issues before the Legislature.

The Capital District Physicians Health Plan (CHPHP), 7th on our list, with contributions of just over$21,000, is a leading HMO that serves 400,000 customers in 29 upstate counties.9 In the 2007 to2008 period, CDPHP lobbied the Legislature on a wide range of health care issues, including the rateregulation bill that is featured in this report, and legislation in regard to mental health parity andschool-based health centers.10

Figure 4. Top Ten Insurance Industry Contributors

Contributor Amount

WELLCARE $200,557

AMERICAN INSURANCE ASSOCIATION $163,595

CITIGROUP $128,785

NEW YORK HEALTH PLAN ASSOCIATION $102,348

AETNA $95,150

AMERICAN INTERNATIONAL GROUP $24,750

CAPITAL DISTRICT PHYSICIANS HEALTH PLAN $21,200

INDEPENDENT HEALTH ASSOCIATION $20,430

OXFORD $18,185

MVP $17,785

7WellCare, About WellCare, (web page: http://www.wellcare.com/AboutUs/default); New York StateDepartment of Health, Child Health Plus: Where Do I Go to Apply?, (web page:http://www.nyhealth.gov/nysdoh/chplus/where_do_i_apply.htm#county); New York State Department of

Health, Family Health Plus: How do I choose a health plan?, (web page:http://www.health.state.ny.us/nysdoh/fhplus/how_do_i_choose_a_health_plan.htm).

8 New York Health Plan Association (website homepage) (webpage: http://www.nyhpa.org/index.asp).

9 Capital District Physicians Health Plan, about CDPHP, (webpage:http://www.cdphp.com/aboutCDPHP/about.aspx/)

10 The bill numbers for the bills mentioned in the main text are provided in footnote 4. Citizen Action

determined what bills CHPHP and other health insurance interests lobbied on through the State AttorneyGenerals Project Sunlight database. The bill search function of the Project Sunlight database may be foundat: http://www.sunlightny.com/snl1/faces/app/billsearch.jspx.

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IV. The State Senates Failure to AddressHigh Health Insurance Rates and Profits

1. Introduction

The findings on campaign contributions in the previous section of this report identify important

patterns as to contributions by the health insurance industry in New York State. Predictably, we

found that health insurance interests used their campaign dollars strategically. Consistent withother campaign finance studies in New York, the patterns of donations by the health insurance

industry documented in this report provide extremely strong evidence that industry giving has thegoal of passing or blocking legislation that economically benefits their industry.11 For example, wefound that health insurance interests in general gave the most money to those legislators with the

greatest control over the flow of bills in each house. These interests also gave a larger amount of

contributions to Senate Republicans (individual Senators and their party committees) than theAssembly Democrats, while the Senate provided greater support for their legislative agenda. Thenext section illustrates these principles through a discussion of a bill on health insurer rate

regulation and industry profits.

2. Deregulation Leads to Escalating Insurance Rates and Insurer Profits

For over a decade, health insurance rates for consumers have been going up every year at anextraordinary rate, making health insurance unaffordable for many consumers and businesses.And its not that health insurers need the money: profits have skyrocketed too.

A major factor in health insurance premium increases in New York State is theres no longeranyone looking out for consumers. The 1990s saw the relaxation or elimination of several

provisions that had been in place for years intended to protect consumers from unreasonable

health insurance rates and high profits. In 1995, the Legislature passed legislation radically cuttingback a law that had given the New York State Insurance Department authority to approve healthinsurance rate increases before they became effective. Under the 1995 law, through a procedure

known as file and use, health insurers could simply file any new rate with the Department; after

filing, the rate was deemed approved. The Department no longer had the authority to reject rate

increases, so long as the laws minimum loss ratios -- the weak requirements mandating thepercentages of health insurance premiums that had to be devoted to payment of claims -- were

met. In addition, the public hearings on rate increases that had previously been required wereeffectively eliminated; consumers no longer had the opportunity to question unjustified orexcessive rates and to protest rate increases. Chapter 504, Laws of 1995.12 Finally, as of January

1, 2000, the Department no longer had oversight over rate increases if they were 10 percent or

less. Insurance Law Section 4908(g)(2).

The effect of the deregulation of insurance rates was predictable. According to New York State

Insurance Department data, from 1996 to 1999, when rate increase applications were subject tothe 10 percent maximum cap, health insurance premiums rose an average of 5.08 percent a yearfor large groups, 5.22 percent for small groups, and 7.59 percent for direct pay plans. However,

from 2000 to 2006, when this cap was removed, premium rates rose an average of 13.53 percent

a year for large groups, 13.56 percent for small groups and 15.99 percent for direct pay plans.13

11 An example of other studies that document a relationship between campaign contributions and legislativeoutcomes is: New York Public Interest Research Group, Bottled Up in Albany: An Analysis of CampaignContributions and Lobby Expenditures Made by Major Opponents of the Bigger, Better Bottle Bill in NewYork State (June 2004).

12 For a general explanation of Chapter 504, see Matter of Excellus Health Plan, Inc. v. Serio, 2 NY.3d 166(2004).

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And this trend has continued since 2006. For example, Insurance Department data indicates that

two-thirds of New York Citys 9 HMOs increased their rates by at least 19 percent from 2007 to

2008.14

The major justification for prior approval of rates, which is in place in 24 states, is of course to

protect consumers from excessive health premium rates. However, the New York State Insurance

Department, which supports the reinstitution of rate regulation, has advanced several otherreasons, including protecting consumers against arbitrary and discriminatory rating practices,

addressing the lack of consumer choice of insurers and bargaining power in highly concentrated ormonopolized health insurance markets, and forcing the management of insurance companies to

address such issues as solvency and management compensation.15

Before the late 1990s, the state also placed reasonable limits on health insurer profits. As

previously stated, the law specifies minimum percentages -- known as minimum loss ratios, orMLRs -- of health insurance premiums that must be devoted to payment of claims. (The rest can

be retained by the insurer for profits and administrative expenses.) However, in the late 1990s,the Legislature reduced the required MLRs, thus permitting outsized health insurer profits, while

consumer health insurance premium rates went up and up. From 2001 to 2005, HMO profits inNew York totaled $5.3 billion.16

3. The Legislative Fight Over Deregulation

The increases in health insurance rates in the late 1990s prompted a legislative response.

Legislation now sponsored by Assemblyman Adam Bradley and Senator John DeFrancisco

(A.7485/S.2740) would provide that no annual increase of greater than 5 percent should bepermitted unless the affected public is first given the opportunity to comment at a public hearing.

The Bradley/DeFrancisco bill would also raise the required MLRs in current law to at least 90percent for insurance obtained by individuals (known as direct pay), and 85 percent for small

group insurance, allowing insurers to make reasonable profits but protecting consumers from pricegouging. This legislation passed the State Assembly every year from 1998 to 2006,but has never

passed the Senate.

Health insurance consumer advocates supported the Bradley/DeFrancisco bill due to their

increasing concerns that the double-digit annual rate increases were pricing many individualconsumers and small businesses out of the health insurance marketplace, contributing to increases

in the 2.5 million uninsured in New York State. They identified the Bradley/DeFrancisco bill as oneof the highest priorities of health care consumers in communications with legislators.17 Consumer

representatives were also concerned that the loss of rate hearings had eliminated an important tool

in the fight against rate increases, and eliminated the opportunity for consumers to raise otherissues in regard to health insurance quality.

In the Spring of 2008, a new network of several of the major health care consumer organizations

13 NYS Insurance Department PowerPoint Presentation, Prior Approval for Health Insurance Rates: A Returnto Reason, slide 10 (hereinafter NYSID PowerPoint Presentation).

14 Kenneth Lovett, HMO Rates in City Go Through Roof, New York Daily News, August 17, 2008,

http://www.nydailynews.com/news/2008/08/18/2008-08-18_hmo_rates_in_city_go_through_roof.html.

15 NYSID PowerPoint Presentation, slides 3-4.

16 AIS Risk Consultants, Inc., New York Health Maintenance Organization Profitability: Analysis of HMO Resultsin New York State From 2001 to 2005 (May 2006), at 4.

17 New York Health Advocates Roundtable: Task Force on Private Insurance, Patients First in Private HealthInsurance Coverage: A Consumer Protection Agenda for New York, May 2008 (hereinafter, Patients FirstAgenda).

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in the state distributed a wide-ranging health care agenda to key majority staff of both houses of

the Legislature. Recognizing that affordable universal health care coverage, their highest

legislative priority, would not happen overnight, they called upon the Legislature in the shortterm to help consumers squeezed by high premiums, unaffordable cost-sharing burdens,inadequate benefits, and denials of coverage for desperately needed medical care. The statement

urged passage of the Bradley/DeFrancisco bill as one of their highest priorities, given documented

problems with high premiums and outsized profits for managed care companies. Theparticipating organizations included the Center for Independence of the Disabled in New York,

Citizen Action of New York, the Community Service Society, Consumers Union, the Hunger ActionNetwork of New York State, Metro New York Health Care for All Campaign, New Yorkers for

Accessible Health Coverage, and Rekindling Reform.18 Several of these groups also met with keylegislative staff, including the staffs of the Senate and Assembly insurance committees where the

Bradley/DeFrancisco bill was pending, once again making clear that the bill was a high priority for

health care consumers.

However, once again, consumer representatives were outgunned by insurance company interests,who indicated their opposition to the Bradley/DeFrancisco bill, ensuring that it did not receive

serious consideration in the Senate.19 The states Project Sunlight database, which includesinformation on the bills that companies and non-profits lobbied on before the Legislature, indicates

that the New York Health Plan Association, Capital District Physicians Health Plan, Cigna, Excellus,

Group Health Incorporated (GHI), Wellpoint, the Health Insurance Plan of Greater New York (HIP),and other industry players lobbied on the bill.

And its clear that a component of the industrys efforts was the use of campaign contributions to

members of the Legislature and the leadership committees of each conference. For example, theNew York Health Plan Association, the 4th highest health industry contributor for the 2003-2007

period, contributed $102,348 in the five-year period, of which $29,563 was given in 2007 alone.In this same period, Capital District Physicians Health Plan (the 7th highest contributor) gave

$21,200, Excellus gave $15,200, and GHI gave $9,000. While these contributions were notnecessarily related to any particular bill, it is commonsense that state legislators are likely to listen

to the large contributors that fund their campaigns.20 Needless to say, the consumer groups

mentioned above made few if any campaign contributions to legislators during the period coveredby this study.We cannot say with certainty that all of the industry players mentioned in the Project Sunlight

database in fact opposed the bill, as state law does not require that lobbyists indicate their billpositions in filings with the New York State Lobbying Commission. In addition, bill memos were

only available from a small selection of parties with an interest in health insurance rate

reregulation. However, we believe the memos we were able to obtain reflect the general positionof the industry on this issue. In 2006, the Blue Cross and Shield Plans (the Blues) -- which

includes, for example, Excellus -- submitted a memo in opposition to an earlier rate reregulationbill (A.8816, Grannis). The memo argued that prior approval by the Insurance Department would

subject health insurer rates to political or public pressure, which may encourage the rejection ofnecessary premium increases, resulting in inadequate rates that will jeopardize the solvency of a

health plan. The Blues claimed that the MLR provisions in the law served as a superior means of

determining adequate health insurer rates, given that this method established an objective

18 Patients First Agenda.

19 Even the Assembly didnt bother to pass the legislation either in 2007 or 2008, presumably because theyhad passed the bill 9 times since 1998 and had seen no interest in the other house.

20 State law does not mandate that businesses and organizations disclose how much they spend to oppose orsupport a particular bill.

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standard [that ensures] that premiums are realistically calculated to cover costs.21 The New

York Health Plan Association, the main trade group for the managed care industry, added the

argument that rate procedures were administratively burdensome on both insurance plans and thestate.22

The arguments against prior approval seem highly dubious when balanced against the consumer

harm from escalating health insurance rates. Even New York State Court of Appeals JusticeVictoria Graffeo, an appointee of Governor Pataki, who had proposed the 1995 deregulation bill,

found one major industry argument unpersuasive when it was advanced to her in a legal challengeto the Insurance Departments attempts to exercise authority over insurance company rates after

the 1995 law. (The legal challenge succeeded.) Judge Graffeo said that Excellus argument thatminimum and maximum loss ratios will protect consumers from excessive rates without prior

Insurance Department approval does not stand scrutiny in light of, for example, rate increases

for HMOs in the direct pay market of 69.3 percent between 1999 and 2002. 23 In addition,Insurance Department investigations have uncovered numerous instances of health insurers

misstating the factors used to calculate MLRs under existing law, resulting in the overcharging ofconsumers. According to the Department, GHI overcharged consumers by $350,000 in 2001,

Empire overcharged consumers by roughly $25 million from 2002-2004, Excellus overchargedconsumers by $15.3 million from 2000-2004, and HealthNow overcharged consumers by $11.3

million for 2000-2004.24

Whatever the merits of health insurer arguments, it is clear that these arguments were persuasiveto the State Senate majority. For example, in introducing a bill to further weaken the already

minimal state oversight of health insurance premiums and profits, Senate Insurance Committee

chair James Seward used almost the same arguments in opposition to reregulation as the industry,stating that the prior approval process was overly subjective or political, administratively

burdensome and costly and, as a result, did not allow appropriate rate changes.25 SenatorSeward, the recipient of over $60,000 in contributions from health insurance interests in the 2003

to 2007 period, was clearly all ears when the industry opposed meaningful state oversight overhealth insurance rates. Once again, in 2008, the State Senate refused to hear the pleas of health

insurance consumers for relief from burdensome health insurance rates.

21 Memorandum of Hinman Straub in Opposition to A.8816 (February 24, 2006) (submitted on behalf of theNew York State Conference of Blue Cross and Blue Shield Plans).

22 Memorandum of New York Health Plan Association in Opposition to A.2518-A/S.2712 (January 23, 2006).

(A.2518/S.2712 was the bill number of the Bradley/DeFranciso proposal in the 2006 legislative session.) HPAeven creatively argued that reregulation could diminish the stock price of Wellpoint, the for-profit successorresulting from the conversion of Empire to for-profit status, thus putting a hole in the state budget. HPAreasoned that the state is now the largest recipient of stock from the proceeds of the conversion.

23 Matter of Excellus Health Plan, Inc. v. Serio, 2 NY.3d 166 (J. Graffeo, dissenting).

24 NYSID PowerPoint Presentation, slides 14-17.

25 Sponsors Memorandum in Support of S.8354-B (June 2008).

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V. Clean Elections Legislation: A Necessary

Precondition to Fundamental Health Insurance Reform

As we stated in the introduction to this report -- in order to achieve fundamental health insurancereform, we must rectify the power imbalance between the industry and consumer interests. Publicfunding of campaigns is critical to changing this power imbalance.

1. Clean Elections: A National Overview

Clean elections, full public financing of campaigns is a voluntary option to the current privately

funded system. In the clean elections model, candidates must first qualify by collecting a setamount of small contributions from voters in their district. Once qualified, candidates agree not to

raise or spend any private money and to accept strict spending limits. In return, they are given afixed and equal amount of public funds to run their primary and general election campaigns. If a

publicly funded candidate is being heavily outspent by a well-funded opponent or an outside

organization, there are additional funds available to publicly funded candidates to make sure theystay competitive.

The impetus for publicly financed elections dates back to the early 20th Century, when Progressive

Era reformers sought to curb the undue political influence wielded by multimillionaires createdduring the 19th Centurys industrial revolution. However, it was not until the late 1990s that a

successful movement emerged for full public financing of elections. Since then, the movement has

continued to grow vigorously. Some form of clean elections legislation has passed in eight statesand two municipalities -- Arizona, Connecticut, Maine, Massachusetts, New Jersey, New Mexico,North Carolina, Vermont, as well as Albuquerque and Portland.

Clean elections provides the opportunity for candidates to compete for office without having toraise money from wealthy individuals and interests or have great personal wealth. The result is

that candidates can run because of their ability to raise issues and build popular support rather

than their fundraising prowess. Rather than being forced to rely on special interest donors to payfor their campaigns, candidates are accountable under clean elections to the public, ending theirreliance on special interest campaign cash. Being freed from the money chase means candidates

have more time to spend with constituents, talking about issues that matter to them. When they

enter office, they can consider legislation on the merits, without worrying about whether they arepleasing well-heeled donors.

Maine and Arizona have been using a clean elections system since 2000 after the voters of thosestates established it through ballot initiatives. In both states, the statute applies to statewide racesand the state legislature. In Maine, 84 percent of state legislators were elected in 2006 without

any private funds.26 In Arizona, Governor Napolitano and eight other statewide elected officials

were elected in 2006 without taking campaign funds from private interests.27 North Carolina hashad a system of full public financing in place for judges since 2004.

In December 2005, Connecticut became the first state legislature to enact a system of full publicfinancing for statewide and legislative offices. Connecticuts comprehensive law included manyother reforms, including a prohibition on campaign contributions from those who hold state

26 Maine Commission on Governmental Ethics and Election Practices, 2007 Study Report: Has Public FundingImproved Maine Elections? (2007), http://mainegov-images.informe.org/ethics/pdf/publications/2007_study_report.pdf.

27 Clean Elections Institute, 2006 Elected State Officeholders,http://azclean.org/documents/2006ElectedStateOfficeholders.PDF.

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contracts. The New York Times called Connecticuts clean elections law an instant model for other

statehouses in a December 2, 2005 editorial.28 This 2008 election cycle, Connecticuts candidates

will be able to use their new public financing system for the first time, and only 10 of the 225candidates have not chosen to participate.29

2. A Brief History of Clean Elections Legislation in New York

In 1978, the New York State Legislature considered its first ever public campaign finance bill. Thebill, written by Manhattan Assemblyman Richard Gottfried, was used as the model for New YorkCitys well-known matching funds public financing system. This early public matching funds

legislation was passed by the State Assembly for decades, with its most recent sponsor being

Assembly Speaker Sheldon Silver. Throughout that time, there was no movement on the bill bythe Republican majority in the State Senate.

In 2006, Eliot Spitzer and David Paterson supported clean elections full public financing during theircampaigns for Governor and Lieutenant Governor. In his January 2007 State of the State address,then Governor Eliot Spitzer stated that: [f]ull public financing must be the ultimate goal of our

reform effort. By cutting off the demand for private money, we will cut off the special-interest

influence that comes with it. Minutes after the speech, then Republican Senate Majority LeaderJoseph Bruno complained that lower contribution limits would disenfranchise people who want to

give money to favored candidates.30

Throughout 2007, Governor Spitzer worked to negotiate a campaign finance reform agreement toreform the existing law before implementing a public financing system. However, no bill was

passed by the Legislature. Senator Bruno remarked that his conference had a fundamental, basic

problem with limiting campaign contributions. Bruno said that: [f]reedom of expression [and]freedom of speech would be trampled on with finance limits.31

Contrary to Brunos statement, clean elections would allow more voices to be heard in the politicalprocess. The system encourages more small donors to participate by giving candidates the smallqualifying donations needed to enter the public system. Candidates under clean elections no

longer worry that the amount of speech available is based on the amount of money in their

campaign war chests.

In June of 2008, the State Assembly, led by long time public financing of elections supporter

Speaker Sheldon Silver, passed A.11507, a hybrid approach to public financing that combined the

Speakers former matching funds proposal with a clean elections, full public financing model.A.11507 would create a robust public funding system that would give candidates four public dollarsfor every dollar they raise in contributions of $250 or less from a New York State resident. In

addition, the current bill includes elements of Connecticuts clean elections system. Specifically, aparticipating candidate that is outspent by a nonparticipating opponent would be entitled to receivepublic funds to stay competitive, in 25 percent increments up to double his or her original allotment

of public funds.

28 Editorial, It Takes a Statehouse Scandal, New York Times, December 2, 2005,

http://www.nytimes.com/2005/12/02/opinion/02fri3.html?_r=1&oref=slogin.

29 Editorial, Cleaning Up Connecticut, New York Times, August 5, 2008,http://www.nytimes.com/2005/12/02/opinion/02fri3.html?_r=1&oref=slogin.

30 Elizabeth Benjamin, Silences Spoke Louder Than Right Words, Albany Times Union, January 4, 2007,http://timesunion.com/AspStories/story.asp?storyID=550429&category=STATE&newsdate=1/4/2007.

31 Rick Karlin, A Fight Looms Over Reform, Albany Times Union, April 24, 2007; see also Karen Dewitt,Session Ends in Stalemate, WXXI, June 21, 2007 (Bruno criticizes Spitzers alleged obsession withcampaign finance reform),http://www.publicbroadcasting.net/wxxi/news.newsmain?action=article&ARTICLE_ID=1102290&sectionID=162.

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Senate Minority Leader Malcolm Smith introduced a clean elections, full public financing proposal in

the State Senate (S.7175A) in 2008. Seventeen additional Senate Democrats promptly signed onas co-sponsors, but no member of the Republican conference agreed to co-sponsor the bill.

The failure of the State Senate to pass the bill thus far is clearly against the sentiments of their

constituents. A poll by Zogby International of 770 likely voters conducted in April of 2008 found 74percent in favor of a system of full public financing of election campaigns in New York, with 45

percent strongly in favor. (Twenty-two percent opposed the concept, 13 percent strongly.)Upstate, suburban and independent voters were the most supportive of public financing. The poll

also presented three paired arguments for and against the proposal, including statements that theproposal would allegedly be a bad use of taxpayer money. The arguments for the proposal

prevailed by large margins of 22 percent to 34 percent. Further, after hearing arguments for and

against the proposal, the proposal picked up more support, with a final tally of 79 percent in favorand 18 percent opposed.32

32 Public Policy and Education Fund, Clean Elections poll Zogby poll of likely voters in New York, April 28,2008; (memorandum to interested parties),http://www.citizenactionny.org/press/latestnews/CE%20Poll%20Results%20Memo%20.pdf.

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VI. Conclusion

This report finds that the health insurance industry provided large amounts of support to individuallegislators and affiliated party leadership committees from 2003 to 2007. During this period, the

State Senate failed to pass reforms to improve the health insurance system, such as the

Bradley/DeFrancisco bill. As illustrated by the Bradley/DeFrancisco bill, campaign contributions

have influenced the State Senate Republican majority again and again to favor the views ofindustry over the needs of consumers.

This report provides additional documentation that as citizens of New York struggle to pay theirheating bills, find affordable housing and receive affordable, quality health insurance, they cannot

look to government to fully address their needs, because corporate special interests in Albany,

including health insurance interests, continue to thrive in its pay-to-play culture. The StateSenate Republican majority is the most closely aligned with health insurance interests of the twolegislative houses. We do not believe that it is a coincidence that the State Senate majority

received far more campaign cash than the Assembly Democrats from the health insurance industry.

It is also not coincidental that the State Senate majority has steadfastly maintained its oppositionto public financing of elections that would give health insurance consumers a greater voice in the

health insurance policy debates in Albany.

In this 2008 election cycle, we will no doubt see new levels of fundraising and campaign giving. Asthe polling detailed in this report indicates, New Yorkers understand that state government must

change its ways. And the reform needed is not just a patching of the current broken system, but a

new system of clean elections, full public financing of campaigns. As New Yorkers and the stategovernment hit hard economic times, it is even more critical for citizens to have trust ingovernment and confidence that decisions are made on behalf of the public interest, rather than

corporate campaign donors.

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Appendix 1: Methodology

This report analyzes the campaign contributions of health insurance interests to members of the

State Legislature from January 1, 2003 to December 31, 2007. Where noted in the findings, ourcontributions data to party conferences (Assembly Democrats, Senate Republicans, etc.) includes

contributions to the four official leadership committees controlled by the party leaders in each

house (Senate Republican Campaign Committee, Democratic Senate Campaign Committee,

Democratic Assembly Campaign Committee, Republican Assembly Campaign Committee).

For this report, we included all contributions from businesses that played a role in providing health

insurance to New Yorkers as a substantial portion of their business. (This could be directly,through subsidiaries, or through the donors parent company, or affiliate.) We also included trade

associations, PACs, and similar organizations established in whole or in part to advance the

interests of health insurers.

Citizen Action received the contributions data for this report from The National Institute on Money

in State Politics (Institute), which describes itself as the only nonpartisan, nonprofit organization

revealing the influence of campaign money on state-level elections and public policy in all 50states.33 The Institute receives its data in either electronic or paper files from the state disclosure

agencies with which candidates must file their campaign finance reports, the New York State Board

of Elections in the case of New York. The Institute breaks down all contributors in its database thatare identified by economic interest within 19 general economic sectors, and each of the 19 sectorsis then broken down further into subcategories. The Institute subcategories that we used for this

study are listed below.

National Institute on Money in State Politics Categories Used in this Report

Sector(The Institute has 19

categories for all contributors)

Industry

Finance, Insurance and Real Estate Insurance

Finance, Insurance and Real Estate Misc. Finance, Insurance and Real Estate

Health Health Services

Citizen Action selected -- in consultation with the Institute -- all categories and subcategories in the

Institutes databases containing contributors that might have a connection to the health insuranceindustry.34 Through independent research, we then deleted from the subcategories we selected

any contributions from entities that do not provide health insurance to New Yorkers, or that were

not PACs or trade associations representing substantial numbers of health insurers. Our researchresulted in a universe of close to a thousand contributions over the five-year period covered by this

study. While it is conceivable that there are other health insurance contributions that are notincluded in this report (for example, if our research did not identify all trade groups with some

relationship to health insurance), we are confident that we have included the overwhelmingmajority of contributions by health insurance interests, and therefore we have presented an

accurate picture of the pattern of giving by the industry.

33 National Institute on Money in State Politics, Mission; (web page:http://www.followthemoney.org/Institute/index.phtml?PHPSESSID=dc959833f2ce19a07a7ac76b1849791b).

34 National Institute on Money in State Politics, About Our Data; (web page:http://www.followthemoney.org/Institute/about_data.phtml.) A full listing of the Institutes categories andsubcategories may be found at this location. The Institute indicates that it assign[s] political donors an

economic interest code, based either on the occupation and employer information contained in the disclosurereports or on information found through a variety of research resources. These codes are closely modeled ondesignations used by the federal government for classifying industry groups.

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Documents

The High Cost of "Pay-to-Play": Health Insurance Contributions Drive Up Insurance Rates