Health insurance firms that operate in New York and have out-of-state entities could be in line for a tax increase under a proposal backed by Democratic lawmakers and a powerful health care workers union. 

The measure would apply a 9.63% tax on profits generated by insurance companies in New York that are sent out of state. 

Supporters contend the tax would aid struggling health care networks in the aftermath of the COVID-19 pandemic. Business organizations, however, are worried the tax increase would hurt the state's economy, patients and is ultimately unconstitutional. 

The measure is being called for as lawmakers in Albany are wrapping up the legislative session, due to conclude on June 8. 

"When these billion dollar insurance companies are taking record profits from New York out of state, we need to recoup some of that money and reinvest it back into New York workers, back into New York health care institutions," said state Sen. Tim Kennedy. 

Lawmakers want the money to aid financially struggling hospitals and health care centers that have struggled in the wake of the pandemic.

"That tax goes back into our distressed hospitals, into our frontline workers, the heroes who have been there for us," Kennedy said. 

New York’s budget this month boosted health care spending – including money through the Medicaid program. State Assemblyman Erik Dilan says it wasn’t enough.

"This past budget was pretty robust in terms of assistance for hospitals, but they didn’t get everything that they wanted and they didn’t get everything that they need," Dilan said. 

The measure faces a potential uphill fight in the Legislature given the state budget is already a month in the books. 

Eric Linzer of the New York Health Plan Association says the tax is constitutionally questionable, essentially creating a system of double taxation for the companies. New York already draws a significant amount of its revenue from insurance taxes. 

"These types of proposals are anti-business," said Linzer, the group's president and CEO. "They really create a disincentive to be investing in our local communities and economies and it’s going to hurt the local economy."

And Republican Assemblyman Will Barclay says the costs ultimately could be passed onto patients with health insurance.

"The money doesn’t come out of thin air. It’s got to come from somewhere," Barclay said. "It’s going to come from premiums and it’s going to increase the cost of premiums."