After weeks of anticipation, Aetna announced it will relocate its corporate headquarters to New York City in 2018 while still keeping thousands of jobs at its Hartford campus – for the time being, at least.
The insurance giant said in Thursday’s long-awaited decision that it “remains committed” to its presence in Hartford, but put state lawmakers on notice by suggesting the nearly 6,000 jobs in its historic headquarters are not guaranteed to stay.
“Aetna’s long-term commitment to Connecticut will be based on the state’s economic health,” the statement said. “The company remains hopeful that lawmakers will come to an agreement that puts Connecticut on sound financial footing, and that the state will support needed reforms to make Hartford a vibrant city once again.”
Aetna’s decision to seek out a new site for its headquarters first became public late last month. The company said it expects to move about 250 executives into its new 145,000-square-foot headquarters in Manhattan’s Chelsea neighborhood late next year.
As part of the move, New York’s state government and New York City are giving Aetna about $34 million in subsidies, state and local officials said in separate press releases. The high-end space the company plans to move into had an asking price of $150 per square foot, which is more than double the average rent in Manhattan, according to Crain’s New York.
The decision comes despite Gov. Dannel P. Malloy’s efforts to keep the headquarters in Connecticut, including a promise to match any incentives put forward by other cities. Aetna CEO Mark T. Bertolini – who cut off direct contact with Malloy months before starting the headquarters search – was unreceptive to the governor’s offer.
Malloy said last month Aetna’s decision came down to one key factor: Bertolini didn’t like living in Connecticut. He already owns a home in New York City and spends many of his weekends there instead of Hartford.
Bertolini, who has said little publicly throughout the ordeal, offered his own thoughts on the move in Thursday’s statement.
“New York City is a knowledge economy hub, and a driver of the innovations that will play a significant part in our ongoing transformation,” Bertolini said. “Many of the roles in our new office will be filled by innovators from the area’s deep talent pool, which will be an invaluable resource as we consider additional investments in the city going forward.”
That statement only served to reinforce the question state and local officials have already begun to raise: How can Connecticut’s cities compete with New York and Boston? The answers have varied.
But there has been near-universal agreement among elected officials and business leaders alike on what the move represents – a blow to Connecticut’s business environment and an affirmation of the troubling state of its cities.
Yet, as Aetna changes its home address from Farmington Avenue in Hartford to Ninth Avenue in New York City, the company plans to keep nearly all of its jobs in Connecticut and continue playing a corporate jurisdictional game that will allow it to remain in the state’s friendlier regulatory environment.
After relocating, Aetna will be considered – legally speaking – a Pennsylvania company that is headquartered in New York City and regulated under Connecticut law.
Aetna, founded in Connecticut in 1853, has been considered a Pennsylvania company since 1996 – when it acquired U.S. Healthcare, based in Blue Bell, Pa. It used the acquisition as a vehicle to move under Pennsylvania’s legal jurisdiction, but has continued to remain in Connecticut’s regulatory jurisdiction in the years since.
“Following the headquarters move in late 2018, we will still consider Connecticut and Pennsylvania to be our primary/home regulatory jurisdictions,” said T.J. Crawford, an Aetna spokesman.
One favorable tax rate
While Aetna’s executive staff may be moving out, the “key businesses” that those executives oversee will remain based in Hartford. That will allow the company to keep Connecticut as its regulatory home, which has benefits. Among those is an already low tax on health insurance premiums that insurance companies have to pay, which is expected to become even lower when the state approves its two-year budget.
Forty-nine states and Washington, D.C. – including Connecticut – require insurers based outside their borders to pay a premium tax for every policy they write in their state. Each state sets its own rate, which ranges from 0.5 percent to 4.35 percent of the total cost of the policy, according to the governor’s office.
States have implemented a retaliatory provision in these taxes, requiring an out-of-state insurer to pay the higher of two rates – the state where they are selling the policy or the state where they are regulated. That makes it disadvantageous to relocate to a state with a higher premium tax rate, because that insurance company then would be forced to pay their home state’s higher rate to other states that have set otherwise lower rates.
Connecticut has been competitive because its rate is at the lower end of the scale. New York and Connecticut both have a 1.75 percent premium tax while Pennsylvania’s is 2 percent. Connecticut, however, appears poised to reduce its rate to 1.5 percent. All major state budget proposals unveiled this legislative session have included the provision.
Much to the chagrin of state and local officials, Aetna’s decision to relocate its headquarters was not based on the state’s regulatory environment. The state’s stagnant business climate and years-long budget crisis have been front and center.
New York Gov. Andrew M. Cuomo touted Aetna’s move as proof of New York’s economic vibrancy.
“Aetna’s decision to call New York home is another testament to the Empire State’s extraordinary economic momentum,” Cuomo said. “By relocating to New York and bringing another 250 jobs to the state, Aetna is sending a clear signal that New York is open for business.”
But Hartford Mayor Luke Bronin said he hopes Aetna’s decision sends another clear signal – that state lawmakers must take “bold action” quickly to aid Connecticut’s cities.
“The city of Hartford is finally seeing the start of the revitalization that eluded us for so long, and you can feel the new energy in the capital city,” Bronin said.
“But at the same time, Hartford and the state of Connecticut as a whole are facing fiscal crises that are decades in the making, and can’t be fixed with stop-gaps or Band-Aids,” Bronin added. “I hope that, as a state, we can use the loss of Aetna’s flag as a rallying cry to put Connecticut on a sound fiscal path and position our cities – including Hartford – to be the strong, vibrant centers of growth that Connecticut needs and that our major employers demand.”
Malloy said Connecticut’s cities need investment if they are going to become “even more dynamic and exciting places to work and to live.”
“Make no mistake – Hartford is experiencing a transformation with hundreds of new housing units, a major university campus moving downtown and an arts and culture scene that grows more vibrant each and every day,” Malloy said. “It is imperative that we act expeditiously in taking the necessary steps to address our long-term challenges head-on so that we are able to provide predictability for business and taxpayers alike.”
Senate Republican leader Len Fasano of North Haven said legislators agree. He said Aetna’s statement echoed the message Jim Loree, the chief executive of Stanley Black & Decker, delivered in a recent op-ed piece in The Hartford Courant.
“I think it was a message to the legislature to say, ‘Look, you’ve got to make changes, you’ve got to say the state is moving in a different direction.’ If not, both of those companies are going to end up leaving this state, not a doubt in my mind,” Fasano said. “I think legislators on both sides of the aisle have heard that message.”
Capitol Bureau Chief Mark Pazniokas contributed to this report.