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SPONSOR: |
Larranaga |
DATE
TYPED: |
|
HB |
698 |
||
SHORT
TITLE: |
Employee
Health Insurance Premium Tax Credit |
SB |
|
||||
|
ANALYST: |
Smith |
|||||
REVENUE
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
FY03 |
FY04 |
|
|
|
|
(56,000.0) |
(56,000.0) |
Recurring |
General Fund |
|
|
|
|
|
(Parenthesis
( ) Indicate Revenue Decreases)
Responses
Received From
TRD
SUMMARY
Synopsis of Bill
House Bill 698 provides
a ten-percent credit for the aggregate amount of health insurance premiums paid
by owners of small businesses on behalf of their employees. To qualify for the
credits, employers must pay at least 60 percent of the health insurance
premiums for one or more employees in the tax year for which tax returns
claiming the credits are filed. The credits may be taken against personal or
corporate income tax liability. The credits are not refundable.
The proposal defines
“health insurance premium” as amounts paid by small businesses to insurers or
other persons providing coverage for health care services, including preventive
care, emergency care, impatient and outpatient hospital and physician care,
diagnostic laboratory and diagnostic and therapeutic radiological services, and
that meets requirements of the New Mexico Insurance Code. A “small business” is defined as a person or
legal entity employing 50 or fewer employees in
FISCAL
IMPLICATIONS
TRD relied on data contained in the 2000 Employer Survey by the New
Mexico Health Policy Commission (“HPC”) reported the following results for
private sector employers in New Mexico:
·
Statewide, 58% of private employers offer a health
insurance program to some or all of their employees. The likelihood that an employer offers a
health program varies significantly across industries, from a high of 84% in
mining to a low of 44% in agriculture;
·
All establishments with 200 or more employees had a
health program, but the smaller the establishment the less likely it was to
offer a program. The lowest reported
rate was 46% for establishments with less than 5 employees.
·
In general, full-time employees are more likely to
be eligible for health insurance than are part-time and temporary
employees. The proportion of employees
who are eligible for insurance increases with the size of the establishment,
from 41% in establishments with less than 5 employees to 88% in those with more
than 200.
·
Take-up rates—the percentage of eligible employees
who actually enroll in an establishment’s health plan—also vary with size of
business, full-time status and other factors.
Statewide, an average of 80% of fulltime workers eligible for insurance
are actually enrolled in a plan. 36% of
part-time and 52% of seasonal employees were enrolled.
·
The statewide average reported premium paid was
$2,500 for an individual plan and $5,200 for a family plan. On average, employers paid 79% of the cost of
the individual plans and 69% of the cost of the family plans.
The 2000 Employer Survey by the New Mexico Health Policy Commission
(“HPC”) reported the following results for private sector employers in
·
Statewide, 58% of private employers offer a health
insurance program to some or all of their employees. The likelihood that an employer offers a
health program varies significantly across industries, from a high of 84% in
mining to a low of 44% in agriculture.
·
All establishments with 200 or more employees had a
health program, but the smaller the establishment the less likely it was to
offer a program. The lowest reported
rate was 46% for establishments with less than 5 employees.
·
In general, full-time employees are more likely to
be eligible for health insurance than are part-time and temporary
employees. The proportion of employees
who are eligible for insurance increases with the size of the establishment,
from 41% in establishments with less than 5 employees to 88% in those with more
than 200.
·
Take-up rates—the percentage of eligible employees
who actually enroll in an establishment’s health plan—also vary with size of
business, full-time status and other factors.
Statewide, an average of 80% of fulltime workers eligible for insurance
are actually enrolled in a plan. 36% of
part-time and 52% of seasonal employees were enrolled.
·
The statewide average reported premium paid was
$2,500 for an individual plan and $5,200 for a family plan. On average, employers paid 79% of the cost of
the individual plans and 69% of the cost of the family plans.
TECHNICAL
ISSUES
TRD
notes the following technical issues:
In Subsection A of the
proposed amendment to the Income Tax Act (i.e., page 1, lines 20-25) and Subsection
A of the proposed amendment to the Corporate Income and Franchise Tax Act (page
3, lines 11-17), it would be appropriate to add language making it clear that
only premiums paid on behalf of NM employees are eligible for the credit.
As currently written, the
two “A” subsections simply reference health insurance premiums paid for
employees, but do not specify that these employees must be located in NM. Hence this language should be clarified
despite the fact that small business is defined to mean a person/business that
employs 50 or fewer employees in NM. The
two Subsection A’s can be clarified by making the following changes:
a)
on page 1, line 23, insert “
b)
on page 2, line 1, insert “on behalf of
c)
on page 3, line 14, insert “
d)
at page 3, line 17, insert “on behalf of
Both Subsection A’s use the
phrase “engaged in a small business” (page 1, line 21; and page 3, line
12). Meaning of the term “engaged in a
small business” is unclear. Perhaps it would be appropriate to say: “A taxpayer
who is an employer and who files an individual New Mexico income tax return,
and who paid at least 60% of the health insurance premiums for one or more NM
employees of the taxpayer in the taxable year . . . ” Then add a new
subsection, which states substantially that: “The credit provided for in this
section shall only be available to a taxpayer who is a small business.” The definition of “small business” on page 3,
lines 4-6 and page 4, lines 5-8 would not need to be changed.
OTHER
SUBSTANTIVE ISSUES
TRD notes that insurance premiums paid by employers
are treated as business expenses and therefore currently deductible in varying
degrees against personal and corporate income obligations. The proposed measure
provides credits in addition to the current deductions. Health insurance premiums are already a
tax-advantaged means of compensating employees.
Economists would argue that the proposal would further exaggerate the
incentive to use this method of compensation, thereby distorting the labor
market as well as the market for insurance.
SS/yr/njw