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F I S C A L I M P A C T R E P O R T

SPONSOR HTRC

DATE TYPED 3-24-2005 HB 1102/HTRCS/aSFl

SHORT TITLE Public Peace, Health, Safety and Welfare

SB

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($3,300)

($6,600)

Similar Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Human Services Department (HSD)

SUMMARY

The Senate Floor amendments

The Senate Floor amendments have the effect of making a $2,800 tax credit available to all tax-

payers 65 years old or older with medical expenses in excess of $28,000.

Fiscal Impact of Senate Floor amendments

The Senate floor amendments increase the general fund revenue loss to $6.6 million in FY06.

The estimated revenue loss is equal to the Taxation and Revenue Department’s estimate of the

number of persons with medical expenses greater than 28 thousand and aged 65 or older time the

$2,800 credit: $2,800 X 2,361 eligible taxpayers.

The House Taxation and Revenue Committee amendments

The House Floor amendments make the following changes to the bill:

1.

A January 1, 2005 applicability date is added.

2.

The section dealing with the Medical Insurance Pool Act is deleted.

Synopsis of HTRC committee substitute

The House Taxation and Revenue Committee substitute for HB 1102 provides a state income

House Bill 1102/csHTRC/aSFl -- Page 2

tax credit for persons 65 years old and older. The credit is refundable and equal to 10 percent of

unreimbursed, uncompensated medical care expenses greater than $28 thousand. The maximum

credit allowed is $2,800.

The bill also adds a new section to the Medical Insurance Pool Act. The new provisions would

allow the board to establish a long-term care insurance plan for persons 65 years old or older.

The plan is prohibited from providing coverage for services provided under medicare or medi-

caid.

The bill does not state an applicability date. Provisions are assumed to take effect 90 days after

the end of the legislative session.

Substantive Issues

The state currently provides an income tax credit for uncompensated nursing home care that the

Centers for Medicare and Medicaid Services (CMS) has been found objectionable. Assuming

this credit is an alternative, consideration should be given to eliminating the nursing home credit.

These issues are explored further in the substantive issues section of the FIR.

The maximum credit implies uncompensated care of $56 thousand.

FISCAL IMPLICATIONS

TRD estimates that the proposed credit would reduce general fund revenues by $3.55 million in

FY06, the first full year for which the credit would be available.

The TRD analysis reports an estimated 2,230 federal income tax returns and 131 state income tax

returns with medical expense deductions in excess of $28 thousand. They estimate that total de-

ductions in excess of the $28 thousand minimum threshold and below the $56 thousand maxi-

mum against which the credit may be applied is approximately $34.5 million—the tax base.

Applying the 10 percent credit against this base implies a full-year revenue loss of $3.45 million.

The revenue loss in FY05 results from the assumption that the credit would be available in

FY05, with half of the cost accrued to FY05 and half to FY06.

ADMINISTRATIVE IMPLICATIONS

TRD reports that the bill has no administrative implications for the department.

TECHNICAL ISSUES

TRD suggest that an applicability date be added.

HSD also suggested an applicability date be added. Their comments were:

Depending on when applicability occurs and whether the existing nursing home tax credit

is repealed, there could be overlapping credits during FY05; one for the first few months

of CY05, prior to the repeal of the nursing home tax credit, and one for the entire year,

per HB 1102. If this overlap occurs, the FY05 fiscal impact could be higher than indi-

cated. To avoid the problem, the legislature may want to consider making HB 1102 ef-

fective for tax year beginning on January 1, 2006.

House Bill 1102/csHTRC/aSFl -- Page 3

OTHER SUBSTANTIVE ISSUES

The credit provided in this bill would cover a broad range uncompensated medical care services

in excess of $28 thousand (including nursing home care) and thus might represent an alternative

to the current nursing home credit that the Centers for Medicare and Medicaid (CMS) have

found objectionable. Because that credit applied only to uncompensated nursing home care,

CMS argued that effectively only Medicaid paid the tax. Since this credit is not targeted only on

nursing home services, CMS may have less of a basis on which to object. However, in a time

when the federal government is closely scrutinizing the Medicaid budget, the risk of a CMS ob-

jection needs to be acknowledged.

The Human Services Department Analysis raises points similar to the above. Their comments

are reproduced here:

This bill is unclear about eligibility requirements, benefits structures, or the overall long

term care insurance plan. This would result in additional assessments to insurance com-

panies and additional resulting tax credits for those insurance companies. The resulting

cost to the state general fund is impossible to determine without further definition of what

the plan would be. It is impossible to know at this time whether CMS will find the provi-

sions of this tax impermissible resulting in additional deferrals of federal funds. If CMS

does make that determination, the resulting loss of federal funds would be comparable to

that of the failure to repeal the tax credit for out of pocket

nursing home costs.

SUGGESTED AMMENDMENTS

HSD recommends amending two sections to prevent conflicts in the law.

Section 3. Applicability – The provisions of Section 1 of this act apply to taxable years begin-

ning on or after January 1, 2005

Section 4. Contingent Repeal

A. Upon the certification by the secretary of human services to the taxation and revenue depart-

ment that the provisions of Section 1 of this act have resulted or will result in a reduction of fed-

eral Medicaid reimbursements to the state, Section 1 is repealed and the provisions of that sec-

tion shall not apply to any tax year beginning on or after the next January 1 following the certifi-

cation.

B. Upon the certification by the secretary of human services to the board of directors of the

medical insurance pool that the provisions of Section 2 of the act have resulted or will result in a

reduction of federal Medicaid reimbursements to the state, Section 2 is repealed effective the

first day of the month following the month in which the certification is made.

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