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

SPONSOR Snyder

DATE TYPED 02/23/05 HB

SHORT TITLE Employee Health Insurance Tax Credit

SB 290

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($20,000.0) ($40,000.0)

Increasing Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to House Bill 284

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 290 creates new sections in the Income Tax Act and the Corporate Income and Fran-

chise Tax Act to provide tax credits to small New Mexico employers (with 50 or fewer employ-

ees) for a portion of employee health insurance premiums paid. The tax credit would equal 50

percent of premiums paid for each of the first five years during which the taxpayer pays em-

ployee health insurance premiums and 35 percent in a year that is not one of the first five years.

The tax credits are not refundable nor can they be rolled over into subsequent tax years.

PERFORMANCE IMPLICATIONS

According to comments from the Human Services Department regarding a similar bill, the provi-

sions of Senate Bill 290 would address the Human Services Department goal of providing New

Mexicans access to support and services so they may move toward self-sufficiency. HSD also

made comments to suggest that a bill like Senate Bill 290 would target several performance

measures the Governor has identified to reduce the uninsured population and increase the rate of

employer-sponsored health insurance in New Mexico. The Governor is introducing a package of

legislation aimed at decreasing the uninsured rate by 10 percent.

Senate Bill 290-- Page 2

FISCAL IMPLICATIONS

The total fiscal impact, as estimated by TRD, is -$40 million to the general fund in FY06.

According to the Labor Department, there are approximately 39,000 firms in the state with less

than 50 employees. These firms have a total of approximately 286,000 thousand employees.

Based on the HPC surveys, an average 55 percent (157,000) of these employees have some form

of employer-sponsored insurance coverage, and the average employer-paid premium per em-

ployee is $3,250 per year. The fiscal impact estimate assumes an increase of about 5 percent (or

7,850 covered employees) in tax year 2005, with a slower rate of increase thereafter. TRD im-

pacts were estimated using information from the NM Department of Labor and from surveys on

employment-based health insurance coverage in New Mexico conducted in 2000 and 2004 under

the sponsorship of the New Mexico Health Policy Commission.

Using the above assumptions, TRD calculates that total premiums eligible for the credits would

be about $500 million, generating potential credits of $250 million at the 50 percent rate. TRD

notes that actual credit claims would be sharply limited by total income tax liability of firm own-

ers. Using ratios derived from the I.R.S. Statistics of Income for corporate and personal income

tax returns, TRD notes that total taxable income for the firms affected by the bill is estimated to

be about $800 million. At an average tax rate of approximately 5 percent, this yields total in-

come tax of $40 million per year. This amount is the limit of the total credits that can be claimed

because the bill’s proposed tax credit in excess of tax liability is not refundable or allowed to be

carried forward.

ADMINISTRATIVE IMPLICATIONS

It is likely that the cost to the Department of Taxation and Revenue of administering the pro-

posed measure would reportedly be relatively minor.

OTHER SUBSTANTIVE ISSUES

HSD provided the following comments on a similar bill being proposed :

According to the Census’ 2003 Current Population Survey, New Mexico ranks second in the na-

tion for the rate of uninsured at 22.1 percent or an estimated 414,000 individuals. The NM

Health Policy Commission’s recent survey of New Mexico employers reported that 70 percent of

employers who currently do not offer health insurance want some form of tax relief from the

state. Twenty six percent of the employers, who do not offer coverage, say they are likely to of-

fer a plan in the near future to their employees. The employer survey findings indicate employ-

ers are very likely to support and utilize such a tax credit. Implementation of the tax credits con-

tained in the bill could have a positive impact on the high rate of uninsured in New Mexico.

OPJ/lg