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

SPONSOR

Beffort

ORIGINAL DATE

LAST UPDATED

2/4/06

HB

SHORT TITLE Employer-sponsored Insurance Tax Credit

SB 544

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(7,000.0)

(14,500.0)

(15,000.0) Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with SB 345, SB 606

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Kaiser Family Foundation (KFF)

Response Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 544 amends the Income Tax Act and the Corporate Income and Franchise Tax Act by

providing a credit for employers with an average of 10 or fewer employees during the tax year

for which the credit is claimed who provide health insurance to their employees. The credit is

for 5 percent of the premiums paid by the employer for the employees’ health care and is refund-

able meaning that if the credit exceeds tax liability, the remainder is refunded to the taxpayer.

The effective date is January 1, 2006.

Senate Bill 544– Page

2

FISCAL IMPLICATIONS

There are approximately 29,000 businesses in New Mexico with fewer than 10 employees. Us-

ing a calculator provided by TRD, the population expected to be covered is 70,000.

Average family health insurance costs $5,100 per policy (this is a weighted average that includes

singles, two person and family policies). Using these assumptions, a 5% credit on the em-

ployer’s portion of the insurance premium, which ranges from 73 percent to 80 percent, is ex-

pected to reduce income tax revenues by $14 million per year.

In FY06, the impact would be $7 million assuming the tax year is evenly divided amongst fiscal

years. In FY07, the reduction in general fund revenues would be $14.5 million and in FY08 it

would be $15.0 million and increase in subsequent years.

SIGNIFICANT ISSUES

Nationally, health insurance premiums grew tremendously over the last decade and though the

rate of growth has slowed in the last two years, it remains near 10 percent. That compares with

inflation at approximately 3 percent and the economy which is also growing at about 3 percent.

As the premiums increase, the number of employers offering health insurance decreases. Ac-

cording to the Kaiser Family Foundation, which tracks a host of health related issues, the per-

centage of employers offering health insurance has dropped from 69 percent to 60 percent in the

last few years.

In NM, affordable health insurance is more of a problem than nationally. The burden of provid-

ing health care access has shifted from the employer to the government, particularly for children

whose parents cannot get health insurance at work. States have recently been trying to reverse

that and one way is to offer tax incentives that encourage employers to provide access to health

insurance. However, the cost of health insurance is still an insurmountable obstacle for many

smaller businesses and if they provide it they have to pass on a significant share of the premium

to the employee.

NF/nt