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

SPONSOR Silva

ORIGINAL DATE

LAST UPDATED

2/01/07

HB 389

SHORT TITLE Hearing & Vision Aid Dispenser Gross Receipts

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(740.0)

Recurring General Fund

(490.0)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Department of Health (DOH)

Commission for the Deaf and Hard of Hearing

Commission for the Blind

SUMMARY

Synopsis of Bill

House Bill 389 creates a new gross receipts tax deduction for receipts from the sale of vision and

hearing aids or from fitting and dispensing of these types of aids.

Vision aids are defined as closed circuit television systems, monoculars, magnification systems,

speech output devices or other systems that specifically designed for use by persons with low

vision or visual impairment and not normally used by a person who does not have low vision or

visual impairment. Visual impairment is defined as a central visual acuity of 20/200 or less in the

better eye with use of a correcting lens, or a limitation in the fields of vision so the widest diame-

ter of visual field subtends an angle of 20 degrees or less.

Hearing aids are defined as small electronic prescription devices that amplify sound and are usu-

ally worn in or behind the ear of a person with impaired hearing. Hearing aids include cochlear

implants, amplification systems or other devices specifically designed for use by a person with

House Bill 389 – Page

2

hearing loss and not normally used by a person who does not have hearing loss.

The effective date of these provisions will be July 1, 2007.

FISCAL IMPLICATIONS

According to TRD, the 2002 Economic Census of Health Care Industries in New Mexico reports

that offices of audiologists had total revenue of $9.2 million and offices of optometrists had

revenue of $55.6 million in 2002. The estimated fiscal impact assumes that 75 percent of audi-

ologist receipts and 10 percent of optometrist receipts would be eligible for the gross receipts tax

deduction created in this bill. After adjusting for inflation, that means about $18.7 million of re-

ceipts will be eligible for the deduction in FY08. Assuming a statewide tax rate of 6.6 percent,

revenues will decrease by about $1,230.0 thousand. About 60 percent of this revenue loss will

accrue to the general fund and about 40 percent will accrue to local governments.

SIGNIFICANT ISSUES

According to the National Center on Hearing Assessment and Management, one in 10 Americans

has hearing loss. However, about 30 percent of those (2.8 million) do not have hearing aids be-

cause they are unaffordable. DOH reports that in 2006, the average cost of one hearing aid, ac-

cessories and related professional services is about $3 thousand. The cost to an individual requir-

ing two hearing aids would be about $6 thousand.

Hearing loss is one of the most common birth defects in the United States. According to DOH,

about 80 infants with significant hearing loss are born in New Mexico each year. Hearing loss

prevalence increases with age: about 31 percent of New Mexicans over the age of 65 experience

hearing loss and DOH estimates that 70 to 90 percent of New Mexicans in nursing homes ex-

perience hearing loss.

DOH reports that over half of New Mexicans under the age of 21 are enrolled in Medicaid,

which covers hearing and vision aids. Still, access to appropriate hearing and vision aids and re-

lated services is limited due to Medicaid’s low reimbursement rate and coverage limits. The New

Mexico Medical Insurance Pool covers hearing aids but requires high deductibles. Hearing aids

are not covered under Medicare and a DOH survey of New Mexico’s largest HMO/PPO plans

found that hearing aids are excluded from coverage.

For children, vision aids may be covered by the Public Education Department during the school

year, but not for home use. Insurance rarely covers durable medical equipment such as the types

of vision aids that will qualify for the deduction created in this bill. While working adults may be

able to acquire vision aids through the Commission for the Blind and Visually Impaired, senior

citizens who are not seeking employment will not be served by that commission.

The Commission for the Deaf and Hard of Hearing notes that corrective hearing and vision aids

improve communication and quality of life. The Commission for the Blind notes that making

hearing and vision aids more affordable will especially benefit children. Early detection of hear-

ing loss improves childhood development and reduces the need for special education and voca-

tional rehabilitation services later in life. Hearing and vision aids also award senior citizens

greater independence.

House Bill 389 – Page

3

LFC notes that while individual deductions from the gross receipts tax may have small fiscal im-

pacts, their cumulative effect significantly narrows the gross receipts tax base. Narrowing the

gross receipts tax base increases revenue volatility and requires a higher tax rate to generate the

same amount of revenue.

LFC also notes that receipts of health practitioners have historically grown faster than receipts of

other industries. Removing receipts from high-growth sectors from the gross receipts tax base

makes it more difficult for tax revenue to keep pace with inflation.

ADMINISTRATIVE IMPLICATIONS

Administrative impacts on TRD will be minimal.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 389 is related to House Bill 89, which would require group health coverage issued or

renewed under the Health Care Purchasing Act to provide coverage for hearing aids and related

services.

SS/sb