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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

2/14/07

3/09/07 HB

SHORT TITLE Employer-Sponsored Insurance Tax Credits

SB 869/aSCORC

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($550.0)

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with S723

Relates to SB871

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of SCORC Amendment

The Senate Corporations and Transportation Committee amended Senate Bill 869 allowing the

credit only to those employers who have not provided insurance in the past 12 months, removes

the additional 5 percent credit and sunsets the credit effective January 1, 2010.

Synopsis of Bill

Senate Bill 869 provides an income tax credit to NM employers with fewer than ten employees

for up to five percent of employer-sponsored health insurance. The credit can be claimed against

either personal income tax liability or corporate income tax liability. If the employer has not

provided health insurance in the past twelve months, the employer is entitled to an additional 5

percent credit. The credit is refundable which means that if the credit exceeds tax liability the

excess is returned to the taxpayer.

The effective date is January 1, 2007.

Senate Bill 869/aSCORC – Page

2

FISCAL IMPLICATIONS

The fiscal impact was revised due to an inaccurate estimate of the number of new

employees that would be covered.

There are 29,000 employers with fewer than ten employees. Total employment for these

employers is 97,000. The Health Policy Commission estimates, based on survey data of

employers, that 46 percent of those employers who employ between 1 and 5 employees and 63%

of those employers between 5 and 10 employees currently provide health insurance. Assuming

the credit entices enough employers to show a 2 percent growth rate in coverage and an average

health insurance premium of $5,100 (weighted by family size), the five percent credit would

reduce income tax collections by $550 thousand in FY08. An estimated 2,000 employees would

be newly covered by insurance. As noted below, the number of employers providing health

insurance is declining and so a 2 percent increase in covered employees is a reasonable

assumption.

Table 1: Fiscal Impact

# Employees

5% Credit

New Employees

2,000

550,000

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.

According to the Kaiser Family Foundation, which tracks a host of health related issues, the

percentage 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

providing 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.

The importance of health care coverage in New Mexico cannot be understated. Other than

Texas, no other state has a higher percentage of uninsured than New Mexico. The chart below

shows the state rankings.

Senate Bill 869/aSCORC – Page

3

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 723 offers a similar credit but the credit is between 35 and 50 percent and the firm

size threshold is 50 employees. Senate Bill 871 provides a credit for the purchase of health

insurance by an individual.

NF/mt