Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

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

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ORIGINAL DATE

LAST UPDATED

1/20/08

1/31/08 HB 148

SHORT TITLE Employee Wellness Program Tax Credit

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

($218.7)

($1,531.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates SB148

Relates to SB225, HB62 and HB147

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY08 FY09 FY10 3 Year

Total Cost

Recurring or

Non-Rec

Fund

Affected

Total

$162.85 $162.85

$315.7

Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Health (DOH)

Health Policy Commission (HPC)

Taxation and Revenue Department (TRD)

New Mexico First

SUMMARY

Synopsis of Bill

House Bill 148 creates a new credit against personal and corporate income tax liability for

employers who have a qualified “wellness" program in place. The credit cannot exceed the

product of $200 and the number of up to 200 NM resident employees plus the product of $100

and the number of employees for over 200 NM resident employees. So a company with 100

employees would be eligible for a credit of $20,000 (100 employees x $200) while a company

House Bill 148 – Page

2

with 300 employees would be eligible for a credit of $50,000 (200 employees x $200 + 100

employees x $100).

DOH, in consultation with HPC, TRD and the Workforce Solutions Department, is charged with

certifying a company’s wellness program which must contain at least three of the following:

•

Health awareness: dissemination of health information and screening for employees

•

Employee engagement: a committee to engage employees and employee tracking

•

Behavioral change: programs that provide counseling, seminars, on-line programs or self-

help materials to address behavioral health issues such as smoking, obesity, stress, fitness,

nutrition, substance abuse, depression and mental health promotion

•

Supportive environment: policies and services that promote healthy lifestyles including

tobacco use policies, availability of nutritious food, stress management and the

encouragement of physical activity

The credit will be available for tax years 2008 to 2017 and will only apply to current tax year

liability.

FISCAL IMPLICATIONS

The fiscal impact has been determined by using information from Indiana’s experience with a

similar wellness credit. Indiana saw that it took about six months to get the certification

procedures and criteria up and running and then the take-up of employers was about twenty per

month. Following the Indiana experience, the assumed take-up rate is 5 per month and it is also

assumed that 75 percent of the companies that take advantage of the credit are companies with

more than 100 employees and 25 percent are companies with 50 to 99 employees. This is a

revised impact from the previous FIR pursuant to more information about the ability of

companies to retool existing wellness programs to become certified. Wellness programs,

particularly given the criteria laid out in HB148, are more attractive to larger employers due to

the fixed costs associated with it. The average cost of the credit per employee is based on the

attached document from the Texas Department of State Health Services.

FISCAL IMPACT OF WELLNESS CREDIT

months

50-99

employees

Greater than

100

employees

Total

Employees

Average

Benefit =

$100 per

employee

Fiscal Year

of Impact

Average Employment

68

269

2008

2

3

8

2,188

218,750

FY09

2009

12

18

53

15,313

1,531,250

FY10

2010

12

33

98

28,438

2,843,750

FY11

2011

12

48

143

41,563

4,156,250

FY12

Company Size

It should be noted that TRD has estimated a much higher impact based on a different

methodology. The impact here shows a much slower rate of adoption than the TRD analysis and

is largely based on the Indiana experience. However, the different estimates point to significant

upside risk in this estimate and that if the credit is adopted much faster than shown here, the

credit becomes significantly more expensive.

House Bill 148 – Page

3

SIGNIFICANT ISSUES

DOH:

Nearly 890,000 cases of seven common chronic diseases — cancers, diabetes, heart

disease, hypertension, stroke, mental disorders, and pulmonary conditions — were

reported in New Mexico in 2003. (The Milken Institute. An Unhealthy America: The

Economic Burden of Chronic Disease. October 2007.

http://www.chronicdiseaseimpact.com/ebcd.taf.cat=state&state=NM)

These conditions shorten lives, reduce quality of life, and create considerable burden for

caregivers. The Milken Institute has estimated that between 2003 and 2023, NM could

potentially save $6.3 billion (or 26.4%) in direct medical expenditures and lost

productivity due to chronic diseases if moderate changes were made toward prevention

and screening. The leading causes of preventable disease and death are tobacco use, lack

of adequate physical activity, and poor nutritional practices.

Lack of physical activity and poor nutritional habits are believed to be the biggest

contributors to overweight and obesity. Overweight and obesity in adults increase the

risk of diabetes, cardiovascular disease, asthma, arthritis, some cancers, and poor

functional health status. Chronic diseases such as these are responsible for six out of

every ten deaths in New Mexico.

The worksite is an ideal setting for health education and disease prevention programs

because employees spend significant hours at work.

Individuals with lower incomes and educational attainment tend to have poorer health

status when compared to people earning more money and with higher education. By

reaching New Mexico residents at their worksites, HB148 could positively impact non-

professional populations that have been identified to have higher rates of obesity, tobacco

use, substance abuse, depression, and poor nutrition and physical activity behaviors.

The February 2007 issue of State Legislatures, a National Conference of State Legislatures

publication, reported on wellness programs and found at the time seven states had tax credits

including Hawaii, Iowa, Mississippi, New Jersey, New York, Rhode Island and Wisconsin. “The

idea is to provide employers—especially smaller businesses—with income, franchise or

corporate tax credits for wellness programs such as nutrition, weight management, smoking

cessation or substance abuse counseling, or purchasing or maintaining fitness equipment."

According to NCSL:

Investing in employee health also pays off. Healthy workers are more productive. An

analysis of 32 studies of workplace wellness initiatives found 28 with an average return

on investment of $3.48 per $1 in program costs, as reported in 2001 in the American

Journal of Public Health. Citibank saved $8.9 million over two years after investing $1.9

million for wellness initiatives, translating into a return of $4.70 for each dollar spent on

the wellness program. Motorola saw a return of $3.93 for every dollar spent on its

wellness program, and saved nearly $10.5 million annually in disability expenses for

program participants compared to non-participants.

Corroborating NCSL, HPC cites research that indicates that workplaces with employee health

programs demonstrate a 2% to 5% increase in productivity and that those with health promotion

House Bill 148 – Page

4

programs save an average of $3.50 for every dollar spent, as measured by reduced absenteeism

and health care costs. Workplaces with wellness programs also report fewer work-related injuries

and lower stress levels.

PERFORMANCE IMPLICATIONS

DOH reports that the certification of wellness programs may be better handled by TRD.

However, TRD does not have the clinical experience to effectively evaluate a wellness program.

HPC may be an alternative entity to certify wellness programs.

ADMINISTRATIVE IMPLICATIONS

According to DOH, the agency is identified as a lead agency to implement key components of

HB148: reviewing, issuing, or declining certification of eligibility to all New Mexico employers

that apply, and promoting the wellness tax credit program. These duties would require 2 new

FTE, at an estimated recurring cost of $132,850.

According to TRD, one FTE would be needed by RPD, at a cost of $30,000, to manage a manual

process of tracking and reviewing the credits. A claim form and instructions would be needed at

a cost of approximately $1,000 to develop. Current publications would need to be changed.

Coordination would be required between the various agencies to administer the credit and to

establish the rules and guidelines.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

SB148 is a duplicate of HB148.

There are many health related bills this session. SB225, HB147 and HB62 have proposed

creating a health coverage authority that would be charged with developing wellness programs

and if created this authority may be a better entity to certify credits than DOH.

TECHNICAL ISSUES

There may be confusion about “NM resident" employees and border communities like Santa

Teresa or Gallup where employees may come from other states.

NF/mt

Attachment