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.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR B. Lujan

ORIGINAL DATE

LAST UPDATED

1/30/08

HB 391

SHORT TITLE Medicaid Dental Services Deduction

SB

ANALYST Schardin

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

(762.6)

Recurring

General Fund

(1,859.8)

Recurring

Federal Funds

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(1,547.2)

(1,624.6) Recurring General Fund

(1,075.2)

(1,129.0) Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Health (DOH)

Health Policy Commission (HPC)

Human Services Department (HSD)

SUMMARY

Synopsis of Bill

House Bill 391 would create a new gross receipts tax deduction for receipts for provision of

dental services to Medicaid patients that are not otherwise deductible. Dental services are defined

as services provided to a licensed dentist or dental hygienist. The effective date of the bill’s

provisions will be July 1, 2008.

House Bill 391 – Page

2

FISCAL IMPLICATIONS

HSD reports that gross receipts tax paid by Medicaid to dental providers was $2,378.6 thousand

in FY07. Although HSD reports that the amount of dental provider services paid by Medicaid

has been fairly stable, LFC expects the fiscal impact of the proposed deduction to grow as

enrollment in the program grows and the statewide effective tax rate grows higher. Assuming

growth of 5 percent per year, the bill would reduce gross receipts tax revenue by $2,622.4

thousand in FY09. Of that revenue loss, 59 percent would accrue to the general fund and 41

percent would accrue to local governments.

The deduction would allow Medicaid appropriations to decline by the same $2,622.4 thousand in

FY09. Because 70.92 percent of Medicaid appropriations for dental services are paid by the

federal government, $1,859.8 thousand of the appropriation reduction would be from reduced

federal funds, and the remaining $762.6 thousand appropriation reduction would be from the

general fund.

SIGNIFICANT ISSUES

DOH and HPC report that New Mexico currently has a shortage of dental service providers,

especially in rural areas. New Mexico ranks 49

th

among the states in the number of dentists per

capita. In 2006, the state had 882 active, licensed dentists and 812 active, licensed dental

hygienists. HPC reports that in 2006, there were no active, licensed dentists in Catron,

Guadalupe, Harding and Mora counties. The number of dental service providers serving

Medicaid patients is minimal.

Proponents of this legislation note that recruitment and retention of health providers has been

difficult in New Mexico because of the gross receipts tax. Economic theory suggests that a

shortage of healthcare labor will push healthcare wages, and therefore healthcare costs higher.

Although much of this problem was addressed in 2004 when Section 7-9-93 NMSA 1978 was

enacted, some healthcare practitioners in New Mexico still pay gross receipts tax, while their

counterparts in most other states do not. Unlike many businesses that are subject to gross receipts

tax but pass the tax on to consumers, many health providers cannot pass the tax on because

managed care organizations and Medicare refuse to pay the tax.

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

impacts, 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 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

The administrative impact on TRD is expected to be minimal.

House Bill 391 – Page

3

TECHNICAL ISSUES

HSD reports that the Centers for Medicare and Medicaid Services (CMS) could find this

provision to be in violation of the hold harmless rule resulting in disallowance of federal funding.

It is unclear why the bill proposes to remove the gross receipts tax burden from dental services

provided to Medicaid patients but not for other medical services provided to Medicaid patients.

HSD reports that if dental service providers are treated preferentially, other providers may raise

denial of equal protection issues. For a classification under tax laws to satisfy constitutional

requirements, there must be a rational basis.

SS/bb