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

SPONSOR Snyder

ORIGINAL DATE

LAST UPDATED

1/23/08

1/31/08 HB

SHORT TITLE Long Term Care Insurance Premium Tax Credit

SB 114

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(12,080.0)

(8,242.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Aging and Long Term Services (ALT)

Taxation and Revenue Department (TRD)

Health Policy Commission (HPC)

SUMMARY

Synopsis of Bill

Senate Bill 114 creates a personal income tax credit that increases with age to offset the cost of

premiums for qualified long term care insurance. If the taxpayer claimed or deducted premiums

on federal tax forms or under other state tax programs, the credit is not allowed.

Phase in of credit

Age

% Credit

45-49

25.0%

50-54

37.5%

55-59

50.0%

60-64

62.5%

65+

75.0%

The credit can be claimed in tax years 2008 forward and there is no sunset or repeal date.

Senate Bill 114 – Page

2

FISCAL IMPLICATIONS

TRD has not updated its analysis and the fiscal impact shown here could change, possibly

significantly. This analysis was taken from a similar bill (SB726) in the 2007 session.

TRD:

Aggregate data on long-term care premiums is not readily available to allow a precise

estimate of the proposed measure’s impacts. However, assuming annual long-term care

insurance premiums average $3,000, the proposed measure would create credits raging

from $750 to $2,250 per return, averaging approximately $1,500. About 37% of the

population in New Mexico, 727,000, consists of people who are 45 years of age or older.

About 20% of New Mexico’s personal income tax returns report tax obligations in excess

of $1,500 and thus possess sufficient tax liability to claim this credit. The fraction of

returns that would claim the proposed credit is uncertain. However, approximately 1.5%

of the nation’s population purchases long-term care insurance. Assuming the proposed

measure resulted in credits clamed by 3 percent of the 175,000 returns that could benefit

from it (i.e. 5,250 returns) and that they claim an average of $1,500 in credit, suggests an

annual total of approximately $7.9 million in credits. This is the basis for the $8 million

estimate for tax year 2008. For future rates the inflation rates was applied to this estimate.

SIGNIFICANT ISSUES

ALT:

Long-term care insurance policies are intended to defray the future cost of nursing home

care, assisted living, home health care or other long-term care services. These policies

have generally not been widely purchased, especially by seniors who tend to view the

cost of the policy as too high. If purchased and utilized, these policies may prevent some

people from spending down their resources paying for nursing home care, and thus

becoming eligible for Medicaid.

An income tax credit could have the effect of encouraging the purchase of long-term care

insurance by more people, especially younger people for whom the premium is more

affordable. Education and outreach about the availability and benefit of long-term care

insurance should accompany other measures, such as this tax credit, to effectively

promote their purchase.

HPC:

Currently there are ten states that provide income tax credits on LTC insurance contracts

in varying percentages, from ten percent to twenty five percent, and varying dollars

limits. These states include: Colorado, Louisiana, Maine, Michigan, Minnesota,

Montana, New York, North Dakota, Oregon, and Virginia. Some nineteen states provide

income tax deductions, while others do not offer any income tax credits nor income tax

deductions. New Mexico residents are eligible for an income tax deduction equal to a

part or the sum of premiums paid.

TRD:

Justification for the proposed measure is probably that by purchasing long-term care

insurance, taxpayers prevent imposing financial burdens on family members and other

taxpayers. It should be noted, however, that industry representatives say that the typical

Senate Bill 114 – Page

3

purchasers of this insurance are mid-to-high income clients. About half of the individuals

who purchase this insurance have incomes of $75,000 and above. Hence the proposal

would tend to benefit mid-to-high income taxpayers.

TECHNICAL ISSUES

The language does not specify that the taxpayer needs to be a New Mexico resident.

NF/bb