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F I S C A L I M P A C T R E P O R T
SPONSOR Komadina
ORIGINAL DATE
LAST UPDATED
1/20/08
1/31/08 HB
SHORT TITLE Employee Wellness Program Tax Credit
SB 148/aSCORC
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
FY10
($175.0)
($1,225.0) Recurring General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates HB148
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 SCORC Amendment
The Senate Corporations and Transportation Committee amended SB148 lowering the credits
available from $200 for the first 200 employees and $100 per employee after that to $150 and
$75 respectively.
pg_0002
Senate Bill 148/aSCORC – Page
2
Synopsis of Original Bill
Senate 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
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 SB148, 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.
The amendment is assumed to lower the average benefit from $100 to $80.
pg_0003
Senate Bill 148/aSCORC – Page
3
FISCAL IMPACT OF WELLNESS CREDIT
months
50-99
employees
Greater than
100
employees
Total
Employees
Average
Benefit = $80
per employee
Fiscal Year
of Impact
Average Employment
68
269
2008
2
3
8
2,188
175,000
FY09
2009
12
18
53
15,313
1,225,000
FY10
2010
12
33
98
28,438
2,275,000
FY11
2011
12
48
143
41,563
3,325,000
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.
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, and 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
pg_0004
Senate Bill 148/aSCORC – Page
4
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
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.
pg_0005
Senate Bill 148/aSCORC – Page
5
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:nt
Attachment
pg_0006
hat Will a Worksite Wellness Program Cost.
•
A 2003 evaluation of one large U.S. employer found that simply helping employees control their
blood pressure alone can save $547 per person per year.
•
Johnson & Johnson claims to have saved $38 million in health-care costs for its employees be-
tween 1995 and 1999 by promoting healthy lifestyles. Medical expenses decreased $224 per
employee per year (averaged over four years), and this rate improved over time. The company
found most benefits in the third and fourth years after program initiation.
•
A 2004 University of Michigan study of 23,500 General Motors employees showed that
nonexercising workers claimed at least $100 more per year in health-care costs than exercisers.
The study also reported that obese, sedentary employees who began exercising at least twice a
week lowered their costs by an average of $500 a year.
•
The Washoe County School District in Nevada estimated that, in a single year, it spent $300,000
on direct costs associated with obesity and $1 million for gastric-bypass surgeries. It instituted a
weight-loss program that paid employees $10 per pound lost, up to 25 pounds. Program partici-
pants missed three fewer workdays per year, producing a cost savings of $15.60 per program
dollar spent.
The Facts Speak for Themselves - Wellness Helps Reduce Costs
W
Source: Texas Department of Health Services
pg_0007
A minimal (largely paper) program
$1 - $7
A moderate program
$8 - $15
A medium program with several activities
$16 - $35
A fairly comprehensive program
$36 - $75
A very comprehensive, effective program
$76 - $112
Staff Time
Building a successful worksite wellness program requires staff time as well as money. Some larger organiza-
tions may spend 20 hours per week for three to six months preparing all the steps prior to launching a worksite
wellness program.
Monetary costs can fluctuate widely, depending on whether the employer pays all costs, the employees pay all
costs, or the costs are shared.
A 1992 study indicated that 28 percent of companies spent $5 or less per employee, and 19 percent spent
between $6-10 per employee.
The Wellness Council of America estimates the cost per employee to be between $100 and $150 per year for an
effective wellness program that produces a return on investment of $300 to $450. A sample expenditure for
various levels of programs include:
Business Costs
Cost per employee
Program Type