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

SPONSOR Jennings

ORIGINAL DATE

LAST UPDATED

1/28/08

HB

SHORT TITLE Health Care Practitioner Gross Receipts

SB 342

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(19,925)

(21,918) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Department of Health (DOH)

Health Policy Commission (HPC)

SUMMARY

Synopsis of Bill

Senate Bill 342 expands the medical services deduction enacted in 2004 (Section 7-9-93 NMSA

1978) to include receipts from co-payments or deductibles paid by an insured person to a health

practitioner.

The bill also creates a definition for the term “fee for services" and would change the definition

of “commercial contract services" to reference “negotiated fee rates" pursuant to a contract with

a managed care provider or health care insurer.

The provisions of the bill will become effective on July 1, 2008.

FISCAL IMPLICATIONS (See Technical Issues)

Based on data from Mathematica’s July 2007 repolr titled “Quantitative and Comparative

Analysis of Reform Options for Extending Health Care Coverage in New Mexico," TRD

estimates that total taxable gross receipts for all physicians eligible for the proposed co-payment

and deductible deduction will be about $286.7 million in FY09. Taxed at an average gross

Senate Bill 342 – Page

2

receipts tax rate of 6.95 percent, the co-payment and deductible deduction will reduce revenue by

about $19,925 thousand in FY09. Because local governments are held harmless from the revenue

losses associated with the medical services deductions in Section 7-9-93 NMSA 1978, the entire

revenue decrease will be to the general fund.

SIGNIFICANT ISSUES

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 bill will cause a modest administrative impact on TRD. Taxpayers will require education

and instruction and publications will be revised.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 342 relates to Senate Bill 158, which proposes a gross receipts tax deduction for

receipts of certain health practitioners that are not otherwise deductible pursuant to Section 7-9-

93 NMSA 1978 or any other provision.

TECHNICAL ISSUES

TRD notes that the proposal splits present law Section 7-9-93(A) NMSA 1978 into two

subsections. The first new subsection retains the gross receipts tax deduction for payments by a

managed care provider or health care insurer, and retains the exclusion for fee-for-service

payments. The second new subsection provides the proposed co-payment and deductible

language. Unlike present law, the new language is not limited to managed care plans, but extends

to co-payments and deductibles under any type of health plan. Since the section does not define a

“health plan," the bill may create confusion for taxpayers and TRD about what is covered by the

new co-payment and deductible deduction. This confusion could increase the bill’s fiscal impact.

HPC notes that the bill does not allow copayments and deductibles paid by the self-insured to be

deducted from gross receipts tax.

SS/bb