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F I S C A L I M P A C T R E P O R T
SPONSOR Asbill
ORIGINAL DATE
LAST UPDATED
1/20/06
1/20/06 HB
SHORT TITLE ELIMINATE DAILY BED SURCHARGE
SB 113
ANALYST Schardin
APPROPRIATION (dollars in thousands)
Appropriation
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
See Fiscal Impacts
(Parenthesis ( ) Indicate Expenditure Decreases)
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
FY08
(6,667)
(20,900)
Recurring General Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
Relates to SB88, HB84, HB162.
SOURCES OF INFORMATION
LFC Files
Responses Received From
Taxation and Revenue Department (TRD)
Human Services Department (HSD)
SUMMARY
Synopsis of Bill
Senate Bill 113 repeals the daily bed surcharge by repealing Sections 7-1-6.45 and 27-11-6
NMSA 1978, as well as deleting the reference to the bed surcharge in Section 7-1-2 of the Tax
Administration Act.
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Senate Bill 113 Page
2
The bill has an emergency clause and will be effective upon signature.
FISCAL IMPLICATIONS
REVENUE
FY 2006
FY 2007
Federal Bed Tax Payments
-$4,297
-$13,470
State Bed Tax Payments
-$1,703
-$5,340
Private Bed Tax Payments
-$667
-$2,090
TOTAL Revenue
-$6,667
-$20,900
APPROPRIATIONS
Medicaid Payments to Nursing Homes
-$1,703
-$5,340
TOTAL Appropriations
-$1,703
-$5,340
Net Impact (Revenue less Appropriation)
-$4,963
-$15,560
Fiscal Impact of Repealing the Bed Tax
This fiscal impact analysis assumes the bed surcharge will be repealed for the last four months of
FY06. The consensus revenue estimating group expects the bed surcharge to generate $20.9 mil-
lion general fund revenue in FY07. According to a joint estimate by TRD and HSD, about 90
percent of this $20.9 million will come from Medicaid reimbursements: $13.5 million from fed-
eral Medicaid matching funds and $5.3 million from state Medicaid matching funds (based on an
HSD projection that the federal match for this service will be 71.61 percent in FY07). The re-
maining 10 percent, or $2.1 million, is paid by about 980 New Mexicans who pay the bed sur-
charge out-of-pocket.
In addition to this $20.9 million general fund revenue reduction, repealing the bed tax should re-
duce state Medicaid reimbursements to nursing homes by $5.3 million. This reduction will occur
through action by HSD to reduce reimbursement rates rather than through legislation. Once these
rates are reduced, the true impact on the state budget will fall from $20.9 million to $15.6 million
(see table above).
The revenue decrease associated with repealing the bed surcharge is classified as recurring based
on recurring revenue estimates reported by DFA and LFC in FY07 budget documents. It is likely
that the consensus revenue estimating group will reclassify bed tax revenue as nonrecurring to
reflect current law, which repeals the bed surcharge at the end of FY07 under current law.
SIGNIFICANT ISSUES
Under current law, a daily bed surcharge of up to $10 per day may be imposed on licensed nurs-
ing homes, intermediate care facilities for mentally retarded (ICF-MR), and residential treatment
facilities. The rate, which is set by HSD, is currently $8.82 per day on nursing homes and ICF-
MR, while the rate is $0 for residential treatment facilities. Although the bed surcharge is levied
on health facilities, it is understood that its cost is passed on to people who occupy beds at these
facilities. The bed surcharge is set to repeal on June 30, 2007.
The bed surcharge was passed in the 2004 legislative session along with a nursing home receipts
personal income tax credit that directly reimbursed New Mexicans who paid the surcharge out-
of-pocket (Section 7-2-18.12). The Centers for Medicare and Medicaid Services (CMS) said it
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Senate Bill 113 Page
3
would not pay the bed surcharge so long as this personal income tax credit made the federal gov-
ernment the only entity paying the surcharge. CMS withheld $14.9 million in federal reimburse-
ments before the credit was repealed in the 2005 legislative session.
In addition to repealing the nursing home receipts personal income tax credit, the 2005 Legisla-
ture passed a $2.8 thousand per year personal income tax credit for persons over 65 with annual
out-of-pocket medical expenses over $28 thousand (Section 7-2-18.3 NMSA 1978). Although
there was no strict relationship between repealing the original bed surcharge personal income tax
credit and passing this new credit, it is generally thought that the new credit was meant to offset
the costs for private-payers from the bed surcharge. The new credit applies to many taxpayers
who do not pay the bed surcharge, but fails to shield people in long-term care facilities under 65
from the bed surcharge.
ADMINISTRATIVE IMPLICATIONS
TRD reports it will experience administrative savings if the bed surcharge is repealed.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Senate Bill 113 duplicates Senate Bill 88 with the exception that Senate Bill 88 becomes effec-
tive July 1, 2006 while Senate Bill 113 contains an emergency clause. Because Senate Bill 88
does not become effective until July 1, 2006 it has no fiscal impact in FY06.
TECHNICAL ISSUES
Although HSD reimbursement rates for nursing homes were increased when the bed surcharge
was enacted, this bill does not guarantee that HSD must decrease them when the bed surcharge is
repealed. Consider adding a contingent decrease in appropriations for Medical Assistance Divi-
sion of HSD to the General Appropriation Act in the amount of $5.34 million, contingent on re-
peal of the bed surcharge and requiring HSD to decrease nursing home reimbursement rates by
the proper amount.
HSD notes that the bill repeals sections governing administration and enforcement of the bed
surcharge but does not repeal Section 27-11-6 NMSA 1978, which allows HSD to impose the
surcharge. This technical issue could be solved administratively if HSD reduces the amount of
the surcharge from $8.82 to $0.
OTHER SUBSTANTIVE ISSUES
Although the personal income tax credit for people over 65 with medical expenses over $28
thousand per year was not a direct replacement for the original bed surcharge personal income
tax credit, repeal of the bed surcharge may warrant repeal of the PIT credit for these people over
65. This credit is estimated to reduce personal income tax revenue to the general fund by about
$6.6 million per year.
SS/mt:yr