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 Smith

ORIGINAL DATE

LAST UPDATED

2/1/06

HB

SHORT TITLE Health Insurer Fee-for-Service Gross Receipts

SB 205

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

($715.0)

($1,510.0) Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with SB29.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 205 expands the gross receipts tax deduction for medical services passed by the 2004

Legislature (Section 7-9-93 NMSA 1978) to include fee-for-service payments to health providers

from managed care providers, health insurers for commercial contract services, or Medicare part

C services.

The bill also states that the medical service deductions in Section 7-9-93 NMSA 1978 must be

stated separately on tax forms.

This new fee-for-service deduction will be phased in over five years. The portion of deductible

receipts will be 20 percent in CY2007, 40 percent in CY2008, 60 percent in CY2009, 80 percent

in CY2010, and 100 percent in CY2010 and after (see Technical Issues).

The effective date of these provisions will be January 1, 2006.

Senate Bill 205 – Page

2

FISCAL IMPLICATIONS

TRD reports that a 2002 survey by the UNM Institute for Public Policy found that about 2.5 per-

cent of New Mexico respondents belonged to fee-for-service insurance plans.

The distributions under Sections 7-1-6.46 and 7-1-6.47 NMSA 1978 would hold local govern-

ments harmless from revenue losses, so long as health practitioners accurately report their new

deductions.

Total revenue loss to the general fund is expected to be $715 thousand in FY07 (six month im-

pact), $1,510 thousand in FY08, and rise to $4.2 million per year once the deductions are fully

phased in. This revenue loss is partially due to the actual deductions, and partially due to the lo-

cal government hold-harmless provisions in Sections 7-1-6.46 and 7-1-6.47 NMSA 1978.

TRD’s fiscal impact analysis does not include fee-for-service receipts from Medicaid because

Medicaid does not qualify as a “health care insurer” as defined in Section 7-9-93 NMSA 1978.

SIGNIFICANT ISSUES

The term fee-for-service refers to a healthcare billing system in which particular services are paid

for individually rather than provided as part of a comprehensive plan.

ADMINISTRATIVE IMPLICATIONS

TRD reports significant administrative implications associated with this bill. The bill states that

deductions in Section 7-9-93 will be stated separately on tax forms. The bill would create a sec-

ond deduction in Section 7-9-93, but both of these deductions would be combined on the tax

form. Combining these two deductions will make auditing taxpayer compliance very difficult.

In addition, TRD will have to recode systems, revise forms and instructions each year the deduc-

tion is phased in, retrain personnel, implement a new special rate code, and increase audit efforts.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

The bill conflicts with SB29, which also amends Section 7-9-93. SB29 adds licensed counselors,

therapists and social workers to the gross receipts tax deduction contained in that section.

TECHNICAL ISSUES

The bill states that in FY2010 80 percent of receipts will be eligible for the deduction, but also

states that all receipts will be eligible on or after January 1, 2010. It is unclear if 80 or 100 per-

cent will be eligible in CY2010.

OTHER SUBSTANTIVE ISSUES

TRD notes that receipts of health practitioners have historically grown more quickly than general

revenue. Deducting services from high-growth sectors such as health care from the existing tax

base makes it harder for tax revenue growth to keep pace with inflation.

SS/mt