Legislators eye surtax hike for insurance providers
Upcoming legislative session will focus on shoring up projected budget deficit
State legislators are exploring a proposal to increase a tax on health insurance carriers in New Mexico — an effort that would help the state bring in more revenue and could assist in reducing the cost of health care for some residents.
“I’m seriously looking at it and talking to folks about whether we have a chance at getting that through,” said Rep. Debbie Armstrong, chairwoman of the House Health and Human Services Committee.
Lawmakers and legislative staff see the proposal as one way of helping refill state coffers depleted by falling oil production and tax revenue as the economy and crude output have been battered by the COVID-19 pandemic.
The next legislative session, which
will begin in January and last 60 days, largely will center around efforts to shore up next fiscal year’s budget deficit, which has been projected at anywhere from just under $1 billion to as much as $2 billion.
The executive and legislative branches have said they aim to plug the gap through a combination of slashing spending, using cash reserves and exploring ways to increase revenue.
If proposed, the health care surtax bill would be an example of the latter, as it could bring in an estimated $125 million in additional funds, according to the Legislative Finance Committee.
“It would be a significant help,” said Armstrong, D-Albuquerque. “When we’re looking at such extreme budget issues, I think [we’re] looking everywhere we can.”
Armstrong co-sponsored similar legislation during the last regular session, along with Reps. Javier Martínez and Liz Thomson. House Bill 278 passed the House but died in the Senate Finance Committee.
Under current law, health insurance companies pay a tax of 1 percent of the premiums they charge. HB 278 had proposed to raise that rate to 3.25 percent.
The increased rate would have replaced a similar fee that had been levied on carriers under the federal Affordable Care Act, but that was repealed last year. Under the new plan, the money would be paid to the state instead of the federal government.
The previous legislation would have allocated more than half of the revenue collected from the increased tax rate to a “health care affordability fund” designed to help lower the cost of coverage for lower-income residents. The rest would have gone to the state’s general fund.
“It would be hugely helpful for those who are really struggling to pay their premiums,” Armstrong said.
A fund to help reduce insurance costs would be even more useful now, she said, as many people have lost their jobs or had their work hours reduced during the pandemic.
Additionally, adding more revenue to state coffers is a much greater priority now than before the crisis, said Rep. Micaela Lara Cadena, a member of the House Taxation and Revenue committee.
“The world has changed,” said Lara Cadena, D-Mesilla. “We have big revenue shortfalls, and we’ve seen the huge cracks in the New Mexico health care system.”
Given the state’s fiscal crisis, a new bill might propose allocating more of the revenue from an increased health care insurance surtax to the state’s general fund “for some limited period of time,” Armstrong said.
During the last session, businesses in New Mexico pushed back on the initiative because they wanted a reduction in the health insurance premiums they were paying carriers, Armstrong said. Carriers would likely build any surtax increases into the premiums they charge, she added.
Providers potentially could pass along some of a surtax increase to consumers, although federal Medicare funds would likely cover a good portion of it, Armstrong said.
“My hope and expectation would be that it didn’t,” Martínez, co-chairman of the House Taxation and Revenue Committee, said when asked if any of the potential increase could affect consumers. “Insurance companies could do the right thing and make sure consumers aren’t paying it.”
The Legislative Finance Committee said in a July report “the majority” of the additional revenue provided under the initiative “would be borne by the federal government in Medicaid funds.”
Armstrong said she is more optimistic the Senate Finance Committee will be receptive to the proposal in the next session, given there will be changes in its leadership. The committee’s current chairman, Sen. John Arthur Smith, will not be returning to the Roundhouse after losing his primary election in June.
Still, she noted it’s unclear how the committee would view the bill, particularly when its leadership for next year has not been determined.
Armstrong said she has spoken with Gov. Michelle Lujan Grisham’s administration about the measure and believes the Governor’s Office is “supportive” of exploring the proposal.
Lujan Grisham spokeswoman Nora Meyers Sackett said Tuesday creating an affordability fund similar to the one proposed in the previous legislation “would be an incredibly welcome and important development.”
However, she added, “It would be premature to speculate on an as-yet unwritten bill.”
The health care surtax bill could bring in an estimated $125 million in additional funds, according to the Legislative Finance Committee.