Assigned to FIN, HEALTH &
APPROP FOR CAUCUS & FLOOR ACTION
ARIZONA STATE SENATE
Forty-seventh Legislature, Second Regular Session
AMENDED
FACT SHEET FOR H.B. 2177
health insurance premium tax credit
Purpose
Establishes a premium tax credit for individual and small business health insurance. Appropriates $75,000 in FY 2006-2007 and $30,000 in each fiscal year beginning FY 2007-2008 through 2010-2011 from the state General Fund to the Arizona Department of Revenue for administrative costs.
Background
The insurance premium tax is imposed on net insurance premiums received by insurance companies for risks that exist within the state. Included are premiums for life insurance, accident and health insurance, fire insurance, vehicle insurance, prepaid dental and legal insurance, and other property and casualty premiums such as homeowners and commercial insurance, medical malpractice, and fidelity and surety insurance. The tax applies to all authorized insurers and formerly authorized insurers (insurers not currently authorized, but continuing collection of premiums and servicing existing policies in the state).
Insurance premium tax also includes retaliatory taxes, which are taxes owed by foreign insurers to the extent that the sum of taxes an insurer pays in Arizona is less than what the sum of taxes would be if the same insurance business were transacted in the insurer’s home state.
Except for a portion of the insurance premium tax on fire insurance premiums and an additional premium tax paid on vehicle insurance premiums, insurance premium tax revenues are deposited in the state General Fund. In FY 2004-2005, premium tax collections totaled $387,446,239, of which $358,752,402 was deposited in the state General Fund.
Health care insurers include disability, group disability and blanket disability insurers, health care services organizations, hospital service corporations, medical service corporations or hospital, medical, dental and optometric service corporations that provide health insurance in Arizona. H.B. 2177 provides a premium tax credit for health care insurers that provide health insurance to qualified small businesses and individuals.
H.B. 2177, if enacted, will have a negative fiscal impact to the state General Fund due to reduced collections in the insurance premium tax.
Provisions
Premium Tax Credit
1. Establishes a premium tax credit for insurers that provide health insurance to individuals or small businesses that are certified by the Arizona Department of Revenue (DOR) beginning tax year 2007. The health insurance must be purchased 90 days after the certificate’s issuance.
2. The amount of the tax credit for individuals is the lessor of: a) $1000 for single coverage, $500 for coverage of a child or $3000 for family coverage or b) 50 percent of the health insurance premium.
3. The amount of the tax credit for small businesses is the lessor of: a) $1000 for single coverage or $3000 for family coverage or b) 50 percent of the health insurance premium.
4. Caps the maximum amount of tax credits allowed at $20 million per calendar year.
5. Allows the credit to be refunded or carried forward for five years.
6. Stipulates that a health care insurer that claims the premium tax credit is not required to pay an additional retaliatory tax.
7. Excludes limited benefit coverage from eligibility for the premium tax credit.
Department of Revenue Certification
8. Requires DOR to issue certificates of eligibility to small businesses and qualified individuals that have never before received a certification. Certificates are required to be issued on a first come, first served basis, subject to availability of monies.
9. The amount of the certificate for individuals is the lessor of: a) $1000 for single coverage, $500 for coverage of a child or $3000 for family coverage or b) 50 percent of the health insurance premium.
10. The amount of the certificate for small businesses is the lessor of: a) $1000 for single coverage or $3000 for family coverage or b) 50 percent of the health insurance premium.
11. Requires a health care insurer to deduct the amount of the certificate from the premium of an individual or small business that has obtained the certificate of eligibility.
12. Conditions individual eligibility for the certificate to Arizona residents who are U.S. citizens or legal resident aliens who earn less than 250 percent of the federal poverty level, have not had health insurance coverage for at least six months and are not enrolled in the Arizona Health Care Cost Containment System, Medicare or any other state or federal health insurance program.
13. Requires a health care insurer that enrolls a certified individual or small business to notify DOR of the enrollment and the amount of premium tax credit the insurer intends to claim. The insurer must make the notification by the 15th day of the month after coverage begins.
14. Prohibits DOR from issuing any certificates for any calendar year that exceed an aggregate of $20 million.
15. Validates the certificate for 30 days after issuance, except that if an individual or small business applies for health insurance during this period, the certificate is valid for one year after coverage begins.
16. Requires DOR to reissue a certificate to an individual or small business that continues to meet the eligibility criteria after reviewing the status of the individual or small business. DOR must conduct the review 60 days prior to the certificate’s expiration.
17. Allows individuals and small businesses to obtain a maximum of two reissued certificates.
18. Stipulates that the issuance of certificates of eligibility does not guarantee health insurance coverage to a small business or individual.
19. Prohibits the certificate to be transferred to any other person.
20. Classifies the attempt to sell or transfer the certificate as a class 1 misdemeanor.
Reporting Requirements
21. Requires DOR and the Arizona Department of Insurance (DOI) to make premium tax credit information available to Legislative Council.
22. Requires Legislative Council to submit a semiannual report to the President of the Senate and the Speaker of the House of Representatives. The report must contain:
a) the number of certificated individuals and small businesses.
b) a review of health insurance premiums charged for each certificate.
c) a client satisfaction analysis.
d) the average annual income of certificated individuals.
e) the average health insurance premium.
f) any other information necessary to analyze and evaluate the effect of the premium tax credit on health insurance accessibility.
23. Terminates the reporting requirements on December 31, 2008.
Miscellaneous
24. Authorizes DOI to adopt rules to administer the premium tax credits.
25. Appropriates $75,000 in FY 2006-2007 and $30,000 in each fiscal year beginning FY 2007-2008 through 2010-2011 from the state General Fund to DOR for administrative costs.
26. Exempts the appropriations from lapsing.
27. Defines terms.
28. Becomes effective on the general effective date.
Amendments Adopted by Finance Committee
1. Prescribes a $20 million tax credit cap.
2. Clarifies continued certificate eligibility requirements.
3. Makes technical and conforming changes.
Amendments Adopted by Appropriations Committee
1. Excludes limited benefit coverage from tax credit eligibility.
2. Reduces the income limits.
3. Restricts certificate eligibility to U.S. citizens and legal resident aliens.
4. Prohibits the transfer of certificates.
5. Prescribes a class 2 misdemeanor for attempting to sell or transfer the certificate to any other person.
6. Makes technical changes.
House Action Senate Action
HEALTH 2/8/06 DPA 8-0-0-1 HEALTH 3/13/06 DP 6-1-0
APPROP (B) 2/22/06 DP 8-3-0-4 FIN 3/16/06 DPA 5-4-0
3rd Read 3/2/06 31-24-5-0 APPROP 4/18/06 DPA 8-2-1
Prepared by Senate Research
April 20, 2006
SL/jas