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BILL # SB 1375 |
TITLE: premium tax credit; medicare claims |
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SPONSOR: Livingston |
STATUS: As Introduced |
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PREPARED BY: Jeremy Gunderson
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The bill would allow insurers to claim an Insurance Premium Tax (IPT) credit equal to the amount of claims paid for Medicare supplement insurance policies for individuals under age 65 who are enrolled in Medicare due to a disability.
Estimated Impact
The IPT credit created by SB 1375 would likely incentivize insurers to offer Medicare supplement insurance policies to Medicare enrollees under age 65. Currently insurers in the state only offer such supplement policies to enrollees over age 65. IPT credits claimed under the bill would reduce IPT revenue by $(18.0) million. The number of insurance policies in the state would increase, however, and thereby increase IPT revenues by an estimated $383,200. As such, the bill would decrease net IPT revenues by $(17.6) million when fully implemented.
Because these revenues are deposited in the General Fund, and due to the timing of IPT payments, the bill would have a net General Fund impact of $(4.1) million in FY 2021, eventually growing to $(17.6) million in FY 2023 and beyond.
Medicare is generally available to persons over age 65, unless a person has a qualifying disability, in which case a person can enroll prior to age 65. Medicare coverage is split into multiple parts. Medicare Part A includes hospital coverage. Most individuals do not pay premiums on Part A (based on if a person paid Medicare tax while employed). Medicare Part B covers doctors and outpatient services. Part B requires a monthly premium, a deductible, and copayments. Due to the out-of-pocket expenses of Part B, some enrollees opt to purchase a Medicare supplement insurance policy (often referred to as Medigap) to help cover the additional costs.
According to the website healthinsurance.org, which provides information about health insurance for consumers, 60 Arizona insurers offered Medicare supplement policies in 2019. However, no insurers offered policies to Medicare enrollees under age 65 who were enrolled due to disability. SB 1375 would allow insurers to claim a tax credit for the cost of claims made on Medicare supplement policies held by individuals under age 65 enrolled in Medicare due to disability. This analysis assumes that this IPT credit will incentivize insurers to start offering supplement policies to Medicare enrollees under age 65.
In 2017, there were 154,300 persons enrolled in Medicare due to disability in Arizona. Based on a survey of other states that have implemented laws that require insurers to provide Medicare supplement policies to Medicare enrollees under age 65, the JLBC Staff estimates that 4.6% of those 154,300, or 7,100 people, would purchase a Medicare supplement policy. The survey of states showed that premium costs were higher for those under age 65. Tennessee required premiums to be based on sound actuarial evidence and resulted in premiums that were 85% higher than enrollees over age 65 that purchased supplement policies. In the absence of additional data, this analysis assumes the same premium discrepancy will occur in Arizona as in Tennessee.
(Continued)
The Affordable Care Act requires that health insurers spend at least 80% of premiums collected on health care claims for individuals and small businesses, while the remaining 20% can be spent on administrative and marketing costs or profited. (This 80/20 split is also known as a medical loss ratio.) This analysis assumes that the amount of claim costs for Medicare supplement policies for individuals under age 65 will equal 80% of total premiums paid on those policies, or $18.0 million [=$22.5 million total premiums paid x 80% Medical Loss Ratio].
The IPT rate in CY 2020 is 1.75% and drops to 1.7% in CY 2021. Due to the bill's probable effective date, the JLBC Staff assumes the bill will be effective for the last 4 months of CY 2020 and the first full year of implementation will occur under the lower IPT rate in CY 2021. As such, the total annual IPT revenue generated as a result of the bill would be $383,200 [=$22.5 million insurance premiums x 1.7% IPT rate]. IPT revenues for these premiums would be deposited in the General Fund.
Due to the timing of IPT payments, the full revenue impact will not be realized until FY 2023. The bill would reduce General Fund revenue by $(4.1) million in FY 2021 and reduce to $(17.6) million in FY 2023 and beyond [=$18.0 million total IPT credits claimed - $383,200 IPT payments on new supplement policies].
Local Government Impact
None
2/21/20