New Mexico: Healthcare Affordability Fund, Take 2: Gov. MLG gives it top priority for 2021

Less than one year ago, in February 2020, I wrote a lengthy post about a great idea that New Mexico was attempting to put through which, had it succeeded, would have generated up to $125 million per year to be used primarily for reducing individual market premiums:

New Mexico would raise a state health-insurance tax and dedicate the new revenue to programs intended to make health care more affordable under a proposal that passed the state House on Sunday.

Rep. Deborah Armstrong, D-Albuquerque, described the legislation as an unusual opportunity to generate more revenue for health care without increasing the total amount consumers now pay.

The increased state tax would partially replace a federal tax that’s being repealed, she said, meaning health insurance carriers would actually be charged less in taxes than they are now, even after the state increase.

The legislation, House Bill 278, would raise about $125 million in annual revenue when fully phased in — the bulk of it dedicated to a new fund for health care affordability, according to legislative analysts.

There's nothing terribly noteworthy about how the funds would have been generated--it would have been a tax placed on pretty much all private health insurance policies. The clever part was in the timing of the plan: It was set to go into effect the first year after the ACA's Health Insurance Tax (HIT) had been repealed...but because insurance carriers had already baked the HIT into their 2020 premiums before it was eliminated, there was a window of opportunity for New Mexico to simply swap out the federal tax for a similar state tax...thus generating $125 million/year in revenue without raising net taxes overall:

Back in 2019, insurance carriers bumped their premiums up by around 2-3% more for 2020 than they otherwise would have because they thought that the HIT would still be collected...only to have the tax repealed later on last year. As I noted, while the details get a bit confusing about how exactly the timing of the taxes work in regards to the year they're collected vs. the year that the revenue was generated, the bottom line is that it appears that upwards of $15.5 billion in taxes for calendar year 2020 will not be collected by the IRS.

This means that insurance carriers are effectively looking at around $15.5 billion more in revenue this year than they were expecting. If nothing changes, a big chunk of that money is gonna end up in their pockets in the form of additional profits, while another big chunk will eventually be returned to many of the policyholders themselves in the form of Medical Loss Ratio rebates.

While I'm all for enrollees getting some of their money back, due to the complexities of how the MLR provision works, it's not necessarily the most equitable or efficient arrangement. Some people who didn't qualify for any financial assistance at all won't see a dime, while some of those who are enrolled in heavily-subsidized policies could end up actually unintentionally profiting from the program, which it wasn't really intended to do.

Things looked good for New Mexico's "Healthcare Affordability Fund" bill: It easily passed the state House and seemed like it'd have no problem in the state Senate either...until it was stopped dead in its tracks by the chair of the NM Senate Finance Committee. Surprisingly, the chair who stopped it was a Democrat...and that appeared to be that for the plan.

Over the summer, Colorado picked up the ball dropped by New Mexico and passed a similar bill into law themselves...although the CO version generates less revenue, is spread out over a much larger population and is mostly being used to provide the revenue for their existing Section 1332 reinsurance waiver, so it isn't quite as big of a deal.

Cut to Wednesday: Take a look at New Mexico Governor Lujan Grisham's 2021 priority announcement:

Reduce the cost of health insurance and medical expenses for working families:

Creating a Health Care Affordability Fund that will replace a recently phased-out federal fee, expanding coverage to up to 23,000 uninsured New Mexicans in its first year and driving down premiums for tens of thousands of residents who receive coverage through the state exchange.

The good news is that with the Governor's full backing, the fund will hopefully have smooth sailing the second time around (assuming the ACA itself survives the Supreme Court, that is). The only downside is that Lujan Grisham and state legislators will lose the "no net tax increase" talking point since the "overlap" window has been lost...but they should be able to weather that storm fairly easily.

As for how much this would reduce net premiums for New Mexico ACA enrollees, that depends on what portion of the revenue goes towards that purpose (last year they were talking about an 80/20 split, with around $100 million going towards premium reduction and $25 million towards the general fund. It also depends on whether they use that $100 million to enhance subsidies for those already receiving them (as Vermont and Massachusetts already do), to extend subsidies to those who don't (as a dozen states with Section 1332 Reinsurance waivers effectively do) or both (as California is doing).

Overall, last year I estimated that New Mexico ACA enrollee premiums total around $380 million/year, of which around $133 million is already covered by federal ACA subsidies. That leaves around $247 million/year paid by the enrollees themselves, so a $100 million state subsidy infusion would lop that down by another 40% or so.

I don't know if the new version will be identical to the prior one or not, but this would be a fantastic development.