Tax policy can make your head spin. Where tax policy intersects with healthcare policy, complicated further by insurance, the picture gets even more confusing.
Two recent speakers talking about New Mexico tax policy chose to focus on the same example: hospitals and healthcare.
New Mexico has three categories of hospitals, said Lee Reynis, an economist with UNM’s Bureau of Business and Economic Research. Reynis was speaking at the BBER’s annual New Mexico Data Users conference.
The categories are government, nonprofit and for-profit. Gross receipts tax applies differently to each of these categories.
Tax expert Jim O’Neill, former deputy secretary of the Taxation and Revenue Department, added a fourth category: a private hospital operated by an HMO. O’Neill was speaking at Albuquerque Press Women and Friends.
Government and non-profit hospitals do not pay gross receipts tax, Reynis said. Private hospitals do. Sometimes. It depends who is being billed.
The same “sometimes” applies to other medical services.
A doctor in private practice has to pay gross receipts tax, though you probably won’t see it itemized in your bill. But if a doctor is an employee of a nonprofit, the service is billed by the nonprofit rather than the individual doctor and so it is not taxable.
If you went to the doctor and paid the bill the old-fashioned way, by writing a check, and the doctor is a private practitioner, the entire bill would be taxable. But most of us don’t pay medical bills that way.
The bill may or may not be taxable depending on who is paying it: private insurance, Medicare or Medicaid. The payment for the service is a mixture of deductibles or co-pays paid by the patient and payment by the third-party payer. If you’re on Medicare plus a supplement, there may be a portion paid by Medicare and a portion paid by your private insurance, and different rules apply to each payment.
Government and nonprofit hospitals also don’t pay gross receipts tax on things they buy, such as supplies and machinery. For-profit hospitals do.
Reynis says the estimated tax expenditure for health care in New Mexico is $307 million a year. Restating that in language I can understand, tax expenditure is a technical term meaning money the state did not receive because somebody had an exemption or deduction.
According to O’Neill, an HMO affiliated hospital would pay insurance premium tax and not gross receipt tax. Premium tax is what your insurance company pays on insurance premiums instead of gross receipts tax. You probably never see the premium tax you are paying because the tax is not itemized on your bill.
O’Neill commented, “Our health care taxation is complicated and may well leave practitioners in the worst possible situation–where a lot of their charges are taxable but as many or more or not. This maximizes the amount of recordkeeping and accounting work they have to do.”
On one hand, tax policy distorts consumer costs by forcing some practitioners to pay tax and others not. On the other hand, there is a genuine difference between government, private for-profit businesses and nonprofits.
A bill in the 2017 legislature, reintroduced in the special session because it didn’t get very far in the regular session, was an attempt at comprehensive reform of the state tax code (House Bill 412, reintroduced as House Bill 8, sponsored by Rep. Jason Harper (R-Rio Rancho)).
This confusing presentation may help you understand why that bill was 430-plus pages long. It did not get done, but it will have to be tried again, probably several times, in order to make our tax policy more equitable and to help generate more reliable revenue for our state’s coffers.
Triple Spaced Again, © New Mexico News Services 2017