Federal health-care reform (the Patient Protection and Affordable Care Act of 2009, or PPACA) will provide health insurance to tens of thousands of previously uninsured New Mexicans and, in doing so, will bring billions of new federal dollars into our state’s economy, creating jobs, prosperity, and almost a billion dollars in new state and local tax revenue by 2020.
However, if New Mexico is to receive this vital economic boost, we must do our part by aggressively implementing the new law.
Some of this new tax revenue will be used to offset New Mexico’s pennies-on-the-dollar contribution to the cost of the new coverage (the state must pay only about 4 percent of the cost, while the feds pick up the rest), but most of the new tax revenue generated by federal health-care reform will be money that New Mexico’s Legislature and local governments can spend to meet the specific needs of their constituents by creating new programs, funding existing programs like education and public safety, forestalling future tax increases, or even reducing taxes.
PPACA will bring new federal funds into New Mexico in a number of ways. Beginning in 2014, Medicaid will expand to cover all low-income New Mexicans under age 65. The New Mexico Human Services Department projects that by 2020 New Mexico will have added between 133,000 and 183,000 new Medicaid enrollees, primarily adults previously unable to afford health insurance.
Also during that period, between $6 billion and $8 billion in new federal Medicaid funds will flow into the health-care sector, creating thousands of new high-wage jobs and reverberating throughout the state economy in the form of increased economic activity and employment.
Also beginning in 2014, individuals with income below 400 percent of the federal poverty level ($43,560 for a family of four in 2011) who are not eligible for other health coverage will qualify for refundable tax credits to offset the cost of purchasing health insurance. These advance tax credits will be paid directly to the insurer, who will subtract the tax credit amount from the individual’s premium.
These premiums will be taxed under New Mexico’s 4.003-percent insurance premiums tax and, to a lesser but still very significant extent, state and local gross receipts taxes. The tax revenue generated by the Medicaid and insurance subsidies alone will bring the state between $887.6 million and $1.221 billion in new general fund revenue, as much as 80 percent more than is needed to pay the state’s share of the Medicaid expansion.
In addition to the new state revenues, cities and counties will also receive between $232 million and $322 million in new tax revenue from PPACA. The new local revenue will derive from the gross receipts tax on Medicaid health services, so it will accrue to all the communities – many of them rural, where a high percentage of health care is already provided and paid for by Medicaid.
Of course, all the new federal dollars flowing into New Mexico and other states must come from somewhere. And while it is true that PPACA does contain some “revenue enhancements,” including new taxes on “Cadillac” insurance plans and indoor tanning parlors, the percentage of these costs that will be borne by New Mexicans is truly infinitesimal compared to the magnitude of the health and economic benefits our state stands to receive. PPACA will also reduce the net federal deficit over the next two decades.
New Mexico will only see the full health and economic benefits of PPACA if the law is fully implemented in a timely manner. Governor Martinez is among the group of governors who signed a letter asking Congress to repeal PPACA. I can only hope that a better understanding of the new law’s potential to benefit our health, our economy and our ability to fund vital state services without raising taxes will make her more receptive to health-care reform.
Kelly O’Donnell has served as superintendent of the New Mexico Regulation and Licensing Department, deputy cabinet secretary of the N.M. Economic Development Department, and chair of the Spaceport Authority. Within the state’s Taxation and Revenue Department, Dr. O’Donnell served as assistant cabinet secretary, tax policy director and senior economist. She authored the report Tax Revenue Benefits of Health Care Reform in New Mexico for New Mexico Voices for Children. The companion report is Economic Benefits of Health Care Reform in New Mexico.