Committee reviews health‑care GRT rules, hospital 60% deduction and policy tradeoffs

SANTA FE — The Revenue Stabilization & Tax Policy Committee heard an extended briefing on how New Mexico taxes health‑care services and the fiscal consequences of the state’s many targeted deductions.

Secretary Stephanie Chardon Clark described the 2019 change embodied in House Bill 6 that expanded hospital taxation to nonprofit and government hospitals while increasing hospitals’ deduction from 50% to 60%. She said the hospital deduction in FY25 totaled about $214 million in foregone state revenue and $31 million for local governments—roughly $245 million in total deductions for hospitals last year.

Jennifer Fabian, a senior economist with the Legislative Finance Committee, said health care is among the state’s largest tax‑expenditure categories. LFC’s analysis places health‑care spending in the gross‑receipts tax base at roughly $10.5 billion (pre‑deductions) and estimates combined health‑care deductions at several hundred million dollars: the tax‑expenditure report cited approximately $657 million in state general‑fund deductions and roughly $331 million for local governments in the latest year.

That combination leaves a relatively low effective tax rate on health‑care activity—after deductions, the effective rate is roughly 3.3% on health care spending, LFC said—while hospitals (which account for about 40% of the sector’s receipts) still receive a large 60% deduction. Fabian and other presenters warned that options to change the structure have tradeoffs.

Policy choices discussed included:

- Leaving the system as is (status quo), which preserves substantial revenue but does not resolve practitioners’ concerns about paying GRT on insured patient shares they cannot bill back; - Requiring insurers to pick up the patient‑paid portion of fees (co‑payments/coinsurance), which faces legal and practical limits because many employer plans are ERISA‑governed and not subject to state insurance law; and - Broader exemptions for insurance‑covered services, which would simplify compliance but could jeopardize federal Medicaid matching and produce large revenue losses.

Fabian explained technical issues that affect providers: some payments (fee‑for‑service patient coinsurance) remain taxable and historically have been absorbed by providers because contracts prohibit balance billing. That can reduce practitioners’ net receipts, she said. The Medicaid treatment has been intentionally handled to preserve the federal match: the state taxes Medicaid receipts to leverage federal funds; a 3:1 federal match multiplies state provider‑tax receipts into larger Medicaid funding when structured as state directed payments or provider assessments.

Committee members pressed for policy tradeoffs and local impacts. Representative Chandler asked whether some or all of the hospital deduction could be repriced so that local, in‑state physicians and clinics could receive support; Chandler noted many hospitals are owned by out‑of‑state for‑profit corporations and proposed exploring offsets that favor local independent providers. Senator Wirth and others flagged rural hospitals’ vulnerability if federal matching is reduced by HR 1 and if the pool of insured patients shrinks.

What’s next: presenters offered to provide the committee a deeper appendix of locality data and to invite practitioners to the December meeting so the committee can hear firsthand about practice costs and billing constraints.

The briefing outlined options but did not propose specific legislation; committee members signaled interest in targeted follow‑up analysis ahead of the special session and the December convening.