BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1376 HEARING: 5/7/2014
AUTHOR: Gaines FISCAL: Yes
VERSION: 2/21/2014 TAX LEVY: Yes
CONSULTANT: Bouaziz
PERSONAL INCOME TAXES: CREDIT: HEALTH CARE COVERAGE
Allows a credit equal to 50% of the annual premium amount
paid for an individual health care service plan contract or
individual policy of health insurance.
Background and Existing Law
Existing state and federal law provides various tax credits
designed to provide incentives for taxpayers that incur
certain expenses, such as child adoption, or to influence
taxpayers' behavior, such as research credits. Taxpayers
apply credits after the taxable income is calculated, the
credit reduces-dollar for dollar-the amount of taxes owed.
The Legislature typically enacts tax incentives to
encourage taxpayers to do something, but for the tax
credit, they would not otherwise do.
Congress enacted The Patient Protection and Affordable Care
Act (Affordable Care Act) in March of 2010, which requires
health plans and health insurers that offer coverage in the
individual market or the small group market to provide
coverage that is equivalent to the benefits of a specified
essential health benefits benchmark plan. As a result of
the new coverage minimum standards, 1.1 million individuals
in California lost their existing health insurance, but
were able to purchase new, more comprehensive health care
plans.
Under the Affordable Care Act, individuals with household
income less than 400 percent of the federal poverty level
purchasing health plans through the California Health
Benefit Exchange are eligible for cost-sharing subsidies
and a refundable tax credit, available on sliding scale.
Proposed Law
SB 1376 -- 02/21/14 -- Page 2
Senate Bill 1376 allows a credit equal to 50% of the annual
premium amount paid or incurred for an individual health
care service plan contract or individual policy for health
insurance during the taxable year by a qualified taxpayer.
A "qualified taxpayer" is defines as an individual whose
health care policy was cancelled between December 31, 2013
and December 31, 2014. The individual must also not be
eligible for a federal subsidy for reduced cost sharing or
a federal health care tax credit. In the case where the
credit exceeds the net tax, the unused portion of the
credit may be carried over for eight years.
The bill defines a "qualified taxpayer" as an individual
whose health care policy was cancelled between December 31,
2013 and December 31, 2014. The individual must also not be
eligible for a federal subsidy for reduced cost sharing or
a federal health care tax credit.
This measure defines "individual policy of health
insurance" and "individual health care service plan
contract" as defined in Insurance Code and the Health and
Safety Code, respectively.
The credit is allowed only on a timely filed original
return, and any deductions allowed shall be reduced by the
amount of the credit allowed.
This bill allows the Franchise Tax Board (FTB) to prescribe
rules, guidelines, or procedure necessary to carry out AB
1376
As a tax levy, this bill takes effect immediately and
applies to taxable years beginning on or after January 1,
2014 and before January 1, 2016.
State Revenue Impact
The FTB estimates that this bill would reduce General Fund
revenues by $2 billion in fiscal year (FY) 2014-15, $700
million in FY 2015-16, and $140 million in FY 2016-17.
Comments
SB 1376 -- 02/21/14 -- Page 3
1. Purpose of the bill . According to the author, "In the
fall of 2013, Californians began enrolling in Covered
California, the state's Affordable Care Act exchange. They
then learned that, despite assurances of keeping their
plans that was likely not the case. In California alone,
roughly 900,000 people lost their health plans and the loss
of current health plans will continue through 2014. This
bill would attempt to ease the burden on those consumers
who lost or will lose their plans by providing a 50% tax
credit on insurance premiums paid for their newly-acquired
health plans, unless, under their new plan, they qualify
for a Federal tax credit or became eligible for Medi-Cal.
While this would not make these consumers whole, it would
help to ease a bit of the injury suffered at the failed
promise of the Affordable Care Act."
2. A new tax expenditure . Existing law provides various
credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, U.S.
Treasury officials began arguing that these features of the
tax law should be referred to as "expenditures," since they
are generally enacted to accomplish some governmental
purpose and there is a determinable cost associated with
each (in the form of foregone revenues). This bill would
create a new tax expenditure, costing the general fund
almost $3 billion dollars in foregone revenue in the first
three years alone. The tradeoff for providing a new tax
expenditure, resulting in revenue losses, is higher taxes
or reductions to other services or programs.
3. Need for the bill ? The intent of the author is to,
"provide some financial relief to Californians whose
insurance plans were cancelled as a result of the ACA and
its implementation under Covered CA." There is no nexus
between the amount of the credit and the loss a taxpayer
may have incurred. Although many health care premiums have
gone up as a result of the ACA, it has not been shown that
the premiums went up by 50%, or that the higher price does
not correlate to the better coverage many individuals are
now required to carry. The relief available under SB 1376
far exceeds any burden on individuals whose health care
policies were cancelled.
4. Technical Amendment . The FTB staff suggests the
following technical amendment to address an inconsistent
definition.
SB 1376 -- 02/21/14 -- Page 4
On page 2, line 23, strikeout "plan contract or
policy", and insert: "health care services plan
contract or individual policy of health insurance."
Support and Opposition (05/01/14)
Support : None received.
Opposition : American Federation of State, County, and
Municipal Employees (AFSCME); Health Access California.