SENATE BUDGET AND APPROPRIATIONS COMMITTEE

STATEMENT TO

[First Reprint]

SENATE, No. 2016

with committee amendments

STATE OF NEW JERSEY

DATED: JUNE 22, 2009

      The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 2016 (1R), with committee amendments.

      As amended, this bill modifies the tax treatment of certain lines of insurance and dedicates the revenue to the Health Care Subsidy Fund for Fiscal Year 2010.  Additionally, the bill makes a one-time transfer of $60 million from the New Jersey Surplus Lines Insurance Guaranty Fund to the Health Care Subsidy Fund.

      The bill modifies the tax treatment of group accident and health insurance premiums.  It increases the rate on those premiums from the current 1% to 1.35% as to taxes payable in 2009.

      As amended, this bill also modifies the current tax exemption given to a dental service corporation to make it subject to the 1.35% insurance premiums tax for taxes payable in 2009.

      This bill, as amended, increases the premium receipts tax for surplus lines coverage from 3% to 5%.  In the case of surplus lines policies that cover fire insurance on property located in a municipality or fire district with a duly incorporated firemen’s relief association, the bill provides that 3% of the premium receipts tax will be paid to the treasurer of the New Jersey State Firemen’s Association, as is current practice, while the remaining 2% will be paid to the State.

      Additionally, for Fiscal Year 2010, the bill dedicates the sum of $19.5 million from the revenue collected from the taxation of group accident and health insurance policy premiums to the Health Care Subsidy Fund.

      Lastly, the bill makes a one-time transfer of $60 million from the New Jersey Surplus Lines Insurance Guaranty Fund to the Health Care Subsidy Fund and further provides for a contingency appropriation, not to exceed $27 million, from the General Fund to the New Jersey Surplus Lines Guaranty Fund in the event that this transfer leaves that fund with insufficient funds to meet its obligations under the law.

      In total, the bill provides $79.5 million to the Health Care Subsidy Fund in Fiscal Year 2010 to support Charity Care Payments.

COMMITTEE AMENDMENTS:

      The committee amendments reduce the increase in the tax rate on group accident and health insurance premiums and dental service corporations, for taxes payable in 2009, from 2.25% to 1.35%, which increased revenue will be received in Fiscal Year 2010.

      The amendments also delete from the bill the amendment to the law which would have eliminated the “1/8 rule” for all accident and health insurance premiums, by which rule taxable premiums of an insurer are “capped” at 12.5% of total premiums for any carrier whose taxable premiums in New Jersey exceed 12.5% of its total worldwide taxable premiums.  Thus, the current treatment of accident and health insurance premiums under the “1/8 rule” will remain unchanged.

      The amendments also decrease from $74.5 million to $19.5 million the amounts dedicated from the taxation of group accident and health insurance policy premiums to the Health Care Subsidy Fund in FY2010 and eliminate the dedication of revenues generated from the dental services corporation premiums tax.

      Additionally, the amendments make a one-time transfer of $60 million from the New Jersey Surplus Lines Insurance Guaranty Fund to the Health Care Subsidy Fund and further provide for a contingency appropriation, not to exceed $27 million, from the General Fund to the New Jersey Surplus Lines Insurance Guaranty Fund in the event that this transfer leaves that fund with insufficient funds to meet its obligations under the law.

      The amendments also make a technical correction to reference an additional section of law in respect to the taxation of life and health insurance premiums, which amendment is necessary to fully capture the increased revenue amounts.

FISCAL IMPACT:

      According to information provided to the Office of Legislative Services by the Department of Banking and Insurance, it is estimated that this bill will generate approximately $35.3 million in revenue for Fiscal Year 2010.  As amended, the bill contains provisions limiting certain tax increases to taxes payable in 2009 and collected by the State in Fiscal Year 2010.  Due to the one year duration of some of the tax increases, it is estimated that revenue raised in Fiscal Year 2011 will decrease to approximately $22 million.

Details of the revenue increases are as follows:

· Group accident and health insurers –Premiums tax increase from 1% to 1.35%, effective only for taxes payable in 2009 - $12.9 million;

· Dental service corporations - Imposition of 1.35% premiums tax, effective only for taxes payable in 2009 - $400,000;

· Surplus lines carriers - Premium tax increase from 3% to 5% - $22 million.

Additionally, the bill authorizes a one time transfer of $60 million from the New Jersey Surplus Lines Insurance Guaranty Fund to the Health Care Subsidy Fund.

      The bill also dedicates $19.5 million from the taxation of group accident and health insurance policy premiums to the Health Care Subsidy Fund.

      In total, the bill provides $79.5 million to the Health Care Subsidy Fund in Fiscal Year 2010 to support Charity Care Payments.