Surging revenue from Mississippi’s tax on insurance premiums has prevented what has been a dismal year for state revenue collections from being even worse.
While state revenue collections for the fiscal year that ended June 30 are down year over year for only the fourth time since at least 1970, revenue from the 3 percent tax on insurance premiums sold within the state skyrocketed by $50.1 million or nearly 23 percent.
While the insurance premium revenue composes only a small portion (under 5 percent) of the state’s $6.3 billion budget, the revenue still was an unexpected boon for legislators dealing with budget woes.
Overall, recurring revenue collections were down $34.3 million or 0.62 percent for the just-completed fiscal year. Revenue was $209.8 million or 3.71 percent below the estimate the Legislature used in the 2015 session to construct the budget for the fiscal year.
Because of sluggish revenue collections, Gov. Phil Bryant was forced to make $65 million in cuts and transfer a little more than $110 million from the rainy day fund to plug budget holes.
The Legislature had to meet late last month in special session to provide the governor the authority to make additional transfers from the rainy day fund to deal with the shortfall.
Without the increased insurance premium tax collections, the state’s financial picture would have been even worse.
“It (insurance premium tax revenue) is certainly not insignificant, I would agree,” said Mark Haire, the deputy commissioner of the Mississippi Insurance Department.
To put the recent increases in perspective, in fiscal year 2010, revenue from the insurance premium tax accounted for 2.9 percent of all of the state’s recurring revenue compared to 4.9 percent for the just-completed fiscal year.
Haire credits at least a portion of the increase in revenue from the insurance premium tax to the federal Affordable Care Act, better known as Obamacare.
But he said, “I don’t know if it all is attributable to one big thing.”
Haire said the larger-than-expected increases in the revenue source began in calendar year 2012 as aspects of the ACA kicked in. He said mandates requiring people to have health insurance or face a tax penalty and mandates for larger companies to offer coverage probably played a role in the increase. More people buying health insurance policies resulted in additional revenue for the state.
Exchange serves 110,000 in state
As of earlier this year, nearly 110,000 Mississippians had garnered coverage through the federal insurance exchange where people can go to shop for policies and receive a subsidy – depending on income level – to help pay for the premium. Other people could have garnered insurance coverage without accessing the exchange.
But Haire said multiple factors probably contributed to the increase in insurance premium tax collections. The 3 percent tax is levied on insurance companies’ gross receipts of all premiums sold in the state–- ranging from property damages, such as for home and car, to life insurance, health insurance and others.
Kathy Waterbury, a spokeswoman for the Department of Revenue, said part of the increase also could be attributed to managed care companies contracting with the state to provide coverage for some Medicaid recipients.
Since fiscal year 2010, the insurance premium tax collections have skyrocketed $132.8 million. But the just-completed 2016 fiscal year saw the biggest jump – $50.1 million, thanks in part to the fact that the revenue stream actually was down in fiscal year 2015 from 2014 by about $11 million.
For the just-completed fiscal year, the insurance premium tax was one of two tax categories where collections exceeded the estimate made by the state’s financial experts.
The insurance premium tax exceeded the estimate by $55.3 million while the casino gambling tax was above the estimate by $3.3 million.
The three largest sources of revenue, the sales tax, personal income tax and corporate income tax, were all below the estimate.
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