Maine Lawmakers Look at Insurance to Plug Budget Gap

January 21, 2005

As the Maine Legislature opens its 2005 session, lawmakers are reportedly primarily concerned with tax issues, including a proposal that would tax insurance premiums to fund retirement health insurance for police and firefighters.

“With the state facing a budget shortfall of about $750 million, lawmakers may be concerned about this issue, but not concerned enough to tap general fund monies to pay for it,” said Frank O’Brien, vice president and New England regional manager of the Property Casualty Insurers Association of America (PCI). “The rationale for taxing insurers is similar to the existing fire premium tax – that insurers benefit from these personnel and should bear some of the cost associated with them. The result would be an estimated 25 percent increase in the premium tax.”

A task force formed during last year’s session reportedly found that the lack of employer-paid retiree health insurance for police and firefighters at the local and county level was a significant deterrent to the recruitment and retention of such public safety officials. The subsequent report recommends funding retiree health insurance benefits through employee contributions and a dedicated .5 percent tax on premiums for property/casualty insurance policies “that cover losses that might involve police or firefighters, such as insurance covering auto accidents, fires, and other accidents and losses.” The bill is expected to be assigned to the Labor Committee, although no final decision has been made and no hearing has been set.

“Although the Senate President and the Assistant Majority Leader in the House were on the task force producing this proposal dealing with insurance, no representatives of the insurance industry were involved,” O’Brien said. “We will be closely watching this proposal that could have a significant impact on insurance premium costs in Maine.”

Insurance is also a part of Governor Baldacci’s budget bill, which relies heavily on revenue enhancements to close a substantial budget deficit.

These provisions include one proposal which taps into several million dollars in excess assessments paid by insurers to fund the operations of the Bureau of Insurance, and another that seeks access to several hundred thousand dollars in refunds of fire premium tax payments due insurers as the result of a deal completed several years ago to solve a funding crisis in the State Fire Marshall’s Office.

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