Audit Into New Mexico Insurers’ Premium Tax Underpayment Nearly Done

An audit into whether insurance companies have been underpaying the premium taxes they owe to the state should be wrapped up by the end of September, but the findings may not be immediately available.

New Mexico Superintendent of Insurance John Franchini recently provided an update to the Journal editorial board of the audit now underway by independent accounting firm Examination Resources. The Atlanta-based firm was hired three months ago to look at 30 insurance companies that have paid more than $1 million in premium taxes to the state in any years between 2003 and 2016.

They include all types of insurers, such as those that provide life insurance, but the focus is on health companies because they pay the largest share of premium taxes, Franchini said.

The decision to hire an independent auditor was made after a special report last year showed the five largest health insurance companies operating in New Mexico owed at least $193 million in premium taxes over a recent five-year period, although that figure has been disputed. The firms which pay the lion’s share of the tax are Presbyterian Health Plan, Molina Healthcare Inc., UnitedHealthcare, Blue Cross Blue Shield of New Mexico and Amerigroup. The 2016 review said tax-filing errors were not caught because of problems with computer software, internal agency controls and inadequate staffing. Tax collections on health, property, life and other insurance premiums are overseen by a division of the Office of the Superintendent of Insurance and then remitted to the general fund.

Franchini, in his recent interview, also blamed tax collection problems on outdated state regulations.

Examination Resources was awarded a $600,000 contract from among three companies recommended by OSI. All were out-of-state firms, and the superintendent said Examination Resources got the nod because few companies do such specialized work on premium tax collections and because there had to be no ties with New Mexico insurers or his office.

Franchini said portions of the audit might be completed before Sept. 30 for OSI to review, but that doesn’t mean the state can immediately start billing for any back taxes owed.

“Companies have 20 days to review and dispute the findings in the (preliminary) report,” which is not a public record, said Franchini, describing a process-laden undertaking that has five stages, including administrative hearings and court appeals.

“Public access to these findings will be when the OSI issues a report,” said Franchini. “That could be by the end of October.” However, rival companies will not be privy to details about each others’ pricing and financial information.

Findings could result in calculations showing underpayments or overpayments in taxes to the state, Franchini added. If an insurer agrees that an underpayment has indeed occurred, an invoice is issued.

“The hope is that we can get this quickly done ... and not have to wait another year (implementing audit results) at taxpayer expense,” said Franchini.