Colorado legislators who tried unsuccessfully during the regular session to raise the bar for insurers to receive a substantial tax reduction related to their workforce are coming back in the special session with a bill that will eliminate that tax credit altogether.
Two Democratic sponsors of the bill told The Sum & Substance that the move is necessary because the state is in dire need of ways to close a nearly $800 million budget shortfall that opened due to changes in federal tax policy. And while insurance-sector leaders say that the policy is likely to lead to cost increases for both home- and health-insurance premiums and to a loss of jobs in this state, bill backers say the tax credit they are seeking to nix has already proven unsuccessful.
The regional- and home-office tax credit, passed in 1959, has allowed insurers with a substantial workforce and operational infrastructure in Colorado to reduce the taxes they pay from 2% of each premium sold to 1%. A 2021 law required that insurers base 2% of their national workforce in the state to qualify — a number that has since risen to 2.5% and has cut the number of insurers claiming the credit from 77 down to 46.
Why Democrats are targeting regional- and home-office credit
But legislators who now seek to revoke the credit after the 2025 tax year point to a March report from the Office of the State Auditor that noted that the vast majority of insurers receiving the credit reported a decrease in jobs between 2022 and 2024. Collectively, tax-break recipients cut about 4,300 jobs while earning $17.5 million more in credits, which are tied to the cost of premiums rather than to the exact number of workers in this state.
Colorado state Sen. Mike Weissman, D-Aurora
“A major goal of tax policy has to be to incentivize behavior changes on the margins. The RHO was supposed to attract jobs to Colorado,” said Sen. Mike Weissman, the Aurora Democrat who co-sponsored both the regular-session bill and the coming special-session proposal. “But what data tells us is that many Colorado insurance companies are claiming the benefit while cutting jobs. Meanwhile, insurance-sector jobs are increasing in other states that offer less to no financial subsidy.”
Insurance-sector leaders acknowledged that while jobs have been cut, the significant tax credit serves as a bar that keeps firms from reducing Colorado headcount even more, so that they can continue to qualify for the deduction. Removing it not only would end that incentive and lead to more potential job losses, but it would raise insurance premiums, as companies must reflect in premiums when they have to pay millions or tens of millions of dollars more because their taxes are rising.
“It makes Colorado a less competitive state,” said Matt Vece, senior director of financial and tax counsel for the American Property Casualty Insurance Association. “Even the companies that pay 2% taxes now, they’re competing with companies that pay 1%, and so they have to keep their premiums down. If everyone is paying 2%, that’s going to put upward pressure on prices.”
Supporters point to March audit report
Colorado state Rep. Andy Boesenecker, D-Fort Collins
In calling the special session earlier this month, Gov. Jared Polis identified changes to the RHO as one of six tax policies that legislators can consider changing to try to fill the budget shortfall, and legislators responded in turn. While the regular-session bill would have raised the threshold for qualification for the credit to 7% of national workforce, Rep. Andy Boesenecker said the budget chasm has increased the amount of money that the state must find and, as such, has called into question the need for any tax credit.
The March audit report noted that while the 2021 addition of the 2% workforce threshold reduced the number of companies taking the credit by 40%, the payout of tax benefits fell by a smaller 31%, from $105.4 million in 2021 to $72.3 million in 2024. Because the benefit insurers receive is tied to premium costs that are rising rather than to the specific number of local employees, “the incentivizing effect is likely limited primarily to companies that have close to 2.5 percent of their workforce in Colorado,” the audit concluded.
Boesenecker, the Fort Collins Democrat who will be a primary co-sponsor of the bill in his chamber, said the fact that premiums are rising despite the tax break points to evidence that tax savings are going to incresing profits rather than lowering customer costs. Thus, he and Weissman are not swayed by the argument that premiums will rise because of the proposed change.
Reducing credits could boost insurance premiums
“Clearly the presence of the RHO benefit — the second-most-generous in the nation — has not been keeping insurance premiums down,” Weissman said. “I would think that companies that choose to increase their premiums further in response to policy change might find themselves at a competitive disadvantage vis a vis other sellers of insurance, especially in insurance lines that are most competitive.”
Insurance leaders, however, argue that increasing premiums are not driven by profit but by the increasing costs of insuring homes at a time when disasters like the wildfires that are so common to Colorado are causing significantly more damage. And they say that at a time when state leaders have said they must find a way to lower both home- and health-insurance costs, this bill will lead directly to increases instead.
Jacob Wager, senior director of state government affairs for Cigna Healthcare, noted that the company, which is growing its Colorado workforce and sits just about the 2.5% bar for local workforce, will double its $14 million premium-tax bill to $28 million if the bill passes. Not only must the company reflect those increased costs in premiums, but it will have to look more closely at workers located in this state and determine the benefits of keeping them here versus moving them if tax benefits associated with their location change.
“It certainly would be an impact,” Wager said of the effect of such a tax change on premiums. “It kind of depends on how we as a company choose to deal with it. But it certainly has an impact on customer premiums.”
Are insurers being targeted unfairly?
Matt Vece is senior director, financial and tax counsel at the American Property Casualty Insurance Association.
Insurers also question the fairness of Colorado making up for state revenues that are lost due to federal tax cuts by boosting premium taxes, since insurers did not receive any break in the federal “One Big Beautiful Bill” on their premium taxes. With the bill being a potential fourth change in tax-break qualifications in the past four years — the local-employment bar was established at 2% in 2022, rose to 2.25% in 2023 and landed at 2.5% in 2024 — it sends the message that Colorado offers no predictability in tax policies, which companies seek when deciding where to invest resources, Vece said.
A separate bill that will be introduced when the special session convenes on Thursday could somewhat offset the losses that the RHO bill could cause.
That bill from Democratic Reps. Rebekah Stewart and Sean Camacho lets the Treasurer’s office sell premium tax credits that insurers can redeem in future years for anywhere from 75 to 90 cents on the dollar, filling the budget hole this year in exchange for tax breaks later. (The bill also permits C corporations a chance to buy the same credits on their income-tax bills at an auction.)
Would tax-credits sale offset insurers’ pain?
Camacho said that legislators’ discussions have recognized this potential offset as a consideration in deciding to move forward with both policies. Though such credit sales are not a policy officials want to use frequently — they last were allowed during the pandemic-fueled budget crisis of 2020 — they are necessary because of revenue-raising limitations that the Taxpayer’s Bill of Rights places on legislators, the Denver Democrat said.
Lyn Elliott, APCIA vice president of state government relations, noted that insurers have purchased tax credits before and are likely to do it again. But those one-time benefits pale in comparison to the annual loss of revenues they’ll suffer without RHO credits, she said.
“It’s better than nothing. But getting rid of the regional home-office credit is certainly a disruption,” Elliott said. “It’s really been disheartening to watch.”
The session must last for at least three days, though legislative leaders have said it’s likely to extend into next week to account for the complexity and number of bills being debated. The bill impacting the regional- and home-office tax credits should get its first hearing in a House committee on Thursday.