BOSTON—Landmark health care reform legislation approved last week by Massachusetts lawmakers could make the state the first to achieve near-universal health care coverage for residents, while potentially helping employers in their battle to hold down cost increases.

The legislation requires all Massachusetts citizens to have health insurance, either through their employers or through several programs in which the state will heavily-in some cases, completely-subsidize premiums for lower-income individuals.

In an approach similar to states' mandatory auto insurance laws, residents not covered under health insurance plans would be hit with financial penalties.

Employers would not be required to offer health insurance. But those that do not offer a plan or do not make a "fair and reasonable" contribution toward employees' health care coverage would be assessed an annual $295 per employee fee. Employers with 10 or fewer employees would be exempt, though.

The approach taken by Massachusetts lawmakers to vastly reduce the number of uninsured-now roughly 550,000 people in a state with a population of 6.4 million-is strikingly different from health care reform efforts taken elsewhere.

For example, Hawaii decades ago mandated that employers provide coverage to their employees, with the law stipulating how much of the premium companies could require their employees to pay. Like Massachusetts, Maine three years ago passed legislation subsidizing health insurance premiums of lower-income residents. But it did not mandate that employers offer coverage or that individuals obtain coverage, and as a result, the Maine law has yet to make a sizeable dent in reducing the number of uninsured.

In 2003, California passed legislation requiring large employers to pay 80% of group health insurance premiums or contribute to a state fund. One year later, though, voters narrowly approved a referendum to repeal the law before it took effect. Opponents of the law argued, among other things, it would cost the state jobs as companies moved out to avoid the mandate.

And Massachusetts once before passed legislation with the same goal: moving the state toward universal health care coverage. But that 1988 law, which did not include an individual coverage mandate but imposed a much stiffer financial penalty on employers not offering health care plans, later was repealed amid much lobbying by the small-employer community worried about its financial impact on companies.

By contrast, Massachusetts' latest health care coverage initiative, which Gov. Mitt Romney is expected to sign-though possibly proposing some changes-is drawing praise from business groups representing small and large companies, who believe it may aid employers by reducing provider cost-shifting.

"It could reduce costs, and that would be a step in the right direction," said Bill Vernon, state director of the Massachusetts Federation of Independent Business in Boston, which primarily represents small employers.

"We are cautiously optimistic," said Eileen McAnneny, vp-government affairs for Associated Industries of Massachusetts in Boston, whose members include many of the state's largest employers.

Ms. McAnneny, for example, notes that the legislation significantly boosts state reimbursement for providers who treat Medicaid patients. That could reduce cost-shifting by providers to insured patients. Providers have long complained that Medicaid does not cover the true cost of services.

And down the road, as more individuals are insured, hospitals and other providers will not be stuck providing care for which they are not fully reimbursed, a cost they try to shift to those in group plans.

"Business ought to receive a benefit through a reduction in the cost shift," said Linda Bergthold, a consultant with Watson Wyatt Worldwide in Los Angeles.

While there are many unknowns about the bill, some of which will be addressed by regulations in the months ahead, benefit experts say its importance-and the potential that other states may follow Massachusetts' lead if the initiative is successful-cannot be overstated.

"It is a grand experiment from a health care policy standpoint," said John Piro, an attorney in the Norwalk, Conn., office of Hewitt Associates Inc.

"This is great public policy. Because people will have coverage, care will be delivered much more efficiently," said Phil Edmundson, chief executive officer of insurance broker William Gallagher Associates in Boston and chairman of Affordable Care Today, a coalition of Massachusetts consumer, labor and provider groups backing expanded health care access.

If the legislation does achieve universal coverage at an affordable cost, "a lot of other states will look at this and say, 'This is the way to go,"' Mr. Piro said.

Questions remain

For most employers now offering health care coverage to Massachusetts employees, the direct impact of the legislation will be minimal. But for others, some key questions-to be resolved by regulations-are not explicitly addressed by the legislation.

"Over the next year, we will find out through regulation the details. Right now, we only have part of the picture," said Paul Sullivan, an assistant vp with Aon Consulting in Newburyport, Mass.

"A lot is going to be left to regulation," concurred Deborah Wozniak, a consultant with Mercer Health & Benefits in Boston.

Perhaps the most critical issue-from an employer perspective-that will need to be resolved is what is considered to be a "fair and reasonable" employer contribution toward group health care coverage. Employers sponsoring such plans would be exempt from the $295 per employee assessment.

"How 'skinny' can a plan be" and pass muster? asked Watson Wyatt's Ms. Bergthold.

Also not clearly addressed by the legislation is how, if at all, the employer assessment will be applied for those companies that provide coverage to full-time employees but not to part-time workers.