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Pennsylvania plan calls for expanding health cover

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Pennsylvania plan calls for expanding health cover

HARRISBURG, Pa.—Inspired by the success of Massachusetts in enacting comprehensive health care reform legislation, more states are lining up to try to do the same.

The latest is Pennsylvania, where Gov. Edward G. Rendell last week released the outline of a sweeping proposal to reduce the number--roughly 900,000--of state residents who lack health insurance.

Gov. Rendell's plan comes on the heels of a somewhat similar proposal by California Gov. Arnold Schwarzenegger, while reform proposals are expected to emerge soon in Connecticut, Illinois, Iowa, Minnesota, New Jersey and Wisconsin.

While each state's plan varies, the initiatives share several key features, which include:

  • Boosting the number of people eligible for state health insurance premium subsidies.

  • Creating a state health insurance purchasing pool to contract with private insurers to make it easier and less expensive for the uninsured and, in some cases, small employers to obtain coverage.

  • Imposing a fee or assessment on most employers--except the smallest ones--that do not offer health insurance.

  • Mandating that most--in some cases, all--state residents have health insurance or face financial penalties.

The driving force behind these proposals is an attempt to break a cycle in which hospitals and other health care providers are shifting the costs of treating uninsured patients, such as those that show up at emergency rooms, by inflating charges of those with health insurance.

That, in turn, makes the cost of health insurance more expensive; leads more companies, especially smaller firms, to drop coverage; boosts the number of uninsured; and results in yet more cost-shifting.

Such cost-shifting, Gov. Rendell said in a statement, "is a tremendous deterrent for businesses that are considering locating in Pennsylvania to know that in addition to paying for their own employees' health coverage, they are subsidizing the costs of the uninsured."

In California, Gov. Schwarzenegger made much the same point in introducing his own plan. Because of cost-shifting, "companies stop offering coverage, which leads to more people without insurance and the whole cycle keeps repeating," he said.

To expand Pennsylvania coverage, Gov. Rendell's plan calls for state-paid health insurance premium subsidies for individuals who make less than 300% of the federal poverty level. Such subsidies also would be available to low-income employees working at small companies that do not offer health insurance coverage and have a high proportion of low-income workers.

To encourage employers to offer coverage and provide a revenue source for the state, employers with more than 50 employees would be liable for a new 3% payroll assessment if they do not offer health insurance coverage. In computing the tax, an employer's first 50 employees would be excluded.

Whether this effort to expand coverage and reduce cost-shifting will work is a key question.

Massachusetts--the first U.S. state to attempt this approach--is only now implementing its 2006 universal health care law. Vermont, which passed a similar law last year, also has yet to fully put it into effect.

Some health care experts are skeptical that the Massachusetts model will produce lower costs for employers already providing coverage. For example, even if health insurance coverage is made mandatory, many people still may not use the coverage, said Ted Nussbaum, North America director of group and health care consulting for Watson Wyatt Worldwide in Stamford, Conn.

Among other concerns, Pennsylvania businesses question the 3% payroll assessment on employers not offering coverage. The proposal is not clear on whether the assessment applies if most workers don't take coverage offered by employers, said David N. Taylor, executive director of the Pennsylvania Manufacturers Assn. in Harrisburg.

"The plan raises as many questions as it answers," said Brian Kelly, director of government affairs for the Pennsylvania Chamber of Business & Industry in Harrisburg.

Others say the 3% assessment might face legal challenges on grounds it violates the federal Employee Retirement Income Security Act, which pre-empts state rules and laws relating to employee benefit plans. A law in Maryland designed to expand coverage violates that aspect of ERISA, courts have ruled (see related story).

"Almost certainly, there will be challenges," said Seth J. Chandler, a law professor at the University of Houston Law Center.