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Illinois joins bandwagon on health care reform

Illinois joins bandwagon on health care reform

SPRINGFIELD, Ill.—Illinois Gov. Rod Blagojevich last week became the third governor in as many months to propose sweeping health care reform legislation to vastly reduce the number of uninsured.

The Illinois governor's plan to provide coverage to the state's 1.4 million uninsured residents resembles earlier proposals in California and Pennsylvania.

All the proposals, for example, would boost the number of people eligible for state health insurance premium subsidies; create state health insurance purchasing pools to make it easier and less expensive for the uninsured, and in some cases, small employers, to obtain coverage; and impose fees or assessments on most employers—except the smallest ones that do not offer health insurance.

Gov. Blagojevich's proposal, though, differs from the others in several ways. Among other things, it calls for a secondary source of funding to pay for an expansion of coverage through a tax on businesses' gross receipts as well as a reinsurance program to provide an incentive for insurers to offer affordable, guaranteed-issue coverage.

The proposed employer assessments also vary. In California, under Gov. Arnold Schwarzenegger's plan, employers with at least 10 employees that do not offer health insurance would pay an annual assessment of 4% of payroll. In Pennsylvania, Gov. Ed Rendell has proposed an annual assessment of 3% of payroll on employers with 50 or more employees that do not offer coverage.

By contrast, Gov. Blagojevich is proposing a 3% payroll tax on employers with 10 or more employees that do not spend an amount equal to at least 4% of payroll on health care benefits.

The three proposals, none of which has been formally introduced as legislation, have triggered significant opposition from the business community, whose members are most concerned about the employer assessments.

Additionally, legal experts say the assessments might run afoul of the federal Employee Retirement Income Security Act, which pre-empts state laws and rules that relate to employee benefit plans. Indeed, a federal appeals court in January ruled that a 2006 Maryland law, which required any employer in the state that did not spend at least 8% of payroll on health care to pay the difference to a state fund, was pre-empted by ERISA.

On the other hand, the Massachusetts law has not been challenged, possibly because the assessment—for those that would be affected—is relatively small, said J.D. Piro, an attorney in the Norwalk, Conn., office of Hewitt Associates Inc.

"Most employers aren't paying it," Mr. Piro said referring to the Massachusetts assessment.

All three proposals face an uphill battle to win enactment, some say.

In California, for example, "I've heard the governor is having trouble because there are no Republican lawmakers willing to support 100% of his proposal," said Amy Bergner, a principal with Mercer Human Resource Consulting in Washington.

In Illinois, the Democratic governor's proposal has ignited stiff opposition from some employer groups.

"What's going on in Illinois has done more to bring the business community together than anything else," said a spokesman for the Illinois Manufacturers' Assn., which announced its opposition to a mandate or new tax on business even before the governor gave an impassioned speech to the General Assembly stating the case for his proposal.

"That's not belittling the cause, but no one likes the idea of new taxes," the IMA spokesman said. "It seems to have landed in the General Assembly with a thud."

A pay-or-play mandate also would create an administrative nightmare for many Illinois employers whose workers come from neighboring states, observed Larry Boress, president of the Midwest Business Group on Health, a coalition of employers based in Chicago.

"In Illinois, there are a number of bi-state communities, and employers would have to go through the hassle of paying tax for certain employees, but not for others," Mr. Boress.

In a statement, Illinois Chamber of Commerce President and Chief Executive Officer Doug Whitley called the governor's proposal "a reckless and irresponsible affront to every employer and worker in Illinois" by eliminating jobs and forcing businesses to leave the state.

Moreover, "moving more people into taxpayer-provided health care is not prudent for long-term public policy," Mr. Whitley's statement said. "Government-run programs stymie innovation and flexibility. This plan does not address quality of care, rising health care costs or how expansion of subsidized health care may disrupt the system for those who already have insurance."

The governor's proposal was characterized as "the largest tax increase in the history of Illinois" by the Springfield, Ill., office of the National Federation of Independent Business, a national organization comprised primarily of small employers, and the "largest tax hike in history on the people of Illinois" by the IMA.

Others say even if the Illinois proposal were enacted, implementation could be difficult.

"It's an easy political rhetorical device. It makes it look like they're doing something. But, in reality, they're going to find out the marketplace is not going to make affordable coverage available," said Steve Wojcik, vp of public policy at the National Business Group on Health, a consortium of large, national employers based in Washington.