Massachusettes sets the pace: Other states' health reforms off to slow start

Massachusetts got the ball rolling in igniting states' efforts to pass legislation to reduce the ranks of the uninsured, but other states have yet to build much momentum.

Governors in at least three states—Illinois, California and Pennsylvania—have led the charge for health care reform. Legislation has been introduced in Illinois, where a gross receipts business tax ran into stiff business opposition and failed to gain even one positive vote in a symbolic House ballot, and Pennsylvania, where the proposal has languished in committee.

Meanwhile, Vermont is putting into place components of its 2006 health reform measure, Catamount Health, which expands coverage through an insurance program sold by commercial insurers in which the state subsidizes premiums for low-income individuals. Increases in the state cigarette tax as well as a $365 per employee annual fee assessed on employers with nine or more employees that do not offer health benefits are funding the effort (see story, page 12).

Other states are "definitely inspired by Massachusetts, but they're also waiting to see how Massachusetts turns out," said Steve Wojcik, vp of public policy at the Washington-based National Business Group on Health.

"All eyes are on Massachusetts after Maryland's legislation was overturned," said Scott Macey, senior vp and director of governmental affairs at Aon Consulting in Somerset, N.J.

Earlier this year, the 4th U.S. Circuit Court of Appeals ruled that Maryland's landmark 2005 law, which required employers with 10,000 or more employees to spend on health care coverage an amount equal to 8% of payroll or pay the difference to the state, was pre-empted the Employee Retirement Income Security Act. As written, the law would have applied only to Wal-Mart Stores Inc., the giant Bentonville, Ark.-based retailer.

"California, Illinois and Pennsylvania are the key states to watch, because the uninsured problem has become a hot political issue here," Mr. Macey said. "There seems to be a much greater societal recognition that all the little incremental and market reforms haven't solved the primary problem."

"There's a lot of interest and concern among employers with what's going on in the states," said Amy Bergner, a principal at Mercer Human Resource Consulting in Washington. "As a philosophical matter, they're concerned the states are trying to either directly or indirectly regulate their benefit programs. On a more practical level, they're concerned how they can comply with various, differing state requirements."

What "major employers are saying is, 'If you're going to act on a state level, then it should not be directed at employers that maintain or provide coverage for their employees and pay a substantial portion of the cost of it, because we can't operate under 50 different systems.' That's the whole basis of the ERISA pre-emption," Mr. Macey said.

Although Illinois Gov. Rod Blagojevich's "Illinois Covered" plan was approved by a Senate committee, the business and medical communities objected. In a separate vote, the Illinois House rejected the tax plan. House Speaker Michael Madigan, D-Chicago, last week said there is little House support for any tax increase.

The Illinois governor's plan would create a gross receipts tax of 1% on manufacturers, wholesalers, retailers and construction companies and levy 2% primarily on service businesses. It also would impose a 3% payroll tax on employers with 10 or more employees that do not spend at least 4% of their payroll on health benefits. It would phase out the corporate income tax over four years. The taxes, which would generate about $7 billion, would help fund a statewide pool of low-cost insurance plans and provide premium rebates for middle-income families, as well as education and capital projects.

"The business community and providers have come out against it, so I don't see a big constituency supporting it yet," said Ms. Bergner.

In Pennsylvania, Gov. Ed Rendell's health care initiative, H.B. 700, was introduced in March and referred to a House committee, where it has languished since then.

The bill would require Pennsylvania employers that do not offer health insurance to their employees who work 30 or more hours per week to pay a tax equal to 3% of payroll to a fund that would provide the coverage. The measure provides financial assistance to small employers with two to 50 full-time employees whose average wage is below $40,000 annually. The plan also calls for reforms to make coverage more affordable and eliminating waiting periods and pre-existing condition exclusions.

Most state residents would be mandated to buy health insurance or face financial penalties.

But many doubt Pennsylvania will enact comprehensive reforms this year.

"It's going to be a long road to passage," Mr. Wojcik said.

In California, even though Gov. Arnold Schwarzenegger's proposal—which includes both an employer and individual mandate—has yet to be introduced in the Legislature, it already has competition from two similar measures put on the table by leading Democratic lawmakers.

A.B. 8, introduced by Assembly Speaker Fabian Nunez, D-Los Angeles, would require employers with two or more employees to provide health care coverage and mandate that employees take the coverage. By comparison, S.B. 48, introduced by Senate President Pro Tem Don Perata, D-East Bay, would require employers to provide coverage or pay to cover the uninsured. S.B. 48 contains no individual mandate.

Both California bills would require employers to spend at least 7.5% of payroll on health care for employees or pay that amount to a state purchasing pool, the Connector. S.B. 48 would require Connector enrollees to pay up to 5% of their household income for the coverage.

Gov. Schwarzenegger's plan would require employers with 10 or more employees to provide coverage or pay a 4% payroll tax into a pool that would cover uninsured workers, who would be required to enroll in either employer-sponsored or state-sponsored coverage.

Like Illinois, Gov. Schwarzenegger is meeting resistance from employers.

"We do not support employer mandates," said Michael Shaw, legislative director for the California office of the National Federation of Independent Business in Sacramento, which has opposed both A.B. 8 and S.B. 48. Mr. Shaw said the NFIB has not taken an official position on Gov. Schwarzenegger's proposal because it is not yet been introduced.

But Mr. Shaw did say he is concerned that the governor's proposal may come through at the last minute, similar to so-called "play or pay" health insurance that then-Gov. Gray Davis signed in 2003 and voters repealed in 2004. Mr. Shaw speculated that "one reason the governor hasn't allowed his proposal to be introduced is because he doesn't want to give the Legislature enough time to monkey with it."

Waiting also enables the governor's office to say he's working with all constituents to devise a compromise solution, Mr. Shaw said, pointing to a recent news conference featuring the governor and Safeway Inc. Chairman Steve Burd, who is spearheading a coalition of nearly 40 large employers and insurers to promote market-based solutions to resolve the health care crisis.

"It seems that ultimately there are a lot of vehicles to start as negotiating points," Ms. Bergner said.

If the measure were to become law, it is very likely to face a challenge by businesses as being unconstitutional and a violation of ERISA.

"The whole question is whether the proposal is a tax. If it is, it needs two-thirds of each house of the Legislature to pass" under the California Constitution, said J.D. Piro, a consultant with Hewitt Associates Inc. in Norwalk, Conn. "The ERISA issue will be there regardless of whether it's a tax or not."