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Pennsy health plan needs another source of funding

January 18, 2007

Pennsylvania companies that don't offer their employees health insurance would pay a 3 percent tax on their payrolls, under a proposal released Wednesday by Gov. Ed Rendell.

Smokers and users of smokeless tobacco also would contribute to the effort, which the governor said would provide coverage to 800,000 residents who now have no insurance.

Covering the uninsured is a laudable goal, but we have three problems with the proposal.

The first is that it is punitive, assuming that companies will not do the right thing even if they're able. Most company officials know that to get the best employees, they must offer them health-care benefits.

Otherwise, money spent on training is wasted when workers jump to another job at the first opportunity.

The other problem is that Maryland's attempt to force companies with more than 10,000 employees to spend at least 8 percent of their payroll on health care was overturned by a federal judge in July.

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U.S. District Judge J. Frederick Motz ruled that the so-called "Wal-Mart law" was illegal because it was in conflict was a federal law that spares large corporations the trouble of dealing with the differing requirements in many states.

The third problem is that tobacco taxes are not a stable source of revenue, especially after a tax increase. The Coalition for Tobacco Free Kids cites research that says that every "10 percent increase in the real price of cigarettes will reduce overall cigarette consumption by approximately three to five percent.."

Interestingly, unlike the recently announced Massachusetts health-care plan, those who can afford insurance but don't purchase it wouldn't be required to do so. The governor would first like to evaluate how the first group of measures works.

Although it's said that the bill would provide help for those companies that want to provide insurance, but can't afford to do so, we foresee the possibility that when faced with a 3 percent tax on payroll, companies could cover that cost by cutting some jobs.

That would push more people onto the Medicaid rolls, increasing the state's costs. Before the unintended consequences of this proposal become a reality, we recommend that the governor come up with some other way to fund this expansion of health care.

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