Universal Health Care on the Horizon for NJ

May 2008

(Livingston, NJ) Lawmakers recently unveiled plans to bring universal health care to New Jersey within three years by requiring its 1.3 million uninsured residents to buy coverage and using state funds to provide reduced-cost policies.

"I believe that every man, woman and child deserves access to affordable health care here in New Jersey and more importantly, so do an overwhelming majority of New Jerseyans who live this challenge every day," Sen. Joseph Vitale (D-Middlesex), a sponsor of the bill, said at a packed Statehouse news conference.

Governor Corzine supports the direction of the bill and business lobbyists are also supportive.

Mandatory premiums would be based on a person's income and family size, said David Knowlton, president and CEO of the New Jersey Health Care Quality Institute, a think tank. He estimated policies would run about $300 a month per person.

Those who don't obtain health insurance would be automatically enrolled in All-Care when they went to an emergency room for treatment. People who failed to pay their share of the premiums might see those costs deducted from their income tax refund, or from their paychecks -- but those details haven't been decided, officials said.

The big question will be how the state eventually pays for the program. To come up with $29 million for the first year, Vitale proposed dipping into the state Medicaid budget, which holds a $180 million surplus, to cover the state's share of the costs. Federal Medicaid matching funds would follow.
 
The big money starts to add up in the second and third years of the program, when people are required to demonstrate they have health insurance.
 
The Star Ledger reports that two sources with direct knowledge of the proposal said there have been preliminary discussions about raising money for the program by having the nonprofit Horizon Blue Cross Blue Shield convert to a for-profit entity. The conversion would provide the state with more than $1.5 billion, as Horizon would have to repay years of tax breaks.
 
Employers that do not cover employees may be required to set up “section 125” accounts, which allow employees to pay premiums with pre-tax dollars.  Businesses would not be asked to contribute any money to create the program.
 
In May, 2007, John Sarno, president of the Employers Association of NJ prepared an extensive memorandum on health care reform for internal EANJ Board discussion.  The memo reported that 70% of NJ residents are covered by an employer-sponsored plan and that universal health care advocates did not expect employers to drop coverage.
 
However, the memo raises red flags.
 
The memo states: “[Universal heath care reform] assumes that universal coverage will moderate premiums over the long term, thereby motivating small employers who currently provide health care insurance to continue to do so. The plan offers no incentive for non-offering employers to sponsor a health care plan, since employees will be required to purchase their own.   The greatest risk of universal health care coverage is that small employers will choose not sponsor health care plans and instead simply opt for the state-mandated  [section] 125 plan.” 
 
Sarno believes that a state mandate for individuals to have health care coverage may have the unintended consequence of small employers dropping coverage. Small businesses are much less likely to offer health insurance. According to federal statistics, 54.3% of New Jersey employers with fewer than 50 employees provide health care coverage. This represents about 135,550 employers that employ 737,500 people.
 
The memo notes that the biggest reason reported by small business for not offering health care benefits is expense.  The second most reported reason is that employees cannot afford the premium. It also states that within the last three years, one in three small businesses have considered scaling back or dropping coverage altogether.
 
The memo concludes that “universal health care may provide small employers with a perverse incentive to cancel health care insurance.
 
“I think that the advocates of universal coverage are taking a big leap of faith that small employers will not respond to an incentive to cut back or drop coverage entirely. They believe that the competition for talented employees will maintain the status quo. For small knowledge-intensive firms, where talent is scarce, health care benefits will be a big attraction. Other firms, where the work is less skilled, I’m not so sure”, he says.
 
“A lot of working people are going to be squeezed into paying $300 per month. That’s a lot of money for the average worker.  The state will be required to subsidize the program heavily. It can’t be done with gimmicks and it will be expensive,” he adds.