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The future of American health insurance may be taking shape in the boardrooms of Xerox Corp., says the Business Council of New York State, and its outlines are grim.

The Los Angeles Times summarized the issue earlier this month:

"Xerox Corp., frustrated by the cost and hassle of administering its employee health insurance program, wants to abandon its long-standing approach to health benefits and pay workers to buy the insurance of their choice."

Although a Xerox spokesman said the company has no plans to change its health insurance practices, a Business Council spokesman says even the discussion is an alarming signal, a telltale sign of how fed up business is becoming over the increasingly contentious issue of employee health insurance.

It is a sore point that is being rubbed raw in New York, where state leaders have just agreed to a significant expansion of the Health Care Reform Act of 1996. The Assembly passed the measure early Wednesday. The Senate is expected to act on it this week.

"Corporate America feels it is paying $4,000 to $6,000 for each employee's health insurance, and it doesn't seem to satisfy them," said Elliott Shaw, the council's director of government affairs. Pile onto that the burden of underwriting this state's expensive and sometimes unique health care programs, he said, and you've got a recipe for business revolt.

The Healthcare Association of New York State doesn't see it that way. More to the point, neither do the elected leaders of state government.

"This historic legislation will mean a healthier New York, providing the most comprehensive health care plan in the nation for those who need it most," the state's Republican governor, George Pataki, said in a rhapsodic press release in which he was joined by the Democratic Assembly speaker, Sheldon Silver, and the Republican Senate majority leader, Joseph Bruno.

The Health Care Reform Act of 2000 creates new health insurance programs and maintains or expands the previous law's programs while softening somewhat the burden on business. It accomplishes that bit of legerdemain by jacking up the state's cigarette tax, devoting most of New York's take from the tobacco lawsuit settlement to health care and seizing the counties' share of settlement.

The agreement was a home run for the Healthcare Association. "We're very pleased with it," said Jeannie Cross, the organization's vice president of communications.

With the new act's expansion of health care coverage for adults, its increase in funding for indigent care and its preservation of support for hospital teaching programs, "it covers all of our top priorities," she said.

There is not much middle ground here. The $9 billion Health Care Reform Act of 2000 is either the greatest medical breakthrough since red wine or another nail in the coffin of New York's business climate, depending on who is talking.

Whatever it is, it is influential. Like its predecessor, the new agreement helps support New York's struggling hospitals, with a special emphasis on the state's 111 teaching hospitals. Erie and Niagara counties have 10 such facilities, nine of which benefit from state funding.

Add to that the new Family Health Plus insurance program, and the benefits and liabilities of this act will seep into every municipality in this state. It is a massive undertaking.

Family Health Plus has stolen the limelight since the HCRA agreement was reached on Dec. 17 by Pataki, Silver, Bruno and Dennis Rivera, a health care union leader who was part of the negotiations. Not surprising: Family Health Plus is a $1 billion program designed to offer free or low-cost health coverage to nearly 1 million of this state's 3.2 million uninsured adults.

If that qualifies as a good deed, it is not going unpunished. Critics see Family Health Plus as further evidence of New York's insatiable desire for expensive new bureaucracies.

Worse, according to some observers, is the insurance program's grab for county dollars and the possibility that it will act as a disincentive for low-wage businesses to offer insurance to their employees.

Because Family Health Plus is a state Medicaid-based program, it requires counties to pay 25 percent of the cost. Over the 3 1/2 -year life of the HCRA law, that will amount to $350 million, said a spokesman for the New York State Association of Counties -- the same amount counties will receive from the tobacco settlement.

"It's the biggest grab of local tobacco settlement money yet," said a fuming Ken Crannell, director of intergovernmental services for the association.

The history of Medicaid programs also suggests that Family Health Plus may end up costing more than expected, according the the Business Council. In inflation-adjusted figures, New York's 1999 Medicaid program costs 10 times more than it did in 1966, the Business Council says.

The Business Council also sees several other unintended consequences, including an unwanted trend away from business-paid health insurance. "We're seeing further erosion of private-sector health insurance coverage," said Shaw.

Not only will the program add to state expenses, he said, but it could prompt some employers not to offer insurance at all, reasoning that their employees could take advantage of the state program.

Also, the Council says, by increasing the cigarette tax to a nation-leading $1.11 per pack, the state is liable to spark an increase in black-market cigarettes and induce smokers within reach of border states or Indian reservations to buy there.

The government of Canada last week sued R.J. Reynolds Tobacco Holdings Inc., saying it helped smuggle cigarettes into that country after the government imposed a stiff new tax on cigarettes. That alleged smuggling eventually caused the government to roll back the tax, the suit says.

Cos Polino, president of Buffalo Tobacco Products, agrees emphatically. "The state won't get any more money out of this," the wholesaler said. "There'll be more black market, more Indian sales, more Internet sales."

What's more, he said, the tax disproportionately hurts the poor. "More poor people smoke than wealthy people, and for a poor person, it represents more of their budget. A person who makes a hundred grand a year doesn't care if he pays $10 more for cigarettes."

But the tobacco tax got some unlikely support from Andrew Rudnick, president of the Buffalo-Niagara Partnership. Almost choking on the words, Rudnick said a tax on tobacco might not be so bad. "It's been clearly shown what a health problem tobacco is," he said, although he called his uneasy support for the tax "the absolute exception to prove the rule."

As furious as the debate has become over Family Health Plus, it wasn't always that way. In the weeks leading up to the agreement, the source of greatest controversy was the expensive but comparatively dry subject of graduate medical education, or doctor training.

That argument also produced the debate's only real common ground. But it was an area of accord the final agreement ultimately ignored.

Using an assessment on every health insurance policy in the state, the Health Care Reform Act of 1996 directed $544 million a year into teaching hospitals' residency programs, augmenting the $812 million those programs received from Medicaid and another $1.3 billion from Medicare.

Defenders of the funding said its elimination could have produced a tidal wave of red ink that would wash away some of Western New York's best-known hospital teaching programs, rocked the University of Buffalo medical school and done lasting damage to the regional economy.

The Business Council didn't buy it. Every other state manages to fund graduate medical education programs without the taxes and surcharges New York has created, said Matthew Maguire, the council's director of communications. "New York has to start recognizing there are consequences for prosperity related to public policies."

Even in the midst of that argument, though, the hospitals and the Business Council located an area of agreement: Although they differed on the need for additional state funding of graduate medical education, both sides said that if the state was going to do it, the mechanism for raising the money ought to be more broadly based than a tax on heath insurance policies, an expense that falls disproportionately on the state's employers.

It was an opportunity that negotiators spurned. The program will be funded at the same level under the new legislation. Although about $60 million will be raised through other mechanisms, the assessment on health insurance premiums will continue at around 91 percent of current levels.

"This is not a significant reduction," said Shaw. "This is not going to cause a single employer who does not provide health insurance to provide it."

If that is a problem, though, it doesn't measure up to what would have happened had the state failed to renew the act's funding of indigent care and residency programs, said Cross, of the Healthcare Association. The agreement represents a crisis averted, she said.

"Just imagine what would have happened had HCRA expired," she said. "There would have been no guaranteed level of state support, or from payers in New York State, for medical education. There would not have been even partial compensation for indigent care. That's the big sigh of relief. That it didn't happen."

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