By Lisa Rein
Washington Post Staff Writer
Wednesday, January 31, 2007; A01

Maryland lawmakers are drawing up ambitious proposals to provide medical insurance to hundreds of thousands of residents without coverage, stepping into the national debate over who should pay the soaring costs of health care.

Gov. Martin O'Malley (D) will call for expanded coverage of the state's 780,000 uninsured -- one in seven residents -- in his State of the State address today, aides said, highlighting a proposal that would bring more of the poorest residents into public programs and require private insurers to allow young adults to remain on their parents' plans until age 25.

General Assembly leaders are offering more ambitious plans that would add a $1 tax on cigarettes to pay for covering tens of thousands of low-income workers and offer subsidies to small businesses that provide coverage. Many workers who can afford insurance but choose not to pay for it would have to buy it or face penalties.

"Maryland holds out much promise," said Ron Pollack, executive director of Families USA, an advocacy group pushing for affordable, universal health care. The state "may well jump to near the head of the line."

Maryland would join Massachusetts, California, Vermont and a handful of other states that are mapping a path toward universal coverage in the absence of action by Congress or the Bush administration. Instead of the dramatic national overhaul contemplated more than a decade ago, the states are working within the health system, tapping businesses, hospitals, insurers and workers to pay for expanded health care.

The medical repercussions of a lack of health insurance are prodding many states to act.

"Generally, the uninsured get about half the care that the insured get," said Arthur Garson Jr., dean of the University of Virginia's medical school, who has been an outspoken participant in the state and national discussions. And the ultimate consequence? "The uninsured have a 20 percent higher mortality rate than the insured."

Massachusetts is putting in place a plan that would cover 515,000 people. Maryland's approach is more limited: The most ambitious proposal -- a bill to be filed this week by Del. Peter A. Hammen (D-Baltimore), the health committee chairman -- would affect about a third of the state's uninsured but leave a half-million people without coverage.

O'Malley and lawmakers say they are balancing the political will to expand health coverage with the looming state budget shortfall they will tackle next year.

"The administration is interested in working with Delegate Hammen to make health care more accessible in Maryland," Joseph C. Bryce, O'Malley's senior policy and legislative adviser, said yesterday. "But we have some concerns about how some provisions in the bill would be funded."

The governor opposes a tobacco tax increase, and even if lawmakers approve it, there is some sentiment to use the revenue to cover other needs. And despite the momentum in the Democrat-controlled legislature, initiatives of this magnitude often take more than a single session to sell.

Hammen, with strong backing from House Speaker Michael E. Busch (D-Anne Arundel), is crafting a plan that would dramatically expand Medicaid coverage to many low-wage workers who now are eligible only if their income is 40 percent of the federal poverty level, which is set at $10,210 for an individual or $20,650 for a family of four.

"We can provide better care," Hammen said. "Health care is becoming more unaffordable in every community."

The state would subsidize small businesses to encourage them to provide coverage for their employees. And workers earning more than four or possibly five times the poverty level would have to buy insurance if their employer does not offer it. If they don't, they would face a penalty, possibly the loss of a personal income tax exemption.

Even so, the plan would leave about 500,000 people in the middle without easy access to health care. None of the proposals would cover illegal immigrants.

Insurance companies would be asked to offer a bigger menu of policies at affordable premiums. Under O'Malley's plan, small businesses would set up accounts for their workers to use tax-free dollars to buy coverage.

Hammen said he is still working out cost estimates, but his bill would rely on some federal money, a cigarette tax increase and, eventually, a reshuffling of Maryland's practice of reimbursing hospitals for the free care they now provide to the uninsured. The $700 million fund for uncompensated care would shrink as more residents have insurance, he said.

"Cost is an issue," he said, "but we have the potential of using money that's already in the system."

A $1-a-pack increase in the tobacco tax also is the centerpiece of an effort by the Maryland Citizens' Health Initiative to expand health care access through Medicaid and drug treatment. Although other states have approved tobacco tax increases to pay for health care, Senate President Thomas V. Mike Miller Jr. (D-Calvert) has expressed concern that if the tax acts as a deterrent to smoking, the revenue source could plummet.

About 14 percent of Maryland residents have no insurance, far lower than California's rate of 20 percent.

In the District, where about 13 percent of residents are uninsured, leaders last year agreed to subsidize coverage for children whose families have incomes up to three times the federal poverty level, including those who are undocumented.

"It's ridiculous to talk about two sets of kids," said D.C. Council member David Catania (I-At large), who estimates that the move could add several thousand children.

The District also is seeking federal permission to make more lower-income residents eligible for a subsidy that essentially provides free prescriptions.

In Virginia, 15 percent of the population has no coverage, including one in five adults. Gov. Timothy M. Kaine (D) has proposed providing prenatal care to more low-income women. A state health reform commission is studying greater access to care.

Maryland lawmakers acknowledge they're taking on a complex, costly effort. "We haven't touched a fiftieth of the pieces here," said Sen. Thomas M. Middleton (D-Charles) , chairman of the Senate Finance Committee.

Staff writer Susan Levine contributed to this report.