5-7% tax sought on firms for healthcare

House Speaker Salvatore F. DiMasi yesterday unveiled a plan to impose a payroll tax of 5 to 7 percent on Massachusetts employers that do not provide health insurance for their workers.

The proposed levy, part of a comprehensive House package designed to expand health insurance coverage to nearly all state residents, would apply to businesses with more than 10 workers.

Businesses with fewer than 100 employees would pay 5 percent; businesses with 100 or more would pay 7 percent. The levy would be phased in over 18 months.

Business groups quickly branded it a ''jobs tax" that would make the state less competitive.

''You've got employers who are facing the highest energy costs, the highest wages, the highest unemployment insurance, the highest real estate costs -- and to now put this on? You're going to be in a position where the job growth isn't there, where people aren't making a decision to grow their business," said Bill Vernon, state director of the National Federation of Independent Business.

Small business owners, he said, would hesitate to add jobs that would put them over the magic number of 10 employees, or they might move to New Hampshire or Connecticut.

Official filing of the House bill yesterday sets the stage this week for the most sweeping healthcare debate in Massachusetts in a decade, when the state expanded the number of people covered under Medicaid. Governor Mitt Romney and Senate President Robert E. Travaglini also have plans to dramatically expand health insurance but have not included a payroll tax for universal coverage. They say their proposals can meet the same goals without raising new revenues.

DiMasi said the business levy, which would raise $650 million to $700 million annually, is needed to pay for such an ambitious expansion. Among other things, the bill would expand Medicaid coverage to 147,000 low-income families and create a subsidized insurance program for about 100,000 low-income people who don't qualify for Medicaid. Estimates vary, but the state has around 500,000 uninsured residents.

Combined with a proposed mandate that individuals obtain health insurance, the business levy in the House bill would place Massachusetts at the vanguard of states trying to establish universal healthcare coverage for its citizens. No other state has both, advocates and political leaders said.

DiMasi hopes to encourage businesses to provide coverage for their workers. Such coverage typically costs more than 10 percent of a company's payroll. Under the plan, businesses with coverage would be allowed to subtract those expenses from the 5 percent to 7 percent tax and would owe nothing.

''Everyone has to pull in the same direction in order for this to work," DiMasi said yesterday, to applause from unions, consumer groups, healthcare advocates, clergy, and some healthcare executives who packed a State House news conference at which he outlined the House bill.

The broad outlines of DiMasi's plan have been previously reported in the Globe, but the size of the tax emerged only yesterday in the 80-page bill. He and his supporters continued to avoid the word ''tax" in describing the levy, variously calling it an ''assessment" and a ''contribution."

Michael Widmer, president of the Massachusetts Taxpayers Foundation, said the speaker's language reflects the House leadership's sensitivity to introducing a new tax in the current economic climate.

''They're trying to mask the reality of what it is. If someone's required to pay it, it's a tax," Widmer said. ''The House is sensitive to the reality that they are calling for new taxes on employers at a time when job growth is anemic."

The Greater Boston Chamber of Commerce and Associated Industries of Massachusetts were among business groups that wrote to DiMasi yesterday objecting to the tax.

The concept of a business tax to expand access to healthcare has been endorsed by the Massachusetts Hospitals Association, community health centers, and doctors. But insurance companies, which have enormous sway in the current debate, have neither endorsed nor opposed the idea.

Two prominent insurance executives, Blue Cross and Blue Shield of Massachusetts chief executive Cleve Killingsworth and Tufts Health Plan chief executive James Roosevelt, were among those who showed up at the House news conference yesterday to show general support for DiMasi's legislation. But Killingsworth and Roosevelt stopped short of specifically endorsing payroll levies.

Afterward, the Massachusetts Association of Health Plans, the lobbying group for the large health insurance companies, expressed strong reservations. ''We have to be concerned in a high-cost state like Massachusetts that this could put us at a disadvantage," said Dr. Marylou Buyse, chief executive of the insurance association.

As lobbyists and advocates began debating the details yesterday, arguments focused on a couple of points:

If businesses currently pay more than 10 percent of their payrolls to maintain health coverage for employees, companies might be tempted to drop coverage and instead pay a 5 percent or 7 percent payroll tax.

DiMasi's plan would repeal a tax on insurance companies and businesses and unions that are self-insured, saving those groups $160 million. Those levies currently help fund the state's free-care pool, which is used to reimburse hospitals and doctors that treat the uninsured. Without that tax, DiMasi said, insurers would pass the savings on to customers through lower premiums. But business groups were skeptical repeal would make any difference and that insurers would pass along the savings.

Phil Edmundson, an insurance executive who is heading up a consumer group initiative to expand healthcare, Affordable Care Today, strongly supported the House legislation and disputed critics in the business community. The payroll levy in the House bill is similar to one proposed by Affordable Care Today.

Employers who already provide health insurance will benefit from the legislation and will have no incentive to leave the state, he said. Employers that do not provide benefits tend to be in retail and service industries, he said. They need to be near their customers and are unlikely to leave because the state is requiring them to pay for employee benefits, he said.

''Wal-Mart is not going to leave Massachusetts because there is an employer-responsibility assessment made on them. Dunkin' Donuts is not going to leave Massachusetts," he said. ''It's an unfair characterization of this legislation to suggest that it's going to threaten anyone's job."

Christopher Rowland can be reached at crowland@globe.com.