Ehrlich's bill does not name any revenue sources outside general funds to pay for a $30 million "stop-loss" fund. House Speaker Michael E. Busch said this week that the cost is more likely to be $48 million and requires a new revenue source. In the absence of such a source, Busch said, lawmakers probably will attach a 2 percent tax on HMO premiums to the bill to pay for the stop-loss fund as well as for $12 million in increased Medicaid reimbursements.

If they do, Ehrlich (R) said, he will veto it -- setting the scene for a showdown.

The HMO tax proposed by Busch (D-Dist. 30) of Annapolis and Senate President Thomas V. Mike Miller Jr. (D-Dist. 27) of Chesapeake Beach would lift an exemption that HMOs now enjoy. Maryland already taxes premiums for other kinds of health insurance, but left out HMOs in order to keep their rates lower and encourage lower-income people to enroll.

Other states have done the same. But as HMOs have secured a stable market presence and enjoyed ballooning profits, more and more states have ended the special treatment. According to the National Association of Insurance Commissioners, at least 25 states tax HMO premiums.

Maryland's legislature passed an HMO tax in 2003 and 2004 -- initially, at the behest of Health Secretary Nelson J. Sabatini. But Ehrlich vetoed the tax, and ripped it recently for being a "regressive" tax on the poor that will only increase the uninsured population.

HMO carriers have testified that the tax will pass through to consumers, Ehrlich said, "and we believe them."

It's absolutely true, said Jeff Valentine, spokesman for CareFirst BlueCross BlueShield. Carefirst's "Blue Choice" HMO serves an estimated 300,000 people, he said. "Inevitably, some or all of that increased tax will be passed on."

Who will pay?

States that tax HMOs include North Carolina (1 percent), Georgia (2.25 percent), Nebraska (1 percent), New Mexico (3 percent) and Tennessee (2 percent). Florida, Hawaii, Michigan and Wisconsin are among those who do not.

Kristin Runger, spokeswoman for the North Carolina Department of Insurance, said North Carolina has taxed premiums since January 2003 but exempts them from the state franchise and corporate income taxes. The rate increase for consumers has been about equal to the tax rate, she said.

"It's going to pass through; there's no question, " said James Doyle, a former lobbyist for Aetna. "If their premiums are set on the basis of what their loss ratios are, and all of a sudden you are going to charge 2 percent more, the [HMOs] can either eat it or pass it along. And in most cases, they pass it along."

Nebraska has taxed HMO premiums since 1990, said John Rink, an actuarial assistant at the Nebraska Department of Insurance.

"Generally, that is reflected in the premiums," he said.

However, Rink added, "you might find that, for competitive purposes, companies may be willing to work on the rate a bit" so that it does not reflect the full tax.

Busch and other supporters of the tax often point to the competition factor, saying that market forces will prevent HMOs from passing along the full tax.

Lobbyist Barbara A. Hoffman, a Baltimore Democrat who used to chair the Senate Budget and Taxation Committee, said the "pass through" argument is just a scare tactic the insurance companies are using to protect their exemption. "They're going to use every argument they have to keep that special tax status."

But Sen. James Brochin (D-Dist. 42) of Towson, an insurance broker, said the warnings are valid.

"I don't know of any major insurance company who would absorb" the tax, he said.

Brochin produced a letter that the insurer MAMSI sent to customers in May 2003 after the legislature had passed the tax but before Ehrlich vetoed it.

"The premium noted in your renewal does not include the [2] percent premium tax," the letter states. "If the Governor signs this bill into law, the premium in your policy will increase by two percent and this will be reflected in the bill you receive for July 2003."

Because Brochin wants to see medical malpractice reform pass, he said, he remains undecided on how he will vote if an HMO tax is attached to the bill. "If the tax is permanent, I wouldn't support it."

Shifting the burden

Groups such as the National Federation of Independent Business say that taxing HMOs would punish businesses already struggling to provide their employees with health insurance. But if Ehrlich permits the tax, it would not be the first time his administration shifted additional health care costs to the private sector.

In 2003, after Ehrlich vetoed an omnibus revenue bill containing an HMO tax, he made a series of interim budget cuts and revenue shifts totaling more than $200 million in savings. Among them was a limit placed on the number of days in the hospital that Medicaid would reimburse.

According to the Maryland Hospital Association, the resulting uncompensated care amounted to a cost shift of $60 million over six months. Hospitals raised their rates in response, shifting cost to all insurance providers, HMOs included, and their clients.

"I don't think Bob Ehrlich has ever worried about poor people in his life," said Tom Hucker, director of the social advocacy group Progressive Maryland. "His crocodile tears now are unconvincing."

The hospital stay limits are set to end in 2005, according to legislative staff, coinciding with a potential start date for an HMO tax.

Busch criticized HMOs for crying foul over the tax when they are making record profits, and their executives are raking in "obscene bonuses."

"I haven't seen those record profits go toward lowering premiums," the speaker said. "These companies are taking money out of the health care system ... This is an issue of corporate wealth over community."

Staff Writer Thomas Dennison contributed to this report.