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HELENA - A legislative budget panel has endorsed a $7 million-a-year increase in state funding for Insure Montana, to help another 600 small businesses buy health insurance for their employees.

Yet state Budget Director David Ewer immediately threw cold water on the idea Monday, saying it's beyond what Gov. Brian Schweitzer has proposed in his budget.

"It's not going to stay," he said. "It's a budget-buster."

Nonetheless, a majority of the seven-member House Appropriations Subcommittee on General Government voted Friday to recommend the increased spending for 2010 and 2011.

"I know this is a tough time to ask for general-fund money," said Rep. Bill McChesney, D-Miles City, who chairs the panel. "But it is such an important program."

Insure Montana offers tax credits and subsidies to help small businesses offset the cost of health insurance for their employees. Businesses employing two to nine people are eligible. The current program costs about $11 million a year, financed by tobacco taxes.

Nearly 800 businesses are receiving subsidies for new health insurance they've purchased for their employees and several hundred more get the tax credit.

State Auditor Monica Lindeen has proposed expanding the subsidy part of Insure Montana by $14 million over the next two years, to finance subsidies for another 600 businesses that are on a waiting list for the program.

The budget panel voted 5-2 to accept Lindeen's proposal. However, the vote is only the first of many as House Appropriations Committee members craft the initial version of the state budget for the next two years.

A full committee vote won't occur until March, and any approved items also have to pass the full House, Senate and the governor's desk.

McChesney, Rep. Jon Sesso, D-Butte, Rep. Bill Nooney, R-Missoula, Sen. Ryan Zinke, R-Whitefish, and Sen. Ken Hansen, D-Harlem, voted for the increase. Rep. Walt McNutt, R-Sidney, and Sen. Rick Laible, R-Darby, voted against it.

Lindeen said Monday that she was "heartened" by the vote, and that the program has a lot of support and many people waiting to participate.

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"I think the committee's vote to support this backs up the fact that, even in these tough economic times, anything we can do to help Montana's small businesses and their employees is a good thing," she said.

Sesso, who chairs the House Appropriations Committee, acknowledged that the $14 million increase may be difficult for the state to afford right now, but that he wanted to "press the issue" on making health insurance available to more Montanans.

"We can't just keep pretending this is not the major issue that our citizens want us to grapple with and find solutions," he said.

McChesney said he plans to introduce a separate bill that would take the $14 million out of the state general fund, rather than tobacco taxes.

Ewer repeated Monday what he and Gov. Schweitzer have been saying for weeks: That state revenue is bound to drop further, and that they will oppose adding spending beyond what's been proposed by the governor for 2010 and 2011.

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