TRENTON - All New Jersey children would have to have health insurance and all taxpayers would have to prove annually that they have health insurance under a plan advanced yesterday in the state Senate.

The Senate Health Committee released the legislation, which is designed as the first step toward universal health coverage in the state by 2011. It was the first time the long-discussed plan had progressed, and it now can be considered by a Senate budget panel, then likely the full Senate.

"This is a broken and dysfunctional system, and it's time for a health-care plan that works," said Sen. Joseph Vitale (D., Middlesex), sponsor of the bill.

About 1.5 million New Jerseyans - roughly one in six - lack health insurance, according to the Henry J. Kaiser Family Foundation. Of those, 275,000 are children.

The measure would require everyone younger than 18 to have insurance, whether through a public health program or private insurance, within a year of passage of any law that results. It does not call for penalties for parents who fail to enroll children.

The plan would expand NJ FamilyCare, a state-run health program for the poor, to include more parents, who presumably would also enroll their children.

Other families would be able to buy insurance from the state at reduced rates.

The plan would require all New Jerseyans to prove they had health insurance when filing tax returns, beginning next year. Those who don't have insurance would be sent insurance applications.

It also proposes changes to try to make private insurance more affordable.

The $28.8 million cost of the first year of the program could be covered with unspent federal and state money designated for treating the poor, Vitale said.

Republicans questioned whether the state could handle the initiative, noting that an audit found people earning as much as $295,000 enrolled in NJ FamilyCare.

"The state must learn how to prevent fraud and abuse in a limited program such as NJ FamilyCare before it tackles the much larger challenge," Assemblyman Richard Merkt (R., Morris) said.