She also said it could result in substantial costs to taxpayers, including the risk of losing $54 million in savings achieved recently when the state renegotiated its state health plans. Insurers told the state they would rebid their rates if the bill became law.
The governor said she supported the concept and urged the bill's backers to work with her on a new version for next year's legislative session.
"Not only do I believe the measure is well-intentioned, I also believe the concept has real potential to help at least some cities, towns, nonprofits and small businesses reduce their health care costs," Rell said in a statement.
"I would very much like to explore the pooling idea further and make sure all of the costs and risks are understood - and anticipated in the budget - next session," she said.
The veto drew immediate criticism from leading Democratic state officials, but was praised by the Connecticut Business & Industry Association.
"I am very disappointed at this missed opportunity for real health care relief," said House Majority Leader Christopher Donovan, D-Meriden. "Sadly, Gov. Rell has decided to block businesses, municipalities and nonprofits from saving money while receiving good health care."
Donovan also said Rell relied on bad information when deciding to veto the bill, and accused her of being swayed by threats and data from insurance companies.
Backers of the bill argued that a larger pool of people will actually drive down health insurance expenses. About 200,000 to 250,000 people are covered.
Under the bill, new participants would be offered the same coverage provided under the state employee health plan. The total premium paid by the employers would be the same as those the state pays for the same insurance plans.
Supporters also hoped that lower health care expenses could be passed on to the municipalities, nonprofits and small businesses that have been struggling to pay increasing health insurance premiums on behalf of their employees.
But Rell noted that the mayors of New Haven and Danbury believe their cities would actually lose money by joining the state employee health plan.
Senate President Pro Tem Donald Williams, D-Brooklyn, said he too was disappointed, and he vowed to make the bill a top priority next year.
John Rathgeber, president and chief executive officer of the CBIA, agreed with the governor's decision.
"Gov. Rell took a careful look at the proposal, weighed the illusory savings against the economic realities of the bill and wisely vetoed the measure," he said. "She recognized that this plan would not save small business owners and municipalities money and could potentially cost taxpayers millions of dollars."
State Attorney General Richard Blumenthal said he would continue to push for the legislation, which he said would make health care more accessible to thousands of people at no cost to taxpayers.
"This veto will be a lasting legacy - an unnecessary, unfair setback to public health," he said.