Economically Unhealthful

Employer-provided health insurance is a good idea. Forcing companies to provide medical benefits, absent cost controls or incentives, is not, particularly when the California economy is hemorrhaging jobs. The state Legislature’s frantic last session produced an employer health insurance bill, SB 2, that is the wrong way to go about it. Gov. Gray Davis should do taxpayers and employers a favor by mustering the political will to veto it, and asking that the issue be taken up later with more thought and planning.

The measure lacks even the most basic controls on prices and utilization, so it’s no wonder the medical associations, hospitals and employee unions just love it. Supporters had decided that the prickly issue of pricing controls and other defenses against price gouging would have stalled the bill. The same sorry logic created a workers’ compensation system in the early 1990s that became a doctors’ and chiropractors’ paradise but produced a cost spiral that drove businesses out of state.

SB 2’s expensive system requires employers of 200 or more people to provide coverage for employees and their families by 2006 or pay into a state fund that would provide coverage. Companies with 50 to 199 workers would join the pay-or-play deal a year later, and those with 20 to 49 would join whenever the state treasury was strong enough to fund a 20% employer tax credit.

Californians are not blind to the plight of the state’s 6.3 million uninsured, and they embraced a system to pay for health-care coverage for the children of the working poor. Taxpayers also know that they’re paying between $650 million and $1 billion to cover uninsured people who rely upon Medi-Cal, the state health program; many of the recipients are employed in low-wage jobs. And emergency rooms are overflowing with sick workers and their families. But the bill by Sen. John Burton (D-San Francisco) just doesn’t pencil out.

Small companies usually aren’t sophisticated enough to manage benefit packages, so they’d have no alternative but to pay into the pool. There’s no requirement that the pool insurance be a thrifty but responsive HMO or have strict cost controls. And in any case, what business would keep more than 19 workers on the payroll if it could cut costs by firing a few folks, contracting out its work to freelancers and ducking under the threshold? If employers are going to sign the checks, Sacramento owes them better guarantees than SB 2 provides.