Legislature OKs Small Business Health Coverage

California lawmakers passed a groundbreaking health insurance measure early Saturday that would require small businesses to provide coverage to 1 million of the state’s working poor, who now rely on tax-supported programs for medical care.

Advocates on both sides appealed to Gov. Gray Davis to sign or veto the landmark bill. But even though his staff had a hand in shaping the final language, the governor said he had not yet read it or formed an opinion.

In a first for California, the legislation would require employers to either purchase private health-care policies for their workers or to pay a fee into a statewide pool that would purchase insurance coverage on their behalf. The requirement would neither be immediate nor across the board: Employers with 200 or more workers would not be required to provide insurance until Jan. 1, 2006. Businesses with 50 to 199 workers would have still another year to act. And employers with fewer than 20 workers would be exempt.

Employers with payrolls of 20 to 49 people would be exempt until the state provided them with a tax credit subsidy to help offset the insurance cost. In effect, the coverage of one of five workers would depend on the subsidy.

No one knows, however, when or even whether tax credits would occur. Because of an $8-billion budget shortfall, the state has no money to spend on subsidies and no one can accurately predict when the California economy would improve and the revenue would become available.

Still, advocates for small business strongly oppose the measure as an unnecessary cost at a time when the economy is struggling. But strong support has come from doctors, insurance companies and unions that argue that the insurance would save taxpayers $650 million to $1 billion in costs they are now billed through Medi-Cal, the state health program for the poor and disabled.

At an appearance Saturday in Los Angeles, where he was campaigning to survive a recall election Oct. 7, the Democratic governor refused to reveal what action he intends to take. Davis said he had devoted most of his recent attention to advocating an overhaul of the state workers’ compensation insurance program. Legislators also passed a workers’ comp measure Saturday as their session adjourned for the year.

“Now, we’ve got workers’ comp done,” Davis told reporters. “I will review the [health bill] and make my own best judgment.”

He has 30 days to sign or veto, or the bill becomes law automatically.

“Any comment would suggest I’m leaning one way or the other,” Davis said. “I’m not leaning because I haven’t read the bill yet.”

Davis has long been a supporter of expanded health care for low-income Californians, but aides said that in these tough economic times he wanted to examine the potential effects of the bill on businesses.

Most large businesses already provide health care to their employees.

If Davis did sign the bill, which initially proposed covering 2.5 million uninsured workers and their families but was scaled back to make it more acceptable to business, the system would be the biggest of its type in the nation.

“We’re at least hopeful and optimistic that he’ll sign it,” said Art Pulaski, executive secretary-treasurer of the California Labor Federation, AFL-CIO, whose unions have been favorite beneficiaries of Davis’ support and were the first to rush to his side in the recall campaign.

But representatives of business organizations pleaded for a veto, warning that employers would face at least $5 billion in extra costs, which they called a new tax, and would be forced to fire workers, reduce employee benefits or move out of state. Proponents of the bill called the cost figure exaggerated.

Fred Main, senior vice president of the California Chamber of Commerce, which opposes all government mandates on employers, warned that if the bill became law, the chamber would challenge it in state and federal courts. Main said the legislation would impose a tax that “employers in the rest of the country don’t pay.”

It would be challenged as an illegal tax because it was enacted by a simple majority of the Democrat-dominated Legislature rather than by a two-thirds vote required for tax increases.

The chamber also would charge that the legislation violated the federal Employee Retirement Income Security Act, which forbids state regulation of employee pension and benefit plans.

However, Beth Capell of Health Access, a nonprofit group that advocates affordable health care, predicted that such a suit would fail because the measure was crafted to bypass the federal restrictions.

Proponents said the bill would affect between 2.5% and 5% of all California employers. That came as a result of compromises requested by businesses and the governor’s office.

“We have dealt with the issues the governor’s office had raised, and we compromised,” said Pulaski, who called the end product the “third most significant health-care advance in 50 years in America,” behind adoption of federal Medicare in the 1960s and later by Medicaid, known as Medi-Cal in California.

Currently, about 18 million Californians are covered by employer-financed health insurance, and an estimated 6 million are not insured. “Eighty percent of the uninsured in California are hard-working families. They are not lazy. The strong majority are full-time working families,” Pulaski said.

The legislation would mandate that employers of 50 or more workers pay a fee into the insurance purchasing pool. Employers who provided proof of insurance for their workers would not pay the fee. Employers would pay 80% of the policy premium, while workers would contribute the remaining 20%.

However, Jerry Flanagan, lobbyist for the Foundation for Taxpayer and Consumer Rights, charged that the bill provided no cost controls for either the employer or employee. He said limits should be set on the rates of insurers, hospitals and physicians.

Flanagan, whose organization supports employer-financed health care, complained that the bill mandated a “product that is grossly overpriced without regulating its costs.”

Defenders of the proposal agreed that cost controls were necessary, but said they were put aside until next year because the controversial nature of rate limits threatened to undercut the bill’s legislative momentum.

Other opponents of the legislation warned that to avoid buying insurance, some small employers would cut back their workforce to get under the thresholds for participation.

“If you get below the threshold, you don’t have to worry about it,” said Michael Shaw, assistant director of the California affiliate of the National Federation of Independent Business. He also predicted that businesses that qualified for a subsidy with 49 employees “are not going to hire that 50th employee and beyond.”

Advocates of the bill have forecast that the measure would produce almost immediate savings for taxpayers and insurance ratepayers because low-income people who now go to expensive emergency rooms for care would have their own private insurance. Currently, taxpayers and health-care providers pay the tab for virtually all those costs.

“Emergency and on-call services will no longer be needed for more than 1 million uninsured people,” said Jack Lewin, chief executive of the California Medical Assn., a chief sponsor of the bill. “All of us, including the state, pay for that care through higher insurance premiums and higher taxes than otherwise would be necessary.”

Capell said that Health Access estimates potential Medi-Cal savings at up to $800 million if half of the estimated 1 million working parents receiving Medi-Cal aid were covered by private insurance coverage.

On the recall campaign trail Saturday, Davis opponent Sen. Tom McClintock (R-Thousand Oaks) said he opposed the legislation.

“It moves us in exactly the wrong direction,” said McClintock, who added that the bill would cost California jobs.

Candidate Arnold Schwarzenegger did not take questions from reporters. But a spokesman, Rob Stutzman, said that although “access to health insurance” is important, “we also cannot at this time put a further burden on job creation. Unfortunately, [the bill] will mean fewer jobs in California, which we cannot allow to happen when we need to be creating jobs.”

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Times staff writers Gregg Jones, Michael Finnegan and Ronald D. White contributed to this report.

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Health insurance bill at a glance

The Legislature sent a bill to the governor that would require many California employers to offer health insurance to their workers. The bill, SB 2, can be read at www.senate.ca.gov. Here’s a look at some of the details of the bill:

* Employers with more than 200 employees would have to begin offering benefits by January 2006.

* Employers with 20 to 199 employees would have until 2007 to offer coverage.

* Employers with at least 20 workers, but fewer than 50, would have to provide health insurance only if the Legislature also passed a 20% tax credit for those firms.

* Companies with at least 200 employees also would have to cover workers’ dependents.

* Employers would have the choice to either provide health coverage or pay a fee to the state, which would obtain the coverage. The fee would be set by the state’s Managed Risk Medical Insurance Board.

* If they chose to provide coverage, employers would be required to pay at least 80% of the cost of the policy, with the workers paying the rest.

* The cost of coverage would be tax-deductible for employers.

Source: Associated Press

Los Angeles Times