State May Point Way on Health Insurance

In the year since Gov. Gray Davis was recalled from office, some of his final legacies -- including the higher car tax and driver’s licenses for illegal immigrants -- have been excised from California law as completely as Davis was removed.

Now, one of the Democratic governor’s last and most significant projects, a 2003 law that requires businesses with 50 or more employees to provide workers with health insurance, is embroiled in a fight for its life as Proposition 72 on the November ballot.

The California Chamber of Commerce and the state’s restaurant and retail industries put the proposition on the ballot in an attempt to repeal the law, which has not yet taken effect.

A majority of “yes” votes would keep the law, while a victory for “no” votes would eliminate it.

The law would provide health coverage to 1.4 million of California’s 5.3 million uninsured. Analysts say the referendum over it will have national reverberations, providing a clue to the American appetite for ambitious rejiggering of a healthcare system widely acknowledged to be a mess.

“Everybody is watching California,” said Robert J. Blendon, a Harvard School of Public Health professor who studies politics and public opinion on healthcare issues.

“If it goes under in California, it’s just going to say that there’s not a will out there to ask employers to contribute, and all that’s left is tiny tax credits and expanding children’s coverage,” he said.

“If it goes down, for a decade it won’t show up on anybody’s political policy agenda,” he added.

Conversely, Blendon said, “If California hangs in, I think you’ll see other states and future candidates nationally asking for employer contributions.”

The fight over the proposition has been a $15-million affair so far. Businesses say the new mandates would bankrupt them or make them flee California. Supporters of the law argue it would alleviate the financial pressures on institutions that are uninsured people’s last resorts: emergency rooms and California’s public programs for the poor, such as Healthy Families, which insures children up to age 19.

So far, polls show the measure winning. A Los Angeles Times poll in September showed it ahead by a double-digit margin, and a Field Poll released Tuesday showed it ahead 45% to 29%, with 26% undecided.

Nationwide, healthcare expansions generally have been political poison, with the most notable failure being then-Presi- dent Clinton’s 1993 plan.

Employer mandates in Massachusetts, Oregon and Washington in the late 1980s and 1990s were dismantled before they could go into effect.

Hawaii is the only state that requires all employers to provide insurance.

Such proposals have not fared any better in California since Gov. Earl Warren’s effort to erect a statewide insurance system was defeated in the 1940s.

A ballot initiative to require employers to provide health insurance was overwhelmingly crushed in 1992, as was a more ambitious measure in 1994 that would have had the state set up a single-payer healthcare system.

Since then, the financial burdens on employers and workers have only gotten worse as healthcare costs have escalated far faster than inflation.

In California, which has the fourth-highest uninsured rate in the United States, healthcare plans cost an average of $3,096 for individuals and $8,508 for families last year.

In 1987, 64.6% of Californians received healthcare through their employers; last year, 57.1% relied on their companies, according to the California Health Care Foundation, an Oakland-based nonpartisan philanthropy.

“We are seeing the erosion of employment-based coverage, which is the way we’ve relied on to get health coverage,” said E. Richard Brown, director of the UCLA Center for Health Policy Research.

The potential solution offered in Proposition 72 was devised by healthcare experts and pushed through the Legislature last year by Senate President Pro Tem John Burton (D-San Francisco) as Senate Bill 2.

The law would require all businesses with 50 or more employees to cover their workers and pick up 80% of the premium or pay into a state fund that would provide insurance.

Companies with 200 or more employees would be required to provide coverage to employees and dependents, starting in January 2006.

Firms with at least 50 workers but fewer than 200 would have to provide coverage to employees only, starting in January 2007.

The rules would apply to any employee who works at least 100 hours a month and has been on the payroll for three months.

Companies with between 20 and 49 workers would have to provide coverage only if the state created a tax credit to reimburse employers for a fifth of the cost, which the Legislature has not done.

Companies with fewer than 20 employees would not have to provide insurance at all. Those small companies, which together employ two-thirds of California’s uninsured workers, are the least likely to offer coverage now.

To get the referendum on the ballot and run their campaign, opponents of the law have raised $8.5 million, with major donations from Sears, Target, McDonalds, Macy’s, Nordstrom, Office Depot and Yum! Brands, owner of the KFC, Taco Bell and Pizza Hut chains.

Opponents have also won the coveted endorsement of Gov. Arnold Schwarzenegger.

If voters ratify the law, the opponents are likely to go to court to block it.

Supporters of the law, who include the California Medical Assn. and consumer groups, raised $6.8 million, with unions providing substantial donations. The United Food and Commercial Workers International gave $1 million to supporters Sept. 24.

Almost every aspect of the measure is being disputed. Businesses say that firms will leave the state and those unlikely to move -- such as retailers -- could lose more of their business to Internet sales.

“We’ve estimated that over 20% of our membership goes out of business the first day this takes effect,” said Jot Condie, president of the California Restaurant Assn.

Opponents have seized on the exemption for the smallest businesses -- a provision intended to lessen the hardship of the proposal -- to argue that the measure would put larger companies at a disadvantage.

“The guy next to us who has 40 employees doesn’t have to do anything,” said Selwyn Yosslowitz, a co-owner of Marmalade Cafe, which has seven Southland locations.

“How can we compete?” he asked.

More than 95% of companies with at least 50 workers offer health insurance, according to state estimates. But nearly a quarter of them would have to pick up a larger share than they currently pay if the proposition passes.

In addition, organizations that have many low-paid workers could be required to pay more than 80% of health insurance costs. That is because the measure protects workers earning less than double the federal poverty level -- or $31,340 for a family of three -- from having to contribute more than 5% of their wages for healthcare.

Independent analysts question some of the dire assertions by business groups.

“In a lot of ways it’s much more modest than initiatives of the past,” said Richard Kronick, a professor of health and family medicine at UC San Diego.

“It will likely have some effect on employment in the economy, some positive and some negative,” he said. “The net effect is likely to be extremely small, so small as to be barely measurable by the labor economists. What will certainly be measurable is a million more people with health insurance.”

In a September 2003 analysis, Arindrajit Dube, a research economist at the Institute of Industrial Relations at UC Berkeley, forecast that 23% of affected businesses would see an increase in operating costs of more than 1%. Only 0.1% of covered businesses would see increases of 4% of greater, his study found.

“Most businesses are not going to see their bottom lines affected,” Dube said in an interview.

He said the proposition could stop the downward spiral in which companies are pressured to drop their coverage because competitors offer fewer or no benefits.

“It will certainly change the dynamic between Wal-Mart and some of their competitors that do provide coverage,” Dube said.

The proposition’s opponents have aimed their strongest objections at the healthcare pool that would be created through fees from businesses that did not supply their own insurance.

The pool, which would be run by the Managed Risk Medi-Cal Insurance Board, would negotiate with insurance companies.

“When you go through the bill and look at the complexity, I don’t think it takes a rocket scientist to realize that the medium-sized, small-business owners are going to throw their hands up in the air and turn their employees over to the state,” said Bill Dombrowski, president of the California Retailers Assn.

Even some supporters of the law agree with opponents that if the pool is not run properly, businesses could end up dumping workers with expensive healthcare needs onto the state-run fund.

That could drive up the pool’s overall premiums and costs, placing pressure on taxpayers to subsidize the costs.

Supporters of the law insist that these and other potential dangers could be fixed by careful management and by future legislation.

Proposition 72 does not address two endemic problems: the growing cost of medical care and the lack of insurance for self-employed people and those at small companies that are not covered by the proposition.

But supporters of the measure say it may settle the crucial political question of whether Californians embrace the notion that employers are responsible for healthcare and should be held accountable to provide it.

“I’d like to cover them all in one fell swoop,” said Lucien Wulsin, director of the Insure the Uninsured Project, a Santa Monica-based foundation that supports the proposition. “But the real issue is to decide where we’re headed.”

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WhoÕs paying for health insurance Employers provide health insurance for a smaller portion of Californians than they did 15 years ago. Public health programs have picked up much of the slack, but one in five non-elderly Californians has no insurance at all.

Sources of health insurance coverage Public 1987: 15.7% 2003: 18.0% No Health Insurance 1987: 17.6% 2003: 20.4% Individually Purchased 1987: 6.8% 2003: 7.9% Employment-based coverage 1987: 64.6% 2003: 57.1%

Note: These data exclude health insurance for the elderly. Figures may not total 100% because some people have insurance from more than one company.

Source: California Health Care Foundation