SACRAMENTO, Calif.—Gov. Arnold Schwarzenegger has until Sept. 30 to decide whether to veto legislation passed Thursday that would eliminate all public and private health insurance in the California and replace it with a single-payer system.

Although the governor has not yet stated publicly whether he will veto the measure, he has previously said he was opposed to the concept of a government-run, single-payer health care system, a spokeswoman said.

The passage of S.B. 840 in the closing hours of this year’s General Assembly came somewhat as a surprise to insurance industry sources, who had expected it to be a topic of debate during the gubernatorial campaign by Democratic challenger Phil Angelides, they said.

The measure, which automatically becomes law if it is not vetoed, would establish the California Health Insurance System to be administered by a newly created California Health Insurance Agency. That agency would be under the control of a health insurance commissioner, who would be appointed by the governor and subject to confirmation by the state Senate.

The bill would make all California residents eligible for health benefits specified by the agency, which would, on a single-payer basis, negotiate for or set fees for health care services provided through the system and pay claims for those services.

The bill also would require the commissioner to seek all necessary waivers, exemptions, agreements or legislation to allow various existing federal, state and local health care payments to be paid to the California Health Insurance System, which would then assume responsibility for providing all benefits and services previously financed by those funds.

The bill notes that a commission would be established to determine how premiums should be assessed to help fund the program. Premiums would be paid by employers, individuals, government and other sources.

The California Assn. of Health Plans opposes the measure and plans to send a letter to the governor encouraging him to veto it, according to Chris Ohman, president of the trade association, which represents the majority of licensed health plans in the state.

Moreover, Mr. Ohman questioned whether the measure would withstand a challenge under the federal Employee Retirement Income Security Act, which pre-empts state laws and rules that relate to employee benefit plans, or whether the necessary waivers could be obtained from the Centers for Medicare and Medicaid Services so that Medicare and Medicaid dollars would flow through the agency.

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