Sacramento, CA -- A new health care overhaul proposal released Thursday by the leader of the state Assembly would extend insurance to all Californians by mandating that employers pay for coverage and by expanding existing government programs for the poor and disabled.

But Assembly Speaker Fabian Nunez, D-Los Angeles, said his primary goal is to make sure that all children in the state -- including illegal immigrants -- are provided insurance coverage.

"First and foremost, what this is about are the kids," said Nunez at a news conference held in the children's clinic at the UC Davis Medical Center in Sacramento. "You cannot have health care reform unless each and every child in the state of California is covered. So above everything else, children need to get the health care they deserve."

The plan is the second delivered by a prominent Democrat this month and comes as Republican Gov. Arnold Schwarzenegger continues to meet behind closed doors trying to hammer out his own proposal for fixing California's troubled health care system.

Schwarzenegger is expected to make his plan known in his State of the State speech on Jan. 9.

Nunez's plan is similar to a proposal made last week by Senate President Pro Tem Don Perata, D-Oakland. Thus, some insiders have concluded that there is already agreement on key issues among Democrats, who hold big majorities in both houses.

Both Perata and Nunez want to require employers to pay for worker coverage and are unlikely to settle for any voluntary program.

Both also want workers to share some of the costs with their employers, but neither has said how those costs should be divided. Expectations are that Democrats will want to put the lion's share of the burden on employers.

Democrats want to expand existing government programs, too -- Medi-Cal and Healthy Families -- that provide care to the poor and disabled. The issue is the cost of expansion, because these programs are funded jointly by state and federal tax dollars.

There are differences: Perata's plan is aimed just at uninsured Californians in the workforce and their families, about 4.2 million people; Nunez wants to cover all 6.5 million residents who do not have health insurance.

Nunez would provide a temporary exemption to payment requirements for employers with fewer than two full-time employees.

Perata said his proposal would cost about $7 billion annually. Nunez said he does not yet have an estimate for the cost of his program.

Schwarzenegger issued a statement that praised Nunez for putting out his ideas but gave little insight into the governor's reaction.

"I am pleased that more ideas are being brought to the table," he said. "We all agree -- the current system is broken and needs to be fixed. Californians simply cannot afford the added out-of-pocket expenses to cover the uninsured."

Republicans and business leaders, however, are concerned about the impact of forcing employers to provide the costly benefit.

"As a small business owner, I know firsthand how imposing a multibillion-dollar health care mandate upon California's excessively regulated businesses will force employers to cut jobs, close shop, or relocate outside of the state," said Assemblyman Mike Villines, R-Clovis (Fresno County), the minority leader. "Taxing employers on their workforce is not the answer to the problem."

Vince Sollitto, spokesman for the California Chamber of Commerce, said the mandate on employers will be viewed as a tax -- and one that many cannot pay.

"The problem with a tax is that it presumes the ability to pay it," he said. "If employers could pay it, they would already be providing health insurance to their employees. The reason they don't is that they can't afford it."

Industry representatives, health care advocates and consumer groups were split on Nunez's plan.

"It's a strong vision of where we need to go," said Tom Epstein, spokesman for Blue Shield of California. He noted that expanding coverage to children would not be especially costly because they require less care than older people. He also said he likes the idea of workers and employers sharing costs because it is one of the best ways to expand care quickly.

Anthony Wright, executive director of Health Access, said Nunez's plan is sensible, but there are still many details that have not yet been clarified.

Jerry Flanagan, spokesman for the Foundation for Taxpayer and Consumer Rights, pointed out that the Nunez plan does nothing to rein in what he considers to be excessive insurance profits.

"There's a total lack of attention to health insurance overhead, and that's the fastest-increasing driver in health care," he said. "Without taking on health insurance greed, there's no way to balance the health care books and make reforms add up."
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E-mail Tom Chorneau at tchorneau@sfchronicle.com