Democrats prescribe bigger health levy

By Jordan Rau
Times Staff Writer

May 16, 2007

SACRAMENTO — Escalating the already tense fight about what financial burden businesses should bear, the Democrats who control the Legislature proposed Tuesday that most California employers be required to spend the equivalent of at least 7.5% of their payrolls on healthcare — nearly twice the amount Gov. Arnold Schwarzenegger has proposed.

The mandate on employers would raise more than $5 billion and — along with federal taxpayer money and worker contributions — allow California to extend insurance to about 69% of the 4.9 million people who lack it at any given moment. Among states, only Hawaii has a significant employer mandate. But the Democratic proposals in California would go further by including dependent coverage and more part-time workers.

The employer contribution was the last outstanding detail the Democratic leaders of the California Senate and Assembly needed for their two comparable plans, which — unlike Schwarzenegger's plan — are advancing through the Legislature.

The Democratic proposals further heightened opposition from much of the state's business lobby, which already has come out against Schwarzenegger's proposal for employers to spend at least 4% of their payroll on healthcare.

Jot Condie, president of the California Restaurant Assn., called the Democrats' mandate "devastating" and said that a broad-based tax, like those placed on income or sales, would be "less burdensome and less punitive" than what the legislators want from businesses.

Adam Mendelsohn, a spokesman for the governor, said Schwarzenegger "was encouraged that the healthcare debate was being taken on," although the Democrats' plan was not as extensive as the governor's. Schwarzenegger has proposed requiring everyone in the state to obtain insurance, and his proposal would cover about 500,000 more people than the Democrats' plans would.

But several key players in the debate in Sacramento seem poised to back the Democrats' approach over the governor's as closed-door negotiations intensify. Both critics and backers said the chances of the Democrats' plans were bolstered by an outside analysis of the plans that said they would raise enough money to subsidize care for the poor and all low- and moderate-income children in California.

Dustin Corcoran, the chief lobbyist for the California Medical Assn., said his group was more likely to favor the Democratic plan, which does not include a levy on doctors' incomes, unlike the governor's.

"It's a solid construct and a very good foundation to build a universal coverage proposal," Corcoran said.

Art Pulaski, the secretary-treasurer of the California Labor Federation, called the plans "the first big step that makes health reform real."

And Anthony Wright, executive director of Health Access California, one of the most prominent consumer groups in the capital, said the Democratic plans were "an improvement" over Schwarzenegger's because they did not require everyone to purchase insurance.

"This shows that healthcare reform is achievable and that it can be financed with a relatively modest contribution," Wright said.

The Democratic proposal's political traction is also bolstered because so far Schwarzenegger has been unable to win over Republican legislators for his approach. Democratic leaders say Schwarzenegger's plan needs a two-thirds backing from the Legislature because it includes assessments on doctors and hospitals, while their own plans are written to pass with simple majority votes. The business lobby is already bracing to challenge the final plan in court or at the ballot box.

Republicans have shown no sign of supporting changes of the scope Schwarzenegger and the Democrats want. If anything, their public rhetoric has become less amenable: Dick Ackerman of Irvine, the Senate GOP leader, issued a statement last week that called the proposals a "dangerous experiment with the healthcare system for more than 30 million Californians and the state's competitive and job-creating economy."

Like the governor's plan, the two Democratic proposals require businesses to spend a set amount of their payroll on healthcare or pay into a state-run fund that would negotiate insurance for workers. Schwarzenegger and the Democrats estimate an average premium of $224 a month per person. That figure is a third lower than the average HMO premium in the state and has been greeted skeptically by the nonpartisan legislative analyst's office.

"Four million people in a bulk purchasing pool isn't going to drive down premiums," said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, a Santa Monica advocacy group that is pressing for insurance rates to be directly regulated by the state.

More than 3 million Californians would obtain coverage through the state's purchasing pool, according to an analysis of the plans by Jonathan Gruber, a Massachusetts Institute of Technology economics professor.

The Democrats argue that 7.5% of payroll is a reasonable amount. Employers that now offer coverage spend 13.8% of their payroll on average for healthcare, and more than half exceed 7.5%. Those firms would not have to pay any fees to the state.

There are 233,000 firms that spend less than 7.5%; they employ 4.5 million workers. An additional 327,000 firms make no contribution; they employ 1.5 million workers.

Not all of those companies would have to ante up. Senate President Pro Tem Don Perata (D-Oakland) wants to exempt the self-employed from the mandate, while Assembly Speaker Fabian Nuñez (D-Los Angeles) wants to excuse companies with one employee as well as businesses less than 3 years old and those with annual payrolls under $100,000.

But both plans are more demanding than Schwarzenegger's, which exempts any company with fewer than 10 employees.

The governor's plan anticipates raising $1 billion from employers who do not want to provide coverage on their own. The Senate plan anticipates collecting $6.6 billion, and the Assembly plan projects that the state pool would receive $5 billion from the fees.

Some allies of the governor's plan have been privately predicting that the scale of the Democratic plans would prod businesses to rally behind the governor's proposal.

But many employer leaders and GOP lawmakers said they viewed any mandate as unacceptable, because as healthcare costs continue to rise, employers would be made to chip in more and more.

"For us it's not an issue of 4% or 7.5%," said Michael Shaw, legislative director of the National Federation of Independent Business, which has 25,000 members in California. "For our members, a mandate is a mandate is a mandate."

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jordan.rau@latimes.com

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(INFOBOX BELOW)

Healthcare proposals

Gov. Arnold Schwarzenegger, Senate President Pro Tem Don Perata and Assembly Speaker Fabian Nuñez each have proposed new requirements on California's employers to help expand health insurance for workers and the poor:

Requirements for employers

Governor: All firms with 10 or more workers must spend the equivalent of 4% of their payroll on healthcare or pay into a state fund that provides coverage.

Senate: All firms must pay at least 7.5% of payroll on healthcare or pay into a state fund that provides coverage. Self-employed people are exempted.

Assembly: All firms must pay at least 7.5% of payroll on healthcare or pay into a state fund that provides coverage, except businesses operating for three years or less, businesses with fewer than two workers or businesses with payrolls under $100,000.

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Requirements for individuals

Governor: Everyone must obtain insurance.

Senate: Everyone earning more than four times the federal poverty level — $40,840 a year for an individual, $82,600 a year for a family of four — must obtain insurance.

Assembly: Individuals whose employers offer health insurance or pay a fee into the state purchasing pool must take coverage and pay their share.

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Sources: California Senate and Assembly