Background: Weighing Mandates for Employee Health Benefit
The pro and con sides have summed up their positions: California’s Health Insurance Act of 2003 (SB 2) will be either a major step toward covering more of the state’s uninsured and halting the erosion of worker health benefits—or a giant misstep with damaging consequences for businesses and workers struggling with the high cost of health care.
SB 2 will appear as a referendum on the November ballot as Proposition 72-Health Care Coverage Requirements. Sponsored by Democratic Senators John Burton and Jackie Speier and signed into law by former Governor Gray Davis one day before he was recalled, SB 2 would take effect on Jan. 1, 2006.
Opponents of SB 2, Californians Against Government Run Healthcare, have stayed the legislation by filing the referendum, Prop. 72, to repeal it. Opponents include hundreds of the state’s businesses and business associations led by the California Restaurant Association, the California Retailers Association, and the California Chamber of Commerce. They say the mandate will become a “job killer,” resulting in business closures and layoffs and further eroding the competitiveness of California companies. (Only Hawaii has a similar mandate on employers to provide health insurance coverage.)
Backers of SB 2 represent a new political alignment—Save Your Healthcare—that includes the California Medical Association, the California Labor Federation, and Health Access California, a coalition of consumer groups, unions, seniors, and others. “We set aside a lot of old feuds to accomplish noble goals,” says Beth Capell, a lobbyist with Health Access. Backers say SB 2 will provide coverage to 1 million uninsured workers when it is fully implemented. They maintain it will level the playing field by requiring more firms to participate in the employer-based health insurance system. A related law—AB 1528—creates a commission to study ways to contain health care costs.
Heated campaign ahead
People on both sides of the issue agree on at least two things: More individuals should be covered by health insurance, and the referendum is not likely to generate meaningful public debate about the complexities of achieving that goal or about health care priorities. “Yes, there will be a debate, but it will not be well-informed,” says Richard Brown, director of the UCLA’s Center for Health Policy Research and an advisor to the SB 2 sponsors. “There will be blasts of 60-second commercials.”
A Field Poll released August 12 showed that 48 percent of likely voters would vote Yes to reaffirm SB 2, and 31 percent would vote No to repeal it, while 21 percent are undecided. (See PollWatch for updates.)
Don Moulds, an aide to Senator Burton, says, “Polls are very good with the straight question; 73 to 78 percent of voters say they believe large and medium-size employers should be required to provide health insurance; then it gets obscured and cached in ‘government-run health care,’ which it is not. It is not single-payer.”
Steve Churchwell, a partner with Livingston & Mattesich, a law firm working for the No campaign, says a referendum on the issue is tactically a plus for the No campaign, “because a No vote is easier to get than a Yes. People will maintain the status quo, everything being equal.” Also, the No campaign decided that a referendum was preferable to challenging SB 2 in court on the basis that federal law (the Employee Retirement Income Security Act or ERISA) preempted it—as was argued before the legislature by Blue Cross of California and others. “A referendum allows voters to say: We’re going to let you erase” the law. Litigation is expensive, uncertain, and takes a long time,” Churchwell says.
But referendums are expensive. Public records at the Secretary of State Web site indicate that the No campaign spent about $2 million on the petition drive. Contributions for the first quarter totaled almost $900,000. Big donors included McDonald’s Corp., Macy’s West, the California Restaurant Association, and a number of other restaurant chains and retailers. Small donors included many McDonald's franchises and other small restaurants. Donors to the Yes campaign, mostly labor unions, were far less numerous in the first quarter, contributing less than $200,000. (Go to MoneyWatch for an update.)
Press reports have said that each side expects to spend $15 million on their campaigns. Jot Condie, president and CEO of the California Restaurant Association and co-chair of the No campaign, says, “Historically that’s what campaigns cost, but the bottom line is it could cost each side much more. There will be enough money raised to run a very aggressive campaign.”
What’s at stake
Here are various views of SB 2’s anticipated impact:
• Cost to employers. A CMA study concludes SB 2 would cost employers $1.3 billion annually, which factors in a savings of $1.2 billion in lower premiums for employers who are currently providing insurance and paying more because they are absorbing costs for the uninsured. CMA also points to a study by the Institute of Industrial Relations at UC Berkeley showing that the average employer will face an increase of only 0.2 percent of overall operating costs if SB 2 is implemented.
According to a report by Richard Brown and others at the UCLA Center for Health Policy Research, providing health insurance to more workers would also benefit companies by improving worker productivity.
The No campaign cites a study by the Los Angeles Economic Development Corporation, which puts the cost to employers and employees at $7.2 billion annually. (The high-range cost estimate was put at $11.3 billion annually by the Employment Policies Institute.)
The restaurant association’s Condie says that 65 percent of “quick service” restaurant owners offer health insurance to salaried workers and about 40 percent offer it to hourly workers; these employers pay about 70 percent of the premium. “These are small businesses. The restaurant industry has a very thin profit margin. If they are required to pay $3,200 a year for employee coverage and $5,800 to cover dependents as well, the cost would put many of these restaurants out of business,” says Condie.
Health care policy analyst Alain Enthoven of Stanford says, “It is irresponsible to saddle business with an outlay whose costs are very large and rising out of control. Few if any investors would now locate new plants or facilities in California. The legislature should not have enacted this program without a serious strategy for health care cost containment. The employment-based system is dysfunctional and we ought to find ways of moving away from it rather than reinforcing it.”
• Effect on the uninsured. Proponents say SB 2 would cover more than 1 million of the state’s 7 million uninsured. (UCLA’s Center for Health Policy Research put the number of Californians uninsured for all or part of the year in 2001 at 4.5-6 million.) Those covered would enjoy the benefits of having their own doctors and preventive care, rather than leaving conditions untreated and depending on emergency rooms.
But James Knight, MD, past president of the San Diego County Medical Society, predicts that employers will opt to pay the tax to the state purchasing agency rather than take on the rising cost of employee health insurance premiums. “That means more and more people who are getting some kind of private coverage through their employer are going to get it through a one-size-fits-all government-run organization. Doctors have not been well served by state-run health care —Medi-Cal is 42nd in reimbursement out of 50 states. Just having insurance is not having access to care—Medi-Cal is like having a check that nobody will cash.” The Yes campaign calls such arguments “scare tactics.”
Condie adds that in many cases restaurant workers reject the insurance that is offered to them, often because they don’t want to pay the employee share of the premium. “They want their check.” Under SB 2, employees would have to pay 20 percent of the cost of their coverage. “This would be a stunning change in employee paychecks,” Condie says.
• Effect on insured workers. In their principal ballot argument, SB 2 proponents say it “will limit what employees pay for health care” and halt the trend of shifting costs to employees, since employers would have to pay at least 80 percent of premiums. SB 2 would also protect against benefit cuts, since the law covers prescription drugs, preventive care, and major medical.
Opponents counter that the cost of premiums will continue to rise for both employers and employees.
• Cost to the state. According to the Legislative Analyst’s Office, SB 2 will result in costs “potentially in the low hundreds of millions of dollars annually for state and local public agencies to provide additional health coverage for their employees.” State tax revenues will see a reduction “potentially in the low hundreds of millions of dollars.” State agencies also “would incur significant administrative costs, probably amounting collectively in the low tens of millions of dollars annually, to implement SB 2.” However, “net savings or costs to the state and local governments are unknown.”
• Effect on health care reform. SB 2 has drawn national attention, and policymakers, businesses, and others across the country are wondering what California voters will decide. The campaign to save SB 2 asserts that “the future of national health care reform is on the November 2004 California ballot.”
“That’s largely true because of what we have seen in last 15 years,” says UCLA’s Richard Brown. “We saw a rapid buildup toward reform in the 1980s and 1990s, and then with the collapse of reform came political disaster for the Clinton Administration. For the next several years, no one who had been an advocate of health care reform was willing to stake this out as an issue on which they would provide leadership and, especially, expend political capital,” Brown says.
If the referendum is defeated, “I think it will scare politicians into avoiding efforts to expand health insurance and reform the system,” Brown continues. “In California it will certainly discourage attempts to do anything like this at all—if it can be so easily overturned before it is even implemented. In other states, if this goes down, the political leadership will look at that and say, well here’s one of the more liberal states in the country, what makes us think we can succeed where they failed?”
In the Congress, Democratic and Republican leaders who have been advocates of expanding coverage would also be intimidated by the referendum’s failure, Brown says.
But opponent Churchwell foresees a freeze on reform efforts if the law is upheld. “What this will do is make it impossible to address the debate about health care costs. It will be, ‘We did something, now we can move on to the next thing.’”
On the other hand, if the law is upheld, “I think people would be very encouraged,” says CMA lobbyist Dustin Corcoran. “Nationally it will force action.” Congress will have to do something “or face a state-by-state solution to the uninsured problem. There would be a great deal of pressure on the president.”
Asked what the business coalition would do if the referendum passes, Sara Lee, speaking for the California Chamber of Commerce, says, “Our focus is on is bringing down skyrocketing costs within the system. We believe that will make health care more affordable and help more people access insurance coverage.”
Condie of the restaurant association says, “We would have no choice but to sue,” adding that the business coalition’s lawyers say there are grounds for a court challenge. “But we’re confident enough in the campaign that it will never get to the courts.”
Another option
Although the CMA’s Corcoran says it is premature to plan beyond the campaign, “We’ve looked at a number of different ways of addressing the problem of the uninsured.” For example, in March the CMA voted to support legislation that would require all individuals to purchase catastrophic coverage through their employers or through tax credits, a plan that Proposition 72 opponent James Knight, MD, favors.
But some in CMA’s current coalition are opposed to an individual mandate. Health Access’ Capell calls it “unreasonable, given the unregulated individual insurance market.” UCLA analyst Brown calls it “a recipe for the meltdown of our health insurance system. That would lead very rapidly to employers dropping coverage or contributing only to a catastrophic policy,” which might serve the young and healthy but not older individuals and those with chronic conditions. SB 2 supporters also may try to get a congressional exemption from ERISA, as did Hawaii, which received the exemption because its employer mandate was in place before ERISA was enacted.
Louise Kertesz did the reporting and writing for this article.
