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The Los Angeles Times

Measure Calls for Health Benefits;

Landmark legislation would require state's employers to buy insurance for workers.

by Carl Ingram, Times Staff Writer
September 9, 2003

SACRAMENTO -- As lawmakers face a frenetic week before adjourning for the year on Friday, legislation is being crafted that for the first time would require California employers to purchase health insurance for 2.5 million uninsured workers and families.

Some participants in the debate consider the proposal to be as potentially significant for health care in California as energy deregulation was for the utility industry in 1996.

"You have a historic moment before you," Steve Thompson, chief negotiator for the California Medical Assn., told members of a Senate-Assembly conference committee last week.

Virtually every witness who testified agreed that all Californians should be protected by health insurance, but business and employer representatives objected to paying the tab.

"It's very easy to sit here and say employers should pay. But what we are talking about here is mandating a multibillion-dollar health-care tax on the business community," protested Richard Costigan of the California Chamber of Commerce.

He said the bill (SB 2), by Senate President Pro Tem John Burton (D-San Francisco), would cost at least $4 billion and be the final straw that would force businesses battered by recession and higher workers compensation costs to lay off employees, shut their doors or go elsewhere.

"The chamber has got its head in the wrong place," Burton countered. "I'm bound and determined to see a measure pass during this session."

Burton's bill, sponsored chiefly by organized labor and the California Medical Assn., with assistance from the insurance and segments of the hospital industries, would require employers of 20 or more workers to buy health coverage or pay an undetermined fee into a state-operated pool. In turn, the pool would purchase insurance in their behalf.

Exempt from the measure, which is still undergoing changes, would be employers of 19 or fewer workers. They account for 87% of all employers in the state, according to Health Access, a labor and consumer advocacy organization.

Larger employers who already provide coverage to their workers also would be exempt. Health Access estimated that the bill would affect 2.5% of all employers.

Under the bill, employers with 20 to 200 workers would be required to cover only their employees. Companies with 200 or more employees would also be expected to cover their employees' families.

Although the issue has taken a back seat in the Legislature, given the recall election facing Gov. Gray Davis, no one challenges the assertion that, if enacted, the bill would represent the biggest overhaul of California worker benefits since the end of World War II, when employers began receiving demands for health care insurance.

Critics have warned that a similar system went sour in Hawaii when costs exceeded expectations and had to be reined in by the governor and others.

"The potential sea change is to the level of the 1996 energy deregulation in California," said Jerry Flanagan of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, which supports universal health care but believes the Burton program lacks adequate controls.

"Without cost controls, we will experience the same kinds of problems in health-care insurance that we did with the blackouts in the energy crisis," he said.

Earlier in the year, there appeared to be a consensus that the Legislature would put the Burton bill aside and concentrate on enacting at least $2 billion in workers compensation insurance relief demanded by employers. But the measure was given new priority by Democrats when recall advocates succeeded in putting Davis' job to a vote Oct. 7. Fearing that they might not fare as well with a successor such as Republican Arnold Schwarzenegger, Democrats put it on a fast track last week.

Davis aides said he had no position on the legislation.

Advocates of the plan say it would provide at least some benefit to virtually every interest group. For example, they said, the state would not have to pay as much for Medi-Cal and emergency room care because there would be fewer uninsured patients. Also, they say, insurance premiums would drop slightly; doctors and hospitals would be assured of being paid in full and on time; and insurance companies would gain customers.

Employers who already provide insurance for their workers no longer would be indirectly subsidizing competitors who refuse to do so, argued Art Pulaski, secretary-treasurer of the California Labor Federation, AFL-CIO.

But Flanagan, of the consumer foundation, contended that the proposal's failure to include controls to guard against rising prices would do nothing to combat already high health-care costs.

He said lids should be clamped on hospitals rates, physician fees,�medications and insurance premiums.

Flanagan charged that such restrictions were omitted because they would have gone against the economic interests of the bill's chief backers, what he called "the unlikely coalition of insurers, hospitals, physicians and organized labor."

Supporters of the bill said they would be willing to "explore" cost control issues another day.

When Burton proposed the insurance program earlier this year, it would have included nearly all of California's 5 million working poor not covered by health insurance. In the interest of compromise, however, the bill was scaled down in the last few months to cover an estimated 2.5 million workers and their dependents.

Even so, testified Beth Capell, a spokeswoman for Health Access and the Service Employees International Union, the bill "creates the equivalent of the minimum wage for health benefits."

Opponents charged that the burden of providing health insurance to workers would fall hardest on "small businesses," who typically employ 20 to 50 workers.

Witness after witness argued that to provide the required coverage, such businesses would need a state subsidy to stay afloat, an appeal that resonated with both majority Democratic members of the conference committee and Republicans.

However, no source of a subsidy immediately emerged, mostly because the state's continuing budget deficit has drained it of virtually all discretionary cash.

Some lobbyists quietly suggested that a chunk of possible higher taxes on tobacco might be tapped to help subsidize the small businesses.

But Burton indicated he wanted to study whether a tax credit system could be devised that would aid these businesses.

There is also the question of whether California could impose a mandatory employer-financed health-care insurance program without violating a federal law that prohibits states from regulating pensions and benefits.

The federal law does, however, empower states to regulate health care insurers. Capell conceded that the U.S. restriction raised a "serious issue," but said drafters of the plan are working on a solution that would bypass the federal prohibition but impose the health-care program through regulation of the insurance industry.

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