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by R.J. Lehmann, associate editor
September 17, 2003

SACRAMENTO, Calif. - California's recent passage of landmark health-care legislation is a benchmark of the growing political will to mandate expanded health coverage, but legal challenges and a lack of consensus on how to achieve the imagined goals might sink the effort before it starts, observers said.

The bill, S.B. 2, led a flurry of 11th-hour bills passed just ahead of this California's legislative recess. It would create a "pay-or-play" system that would force companies to either pay for their employees' health insurance or pay user fees into a statewide risk pool so that the state could buy coverage for them.

Late in the day Sept. 17, the measure--sponsored by Senate President John Burton--was still on the desk of Gov. Gray Davis, who hadn't stated publicly whether he would sign the bill. At a press conference the week of Sept. 8 to announce finalization of the state's workers' compensation reform bill, Davis said only that he would consider the health-care bill provided the workers' comp bill passed, which it did Sept. 12.

Some have suggested California's passage of the bill might mark the beginning of a trend placing the debate over public health care on a national stage for the first time since former First Lady and current Sen. Hillary Clinton's failed effort to establish a national system in 1993 and 1994. A study released earlier this year by the Kaiser Family Foundation and the Harvard School of Public
Health showed a majority of Americans polled support increasing the number of people in the United States covered by health insurance, but the study found no consensus on how to accomplish this.

In June, Maine Gov. John E. Baldacci signed a law that proposes to ensure coverage to all residents by 2009, as well as enforcing price caps on providers, hospitals and insurers. Other states, including Maryland, Illinois, New Mexico and Wisconsin, have drafted committees to study the issue of expanding health coverage.

But even if adopted in the nation's largest state, the bill might fail to withstand legal challenges from the state's business community, which has opposed being forced to bear the burden of insurance costs alone. According to Pat Schoeni, executive director of the Washington-based National Coalition on Health Care, which favors universal health coverage on a national basis but has taken no position on S.B. 2, businesses that challenge the measure would have legal precedent on their side.

"The other states who have looked at it will probably look to see what California does and what happens there, because so far anyone who has tried to do something like this has run straight into ERISA," Schoeni said, referring to the federal Employee Retirement Income and Security Act of 1974. That law grants states the right to regulate the health insurance industry only so long as they don't regulate employee benefits.

According to Schoeni, past states to pass health-coverage bills that failed legal challenges under ERISA include Massachusetts and Oregon. Hawaii, which adopted mandatory health coverage before passage of ERISA, has a "grandfather clause" exempting the state from the regulation, Schoeni said.

"Nobody else has gotten a waiver from ERISA, and the major employers have successfully argued that they can't deal with 50 different sets of benefits laws in 50 different states," Schoeni said. "I have heard it argued that S.B. 2 was designed to get past that requirement, but until that's proven, one would still have to say it's a very major impediment to these sorts of efforts."

Kate Sullivan, the director of health-care policy for the U.S. Chamber of Commerce, was less convinced that S.B. 2 would be defeated by a legal challenge, adding that her organization has monitored, with concern, the growth of legislative movements favoring imposing stricter health-care mandates on employers on both the state and federal levels.

"Of course, we've got a bunch of guys running for president right now who have been talking about making these sorts of requirements apply to every business in the country," Sullivan said. "And we understand the need for affordable health care. What we're saying is that it's about time that we look beyond employers as the ones with sole responsibility for providing that."

In California, the state Chamber of Commerce was the bill's strongest opponent, citing a study by the Los Angeles Area Economic Development Corp. that said the proposal would impose $5.7 billion in new costs on employers and another $1.3 billion on employees--in a state already reeling from the departure of millions of dollars in capital and thousands of jobs. Proponents of the bill argued that it would cost only $1.3 billion.

The bill was endorsed by organized labor and the California Medical Association, and it enjoyed qualified support from the state's major health insurance groups, including the California Association of Health Underwriters, the California Association of Health Plans and Blue Shield of California, one of the state's leading health insurers.

The bill, which had languished for more than a year after its introduction, gained political momentum along with efforts to change the state's workers' comp system in late summer. That coincided with political pressure on Davis, a Democrat and subject of a still-pending recall election effort. A federal appeals court ruled the week of Sept. 8 to postpone the recall indefinitely until changes can be made to the state's voting machines, a move that has since been appealed to the U.S. Supreme Court.

"The plan was pushed through the Legislature by an unlikely coalition of labor unions, HMOs, doctors and hospitals during the one year that Davis could not afford to veto it," said Jamie Court, executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. "By insuring up to 1.5 million more people, the legislation would mean more business for the coalition's partners, all of which refused to submit to regulation themselves."

FTCR supports the goal of expanding health coverage, Court said, but insists that without controls on costs, the measure would simply lead to even more onerous burdens imposed on employees. Court cited findings in a Kaiser Family Foundation study released last week that, since 2000, the burden on employees of health premiums for family coverage has increased from $1,619 to $2,412.

According to Court, the experience of Hawaii, where premiums grew by between 10% and 28% for three consecutive years, led the state to provide independent oversight of rates in 2002. That year, health-care premiums in the state increased 250 times faster than medical inflation, Court said.
Contact: R.J. Lehmann, associate editor: [email protected]