PROPOSED FEE WORRIES BUSINESSES

San Jose Mercury News (California)

SACRAMENTO, CA — Democratic legislative leaders on Tuesday called on most companies to either provide insurance for their employees or pay a 7.5 percent fee on wages — nearly double what Gov. Arnold Schwarzenegger would have them pay — a stance that almost surely will intensify some business opposition to overhauling California’s health care system.

That key detail in the proposals by Senate President Pro Tem Don Perata, D-Oakland, and Assembly Speaker Fabian Nuñez, D-Los Angeles, sets the stage for more serious negotiations with the Republican governor this summer. Schwarzenegger has made health care his signature issue this year, promising major changes to a system that leaves 6.5 million residents without insurance for all or part of the year, and burdens businesses and workers with double-digit premium increases.

“Spring training is over. The season is starting now,” Perata said in an interview, after he and Nuñez released financial details of their health plans, which would extend coverage to roughly two-thirds of the uninsured. “We’re talking about substantive issues now, not theories.”

But the Democrats’ announcement also underscored how difficult it may be to bridge their differences with Schwarzenegger, let alone to win the bipartisan support the governor would like.

Schwarzenegger has repeatedly called for spreading the costs of expanding health insurance to businesses, residents and the government; Democrats target the business community — specifically the portion of it that doesn’t currently provide health insurance — to finance more than half the cost of their plans. Employers would cover less than one-tenth the cost of Schwarzenegger’s plan.

Both Democratic proposals would force companies to “play or pay” — either provide health insurance to workers, or pay 7.5 percent of an employee’s salary (up to $97,500) into a state insurance fund. They say the mandate is fair because, on average, employers pay 13.8 percent of wages on employee health care. Schwarzenegger also includes a mandate to provide insurance — but his fee for businesses that do not is 4 percent.

Some business advocates and Republicans said many small firms could never afford such a fee. Many businesses, said Assembly Republican leader Mike Villines of Fresno, “aren’t even making 7.5 percent profit. … I’m afraid this will put many mom-and-pop shops out of business” or force them to lay off workers.

Whether Schwarzenegger is willing to sign off on a plan that relies so heavily on a business mandate remains to be seen. Perata, for one, seems to be betting on it. “He’s a pretty pragmatic guy,” the Senate leader said, referring to Schwarzenegger.

The governor’s staff isn’t saying. “Right now,” said communications director Adam Mendelsohn, “our focus is talking about how to move the debate forward.”

There are other differences between the two sides. The Democratic plans fall short of Schwarzenegger’s goal of universal coverage. Instead, they would help roughly two-thirds of the state’s uninsured. Schwarzenegger was able to propose comprehensive coverage partly by calling on doctors and hospitals to pay a large portion of the costs, in the form of a fee on gross revenues. Democrats, who have close ties to the medical lobby, so far have declined to go along with that idea.

And while Schwarzenegger would legally require every person in the state to obtain insurance — a so-called individual mandate — the Democrats take a different approach. Nuñez’s proposal does not have an individual mandate; Perata’s does, but he would exclude families that make up to four times the federal poverty level. For a family with two children that would be $82,600.

At the same time, there is enough common ground between the plans to boost hopes of a compromise. And businesses may play a crucial role in the debate.

As it stands now, the business community appears divided. Schwarzenegger has enlisted a group of large businesses to back his push for health care reform (without endorsing his specific plan). But restaurants, Republicans in the Legislature and small business groups remain wary.

“My sense is that’s too high, especially for small businesses,” Scott Hauge, president of Small Business California, said of the Democrats’ proposed 7.5 percent fee. Hauge said his organization is not categorically opposed to an insurance mandate on businesses, as long as it is coupled with measures to rein in health care costs.

The financial analysis of the Democrats’ plans was done by noted Massachusetts Institute of Technology health economist John Gruber. But some questioned his numbers.

For example, the Democrats assume it would cost $224 a month to insure a person covered by the state insurance pool — a price significantly lower than the average private health insurance plan. Democrats said the state can use its financial might to leverage lower rates from insurers, but others argue that’s naive.

The Democratic proposals “overestimate the willingness of insurers to offer lower premiums,” said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, who is calling on the state to regulate health insurance premiums.
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Contact Mike Zapler at (916) 441-4603 or [email protected].