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SACRAMENTO, Calif. (BestWire) – Just two days away from a recall election set to determine his political fate, California Gov. Gray Davis signed into law a bill creating a “pay or play” health-care system, mandating that nearly all employers statewide either provide health coverage to their employees or pay into a state fund to purchase coverage for them.

The measure, S.B. 2, was sponsored by state Sen. John Burton, D-San Francisco, and passed by both houses of the Legislature last month. It’s expected to expand coverage to an additional 1 million of California’s reported 6 million uninsured residents, representing 19% of the state’s population. It takes effect in January 2006 for businesses with 200 or more employees and in 2007 for businesses with 50 to 199 employees. Businesses with fewer than 20 employees are exempt from the law, and those with between 20 and 49 would only be compelled to participate if the state provides credits or funding to offset the increased costs.

The law, which was supported by labor interests and the California Medical Association but vehemently opposed by the state’s Chamber of Commerce, applies to employees who work at least 100 hours a month and have been with a company for more than three months. Under the law, employees couldn’t be responsible for more than 20% of the cost of their health-care premiums.

According to polling by Feldman Group Inc., 63% of Californians supported S.B. 2, now a law that the CMA characterized as marking “a historic moment.”

“This law will save lives and money by providing 1 million Californians with health coverage and access to medical care,” said Jack Lewin, executive vice president of the CMA, in a statement. “It is a dramatic step in solving not only our states uninsured problem but also in dealing with the crisis in our emergency rooms. It should serve as a model for the rest of the nation.”

According to a study by the Los Angeles Area Economic Development Corp. cited by the chamber, S.B. 2 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. Another study by the Washington, D.C.-based Employment Policies Institute concluded the law would cost $11.4 billion in lost jobs, lower wages and reduced benefits statewide.

“The chamber firmly believes the Legislature should have adopted a moratorium on all new benefit mandates, established a voluntary essential benefit plan that employers could afford to offer to their employees and considered ways to make existing programs, such as Healthy Families, work better,” said Allan Zaremberg, president of the California Chamber of Commerce. “Changes like this would have moved the state toward the goal of expanding access to health care without creating a costly new bureaucracy when the state has yet to resolve its deficit problem.”

The chamber has vowed to mount a legal challenge to the law, which it has said violates the federal Employee Retirement Income Security Act’s prohibition on state regulation of employee benefits, as well as provisions in California’s Constitution that require a two-thirds majority to impose new “taxes.”

However, the CMA and California Federation of Labor estimated the cost of the bill would be only about $1.3 billion, and that it would yield significant savings in other areas of health-care administration. Among these are the 15% of premiums that typically go to pay for the cost of providing care to the uninsured and $620 million in savings to the state’s Medi-Cal system. According to the CMA, the bill would also reduce costs to the workers’ compensation systems and to employers that provide family coverage.

Since the passage of ERISA in 1974, several states have attempted to pass mandatory health-coverage bills that failed legal challenges under ERISA, including Massachusetts and Oregon. Hawaii, which adopted mandatory health coverage before the passage of ERISA, has a “grandfather clause” exempting the state from the regulation.

Some have suggested California’s passage of the bill might mark a new round of challenges to the ERISA regulations and the start of a trend toward placing the health-care debate on a national stage–for the first time since the failed effort by then-First Lady and current U.S. Sen. Hillary Clinton, D-N.Y., 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.

Additionally, in June, Maine Gov. John E. Baldacci signed a law that proposes to ensure coverage to all residents by 2009, as well as enforce 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.

However, according to the Santa Monica-based consumer group Foundation for Taxpayer & Consumer Rights, Hawaii’s 30-year experience with a similar “pay or play” system indicates the state’s next step ought to be enacting cost-control legislation for the health-care market. According to the FTCR, Hawaii’s Chamber of Commerce asked the state Legislature and governor to provide independent oversight of health-care rates in 2002 after three consecutive years of premium increases of 10% to 28%.
By R.J. Lehmann, associate editor: [email protected]

Consumer Watchdog
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