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Insurance News Today - January 10, 2007

Gov. Arnold Schwarzenegger's proposal to require that all but the smallest businesses help pay for health insurance is drawing criticism from both labor and employer groups _ but for different reasons.

The $12 billion universal health care plan the Republican governor laid out on Monday would mandate that all Californians have health insurance.

To help provide that coverage, it would require employers with 10 or more workers to buy coverage for their employees or pay an amount equal to 4 percent of their payrolls into a state health insurance fund.

Employer groups oppose an employer mandate, while labor unions support one. But they agree on one thing _ the 4 percent of payroll requirement isn't enough.

"It's a sound concept if you don't lowball it," said Art Pulaski, executive secretary-treasurer of the California Labor Federation.

"The worry is that it could create a race to the bottom for employers who are now providing health care. Instead of giving you insurance, employers are going to follow the governor's standard and pay 4 percent of payroll into the state fund."

A 2005 Census Bureau report found that employers spent an average of 7.2 percent of payroll on health insurance, according to Health Access, a California consumer group that supports universal health care.

Pulaski also said the employer mandate should be expanded to cover more employers, offering the smallest ones subsidies to help provide their workers with coverage.

Eighty percent of California businesses have fewer than 10 employees and wouldn't be affected by the Schwarzenegger mandate, he said.

The California Chamber of Commerce, which calls the employer mandate an "employer tax," said health care costs have increased at twice the rate of payroll in recent years.

"So regardless of whether 4 percent would be sufficient to fund health care today, and that is of question, there are certainly concerns about its sustainability in the face of future increases," said Vince Sollitto, a chamber spokesman.

"If it is insufficient to provide for health care now or in the future, where will the additional funds come from? Will the tax be ever increased? Will the government _ i.e. taxpayers _ pay the difference?"

Sollitto said employers want to provide their employees with health coverage. "Those that can, do," he said. "And those that can't, can't afford it."

A spokeswoman for Schwarzenegger, Sabrina Lockhart, said the 4 percent employer contribution to the state's insurance fund would be adequate when coupled with federal support and other anticipated revenue.

"The 4 percent was never designed to support the state purchasing pool on its own," she said. She also said an economic model used by the administration predicted that the governor's plan would result in a net increase of employers who offer their employees health coverage.

Labor and consumer groups also criticized Schwarzenegger's proposal that Californians be required to purchase their own health coverage if they're not covered by an employer policy or state-funded health program. The governor's plan would expand state-funded health care programs to cover more children and poor adults. Also, about another 1.2 million Californians with incomes between 100 percent and 250 percent of the federal poverty level could buy subsidized insurance through a state health insurance fund.

Another 1.1 million uninsured adults with incomes above 250 percent of the poverty level would have to obtain health insurance through employers or buy it themselves on the private market. The plan would require that they maintain minimum coverage with a $5,000 deductible and out-of-pocket limits of $7,500 per person and $10,000 per family. Administration officials said that type of policy could be purchased for $100 to $200 a month. But Emily Clayton, a health care advocate for the California Public Interest Research Group, a consumer organization, said that policy wouldn't provide much coverage and would require consumers to spend heavily before seeing any benefits. "If the governor is really going to require people to have health insurance, any plan has to make sure there is affordable health insurance coverage available and make sure that the coverage provides some form of (real) insurance," she said.

She said the state should regulate health insurance rates to control costs. Lockhart said there are low-cost health plans available that also cover doctor visits and other basic medical needs for copayments. Eighty percent of California businesses have fewer than 10 employees and wouldn't be affected by the Schwarzenegger mandate, he said.