Economist Looks at Implications of Employer-Sponsored Benefit Law
The Economist in its Oct. 11 issue looks at the implications of a recently-enacted law (SB 2) that requires some employers in the state to pay 80% of the cost of employees' health insurance premiums or pay into a state fund that would provide coverage(Economist, 10/11). The measure mandates that employers with 200 or more employees provide health coverage to workers and their dependents by 2006 to avoid paying into the fund; businesses with 50 to 199 workers will have to offer health insurance to employees only by 2007; and employers with fewer than 20 workers will be exempt from the law. Those with 20 to 49 employees will be exempt from the law unless the state provides tax credits to offset the cost of health benefits. Employers who already offer health benefits that comply with the new law can continue offering those plans provided that the plans meet the law's minimum requirements (California Healthline, 10/10). Many employers are "persuaded" that the mandate will expand health coverage to one million state residents; however, they "resent being forced by the state to foot the bill," according to the Economist (Economist, 10/11). In response, the California Chamber of Commerce has submitted a petition to the state to place on the ballot a referendum to eliminate the measure, and the group is also likely to challenge the law in court (California Healthline, 10/10). According to the Economist, businesses also may leave the state or hire more part-time employees, who do not work enough hours per month to qualify for health benefits under the law. Despite the challenges, the Economist notes that "California, as usual, may be setting a trend" as lawmakers look toward a "federal solution" to provide health coverage for an estimated 43.6 million uninsured U.S. residents (Economist, 10/11).
SB 2 is a "clumsy effort to achieve desirable results through mandates" that is "sure to backfire," Richard Epstein, a professor at the University of Chicago School of Law and a senior fellow at the Hoover Institution, writes in a Forbes opinion piece. Companies will hire fewer employees, contract with smaller firms or leave the state to avoid paying for health care, Epstein writes. Epstein concludes that the "net effect will be to shrink the size of the potential work force in the state, which in turn will lead to a reduction of economic activity and a consequent decline in the income and sales taxes" (Epstein, Forbes, 10/27).
Additional information on SB 2 is available online.