Some Businesses Oppose Employer-Sponsored Coverage Bill

A bill (SB 2) passed Friday by the Legislature that would require some employers to provide health insurance to employees or pay into a state fund that would provide health coverage has drawn criticism from business leaders, who say that the measure will cost "billions and could trigger layoffs or cause companies to flee the state," the Fresno Bee reports (Rodriguez, Fresno Bee, 9/16). The bill, proposed by Senate President Pro Tem John Burton (D-San Francisco), would limit employee premium contributions to 20%, and would require employers with 200 or more employees to provide health coverage to workers and their dependents by 2006 to avoid paying into the fund. Businesses that employ 50 to 199 workers would have to offer health insurance to employees only by 2007. Employers with fewer than 20 workers would be exempt from the law, and those with 20 to 49 workers would be exempt from the law unless the state provides tax credits to offset the cost of health benefits. The measure is expected to expand access to health insurance to about one million of the state's seven million uninsured residents (California Healthline, 9/15).

In response to the legislation, the California Chamber of Commerce last week released a study that estimated that the legislation would require small and medium-sized employers to pay $5.7 billion per year in health care costs and would require employees to pay $1.5 billion per year (California Healthline, 9/9). According to Kirby Bosely, head of the health care practice at Mercer Human Resource Consulting, the law could be "the straw that breaks the camel's back for small businesses." The Los Angeles Times reports that large employers may feel the "biggest pinch" because they would be required to offer insurance to both employees and their dependents (Vrana/White, Los Angeles Times, 9/16). However, the bill's supporters said that it would reduce Medi-Cal spending by approximately $650 million to $1 billion each year (California Healthline, 9/15). The California Medical Association has estimated the bill would require employers that do not currently provide health insurance to employees to pay $600 million to $1.3 billion per year and employees to pay $150 million to $350 million per year (California Healthline, 9/9).

The bill could be "headed for a legal challenge" by business groups, who claim that it may violate the federal Employee Retirement Income Security Act, which took effect in 1974, the San Francisco Chronicle reports (Colliver/Tansey, San Francisco Chronicle, 9/16). ERISA regulates employee benefits but gives states power to regulate health insurance. Jamie Court, head of the Foundation for Taxpayer and Consumer Rights, said the bill represents a "tough legal challenge" because the law would "mandat[e] benefits for a whole class of large employers with businesses in other states" (San Francisco Chronicle, 9/16).

Gov. Gray Davis (D) should veto the bill and ask lawmakers to reconsider the issue, a Los Angeles Times editorial states. While "[e]mployer-provided health insurance is a good idea," it is not feasible to require companies to offer health coverage without state "cost controls or incentives," according to the editorial. "Californians are not blind to the plight of the state's 6.3 million uninsured," but SB 2 provides only an "expensive system" that lacks "even the most basic controls on prices and utilization," the editorial states (Los Angeles Times, 9/16).