California Considers Imposing a Health Insurance Mandate

Published March 1, 2008

After nearly a year of tense negotiations, California Gov. Arnold Schwarzenegger (R) and Assembly Speaker Fabian Nuñez (D-Los Angeles) announced they had reached a bipartisan compromise on a plan to provide government health insurance for 3.6 million of California’s 5 million uninsured citizens by 2010.

Called “an incredible plan” by Nuñez, the proposal–which, if passed by the state legislature, will appear on the California ballot in November–includes a mandate requiring nearly all Californians to acquire private health insurance or enroll in a government program that will be expanded to meet the additional demand.

Analysts have called the plan unworkable, saying the revenue sources are too insecure and the mandate would be difficult to enforce.

$14 Billion Per Year

Expected to cost $14 billion annually at first, the Health Care Security and Cost Reduction Act, or Assembly Bill X1 1, will receive funding from four sources: a $2.3 billion increase in the state hospital tax; a new 1 to 6 percent payroll tax on businesses; an additional $1.50 to $2.00 per pack tax on cigarettes sold in the state; and an additional $2.3 billion in funding from the federal government.

The measure would prohibit insurers from denying coverage to people because of existing medical ailments and would require them to spend at least 85 percent of premiums directly on medical care.

Pushing Ahead

The new program is moving through California’s state legislature in two parts. The first lays out the changes and expansions being made to the state health care system. It passed the General Assembly by a party-line vote at the end of 2007 and is currently being considered in the Senate.

The second piece of legislation, which deals with program funding, may take more time to make its way through the legislature. As a tax increase, it requires two-thirds approval to pass and therefore must have bipartisan support.

Despite the cautious approach of State Senate President Pro Tem and ABX1 1 co-author Don Perata (D-Oakland), who has said solving California’s $14 billion budget deficit without shrinking or eliminating entitlement programs should be done first, the governor’s proposal is expected to make its way through both houses of the state legislature by the end of the spring.

Fewer Jobs, Higher Costs

Experts say the plan will cause far more problems for the health care system and the state economy than it will solve, especially in light of the state’s looming budgetary problems.

“The biggest problem for the state is the proposal to force employers to spend between 1 percent and 6.5 percent of payroll on health coverage,” said Devon Herrick, Ph.D., a senior fellow at the National Center for Policy Analysis.

“This tax on labor will stall job growth and increase costs on employers whose workers aren’t willing to forgo sufficient cash wages to cover health benefits,” Herrick said.

Stephen J. Entin, president of the Institute for Research on the Economics of Taxation, called the health plan “a tax on the poor, who smoke disproportionately, as well as on young workers and small businesses.

“Low-income workers will be forced to use a large part of their limited compensation for insurance and taxes,” Entin said.

Jeff Emanuel ([email protected]) is a research fellow at The Heartland Institute and managing editor of Health Care News.

For more information …

Assembly Bill X1 1, “The Health Care Security and Cost Reduction Act”: