California Insurance Mandate Faces Repeal

Published January 1, 2004

Californians Against Government Run Healthcare, a coalition of business groups led by the California Chamber of Commerce, announced on December 1 it had collected more than 620,000 signatures in its effort to secure a ballot referendum to repeal state law SB 2, the play-or-pay employer mandate passed last year.

“The response to our signature drive has been overwhelming,” said John Dunlap, president and CEO of the California Restaurant Association and coalition co-chair. “Californians will now have an opportunity to overturn Senate Bill 2, which would impose billions of dollars of new taxes on workers and employers, and will drive jobs out of our state and hamper economic growth in California.

“We are grateful to California voters for putting the brakes on this flawed scheme,” he said.

The measure was introduced in December 2002 by John Burton and Jackie Speier, both Democrats. It passed the state senate on September 12 on a 25-15 vote, and the state assembly the next day on a vote of 46-32. Then-Governor Gray Davis signed the measure on October 5, just two days before the October 7 election that recalled him.

The mandate, which takes effect January 1, 2006, requires businesses employing 50 to 199 workers to offer health insurance to their employees by 2007. Employers with fewer than 20 workers are exempt from the law, and those with 20 to 49 workers are partially exempt: They are not required to cover dependents unless the state provides tax credits to offset that cost.

Employers who do not comply with the coverage mandate will be required to pay a fee to the state Employment Development Department.

Unconstitutional Tax

Other members of the coalition include the California Business Properties Association, California Restaurant Association, California Retailers Association, California Taxpayers’ Association, and National Federation of Independent Business. They warn SB 2 will make California a less-attractive place to do business, increasing employer costs and slowing employment growth. The coalition refers to SB 2 as the “job killer bill.”

“Businesses are already cutting jobs or moving out of state because of high costs in California,” said Allan Zaremberg, president of the California Chamber. “This measure would make California one of only two states in the country to mandate health care, once again increasing the cost of providing jobs in our state. It will result in more layoffs for working families.”

The coalition contends the measure is essentially a new tax, unconstitutional because it was approved without the required two-thirds majority vote in the legislature.

“It is counterproductive for the California Legislature to spend time hatching such ill-advised tax schemes and expanding the size and scope of government while the state faces deficits and insolvency,” wrote Larry McCarthy, president of the California Taxpayers’ Association, in a letter to Davis before he signed the measure. “Jobs and investment are being lost because of Sacramento mismanagement.”

Dueling Studies

A report funded by the California Labor Federation AFL-CIO and produced by the Institute for Labor and Employment at the University of California, Berkeley concluded the labor-backed health plan had widespread support among employers and would impose a minimal financial burden on California businesses. The researchers reported:

  • 59 percent of businesses that do not currently offer health insurance support SB 2.
  • 64 percent of all California businesses support SB 2.
  • Operating costs would increase by just 0.2 percent for the typical employer required to comply with SB 2.

A study conducted by the Los Angeles Area Economic Development Corporation for the state chamber, by contrast, estimated the SB 2 mandate would cost employers $5.7 billion a year and employees $1.5 billion.

The study quotes Sam Manolakas, president of the four Brookfields Restaurants in Greater Sacramento, saying his operation would go from a modest profit to an annual loss of more than $1 million after paying the mandated costs. In order to break even, Manolakas says, he would have to raise prices 40 percent.

“SB 2 is one of the worst job-killers passed by the legislature in years,” said the Restaurant Association’s Dunlap in an October news release launching the coalition’s petition-gathering effort. “It was passed in the final days of the legislative session, with no substantive hearings or analysis. The last time legislators followed a process like this, they gave us the energy crisis. We will not stand by and let this economy-wrecker kill small businesses and destroy jobs in our state.”

Schwarzenegger Support

To include the referendum on the March 2004 statewide ballot, the California secretary of state must certify as valid 373,816 of the more than 620,000 signatures the coalition filed. The secretary has 68 days from the December 1 filing date to certify them.

Vince Sollitto, a spokesperson for Governor Arnold Schwarzenegger (R), told the San Francisco Chronicle the governor supports the referendum.

Conrad F. Meier is managing editor of Health Care News. His email address is [email protected].

For more information …

visit the Californians Against Government Run Healthcare Web site at

The full text of SB 2 is available in Adobe Acrobat’s PDF format through PolicyBot, The Heartland Institute’s free online research database. Point your Web browser to, click on the PolicyBot icon, and search for document #13143.

The 40-page September 2003 report by the Los Angeles Economic Development Corporation, Analysis of the Economic Impacts of Mandatory Health Coverage in California, is also available through PolicyBot. Search for document #13917.

The 40-page referendum petition submitted by the coalition is also available through PolicyBot; search for document #13914.