California Senate Kills $15 Billion Health Insurance Plan

Published April 1, 2008

A California Senate committee has rejected Gov. Arnold Schwarzenegger’s plan to provide government-controlled health insurance to millions more of California’s citizens.

The January vote of the Senate Health Committee against the $14.9 billion plan came after nearly a year of tense negotiations between Schwarzenegger (R) and Assembly Speaker Fabian Nuñez (D). Last December the two announced a bipartisan compromise on a plan to add 3.6 million of California’s five million citizens without health insurance to the rolls of the insured by 2010.

Called “an incredible plan” by Nuñez, the proposal–which would have appeared on the California ballot in November if lawmakers had approved it–included a mandate requiring nearly all Californians to buy private health insurance or enroll in a government program that would have been expanded to meet the additional demand.

Analysts called the plan unworkable, saying the revenue sources were too unsure and the mandate too difficult to enforce.

The committee voted 7-1 against the plan. Much of the opposition was based on the projected impact on the cash-strapped state’s economy.

The estimated price tag had climbed from $14 billion at the time the plan was announced to $14.9 billion by the time of the committee vote. State budget officials are projecting a $14.5 billion overall budget deficit.

Tax Increases

The Health Care Security and Cost Reduction Act, Assembly Bill X1 1, was to receive funding from four sources: a $2.3 billion increase in the state hospital tax, a new payroll tax on businesses of 1 to 6.5 percent, an additional $1.50 to $2 per pack tax on cigarettes, and another $2.3 billion in funding from the federal government.

The measure also would have prohibited insurers from denying coverage to people because of existing medical ailments and would have required them to spend at least 85 percent of insurance premiums exclusively on medical care.

The plan was scheduled to move through California’s state legislature in two parts.

The first, which laid out the changes and expansions being made to the state health care system, passed the General Assembly by a party-line vote at the end of 2007.

The second piece of legislation, dealing with program funding, was expected to take more time to pass than the first part because California requires a two-thirds majority vote to approve tax increases. Tax hikes therefore need bipartisan support.

Job Loss Fears

“The biggest problem for the state was the proposal to force employers to spend between 1 percent and 6.5 percent of payroll on health coverage,” said Devon Herrick, a senior fellow at the National Center for Policy Analysis. “This tax on labor would have stalled job growth and increased costs on employers whose workers aren’t willing to forgo sufficient cash wages to cover health benefits.”

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 would have been forced to use a large part of their limited compensation for insurance and taxes.”

California Senate Health Committee Chair Sheila Kuehl (D-Santa Monica) said, “It doesn’t matter how many good things are in the bill if there isn’t money to pay for them.”

State Sen. Leland Yee (D-San Francisco) concurred, saying, “Nothing that came out of [the committee] hearing gives me the comfort level that working people of California won’t be left holding the bag.”

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

For more information …

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