Employer Mandate Costs Small Businesses

Published March 1, 2007

Health policy experts outlined a laundry list of problems with California Gov. Arnold Schwarzenegger’s (R) plan to insure all state residents after he announced the proposal in his State of the State Address on January 8. They noted the plan will hurt small business in particular.

Employers with 10 or more workers would be required to offer health insurance plans that cost at least 4 percent of payroll, or pay an equivalent amount to the state-subsidized insurance fund. In 2004, a California law requiring the same thing was repealed less than a year after the legislature passed it.

In 2006, a federal court overturned a similar law in Maryland.

“This is a jobs tax, pure and simple,” said Grace-Marie Turner, president of The Galen Institute, a think tank in Virginia. “And most likely it will be challenged as violating the federal [Employee Retirement Income Security Act] law, which exempts employers who self-insure from state health insurance laws.”

Mike Tanner, director of health and welfare studies at the Cato Institute, a think tank in Washington, DC, said the mandate would increase the cost of hiring workers.

“Some [businesses] may even be forced to lay off current employees, and others will offset their costs by reducing wages or wage increases,” Tanner explained. “California’s business taxes are already the highest in the West. Schwarzenegger’s plan will only make this worse.”

Karla Dial ([email protected]) is managing editor of Health Care News.