Health Care Mandate Is Bad for San Francisco

Published January 18, 2008

The day after Christmas, U.S. District Judge Jeffrey White ruled San Francisco’s attempt to expand its public health care initiative violated a longstanding federal law regarding government regulation of employee benefit plans.

White’s ruling halted the implementation of a mandate, scheduled to go into effect on New Year’s Day, that would have required employers to offer their employees health coverage or pay to support “Healthy San Francisco,” the city’s health care program.

The mandate struck down by White would have required every business in the city with between 20 and 99 workers to spend $1.17 per employee per hour for health care benefits, and those with more than 100 employees to spend $1.76 per hour, either on its own plan or in payments to the city.

Until the end of 2007, Healthy San Francisco catered exclusively to individuals whose income was at or below the poverty line. However, in his quest to make San Franciscans’ health care solely the purview of the government, Mayor Gavin Newsom planned to use the revenue generated by the mandate to incrementally expand Healthy San Francisco to include all of the city’s 82,000 uninsured residents and make switching from private insurance to taxpayer-funded health care a viable option for those who already have coverage.

While providing affordable health care for all San Franciscans is a laudable goal, expanding government control over health care and forcibly taking money from businesses to fund government programs is the wrong way to go about it. Newsom’s “Healthy San Francisco” expansion would harm San Franciscans both in basic economic terms and in terms of the health care they receive.

Business would have to recoup the money they were forced to spend on health insurance for employees (or to pay to the city) as a result of this mandate by cutting wages, laying off employees, raising prices on goods and services, and/or forestalling needed investments and dividend payouts, all of which would badly harm the economy.

Contrary to what seems to be popular belief, businesses and corporations do not have endless supplies of capital. In order to avoid going so far into debt that they can no longer afford to stay in business, companies compensate for money lost in any one area by making (or saving) more money in another.

In the interest of avoiding the hardships associated with increased payroll and tax costs, businesses based in the city may simply decide that “enough is enough” and relocate to places where they are not subject to such onerous measures.

Other players in San Francisco’s health insurance market will be pushed out by their government-run alternative, the only one backed by a guaranteed funding source since government is the only entity that can legally force others to contribute to it. With no competitors in the marketplace and a legally guaranteed source of funding, the single-carrier government program would have no reason to innovate or improve, since its customers, absent relocating from the city, would have nowhere else to go for coverage.

The City of San Francisco has appealed White’s ruling to the Ninth U.S. Circuit Court of Appeals, consistently the most-overturned circuit court of appeals in the country, despite the fact that the mandate appears to be a clear violation of federal law.

Instead of wasting more of its residents’ money on this appeal, Newsom and the city government should take the District Court ruling for what it is: a second chance to get things right.

The government and the taxpayers of San Francisco have been granted more time to think about what this expansion would do to the city’s economy and to its health care market. They should use that time wisely and act now to bring about real, market-based solutions for those among them who are currently without health care.

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