The debate over Proposition 72 is nearing a fever pitch as businesses grapple with the prospect that voters could endorse the employer-provided healthcare initiative.
Employers are warning of having to reduce benefits and cut hiring to lessen the impact of the healthcare coverage mandated by the measure. Meanwhile, backers of the initiative are selling it as a way to fix some of the state’s healthcare problems by broadening coverage.
Voters back the passage of Proposition 72 by a 45% to 29% margin, according to a survey done by The Field Poll earlier this month. A quarter still is undecided, making this week critical for the initiative.
The measure is a referendum on Senate Bill 2, signed into law by former Gov. Gray Davis just days before he was recalled a year ago.
Voting yes on Proposition 72 is a vote for SB 2 and its healthcare requirements for employers.
If the measure passes, Wahoo’s Fish Taco Inc., a Santa Ana-based Mexican restaurant chain with some 500 workers, plans to cut profit-sharing and other benefits, according to Ed Lee, the company’s director of planning.
“We now have to get our war chest ready to start paying for this bill,” he said.
Proposition 72 would require employers with 50 or more workers to provide healthcare insurance and pick up at least 80% of the cost.
“At 80%, there’s no money to pay it,” Lee said. “The employee doesn’t realize that it hurts them as much. Talk about raises? They’re going to be gone.”
Julie Vandermost, owner of San Juan Capistrano-based environmental consultant Vandermost Consulting Services Inc., said she believes the measure will stifle expansion plans at her company and others.
Vandermost Consulting has 11 workers and wouldn’t fall under the measure unless it expands.
“If it passes, it will basically stop my expansion plans,” Vandermost said. “I cannot move the bulk of my company to Arizona because we focus on and specialize in California environmental law. So we just won’t grow past a certain number.”
Vandermost Consulting provides workers with stipends to help pay for their insurance, she said. The company looked at group health plans but costs and worker concerns about changing doctors led Vandermost to stick with the stipend, she said.
Proposition 72 “puts the state between you and your healthcare provider,” she said.
A provision of the initiative would require companies that don’t offer insurance to pay fees into a state fund run by the Managed Risk Medi-Cal Insurance Board.
“Why do I need a state-run government board of directors (who) are appointed, not elected, to tell me how much healthcare insurance I have, what I’m going to be covered for, what I’m not going to be covered for,” Vandermost said.
Some of the measure’s biggest backers are doctors’ groups, nurses and unions.
One local nurse, Maureen Berry, a California Nurses Association activist who asked that the hospital she works for not be named, is playing a central role in the debate, appearing in a Yes on 72 commercial.
“We see a lot of the working poor and indigents,” Berry said. “I deal with the issues on a daily basis, so it was not difficult to convey my sincerity.”
Berry downplayed business concerns about costs and government mandates.
“We’re talking about large corporations here,” she said. “We’re not talking about the small mom-and-pop-type companies. We’re asking them to provide healthcare to their employees. I don’t think that’s unreasonable to ask.”
Starting in 2006, the measure would cover employers with 200 or more workers, requiring them to pick up 80% of insurance costs for workers and their dependents, or pay into a state buying pool.
In 2007, the mandate would broaden to cover employers with 50 or more workers. Companies with 20 to 49 workers would be added to the mandate only if the Legislature enacts a tax credit to offset 20% of the cost.
Yes on 72 supporters include the California Medical Association and unions, even though unionized companies are exempted from the law. Still, several unions, including the United Food and Commercial Workers Union, have poured millions of dollars into the Yes on 72 effort.
In a ballot guide discussing the bill, proponents argue it protects “responsible companies from unfair competition” by requiring all large and midsize companies to pay for insurance. Backers also contend it would ease $4.6 billion in taxes Californians pay each year to cover emergency room and other healthcare for the uninsured.
Wahoo’s Lee said he’s unconvinced.
“Just the other night, we saw a commercial with this nurse (Berry) saying it’s going to help hospitals,” he said. “It’s not going to help hospitals.”
“I’d say the effect is going to be a lot smaller than either side is saying,” said Thomas Buchmueller, an associate professor at the University of California, Irvine, Graduate School of Management who specializes in healthcare economics. “It’s going to have a pretty modest effect on coverage.”
The first wave of the law affects large employers that already offer insurance, Buchmueller said. The state estimates more than 95% of California companies with 50 or more workers offer health insurance.
The real effect, Buchmueller said, could relate to whether Proposition 72 would interfere with the federal Employee Retirement Income and Security Act of 1974.
Under that law, states don’t have the power to regulate employee benefits, including health coverage workers get on the job. But states do have the authority to regulate the health insurance industry.
California’s proposed law falls into an ERISA gray area, Buchmueller said. Some recent U.S. Supreme Court decisions have given states a voice in shaping health benefits for workers, particularly when such cases pit state patients’ rights laws against the federal statute.
“As far as I know, the bill is written in a way to get around ERISA, but it’s sort of a new area and it’s not clear exactly how a judge will rule,” he said.
If Proposition 72 passes, a court challenge is near certain.
The Sacramento-based California Chamber of Commerce and the California Restaurant Association, also in Sacramento, gathered signatures to place Proposition 72 on the ballot in an attempt to repeal SB 2, which isn’t in effect.
Gov. Arnold Schwarzenegger opposes Proposition 72 but hasn’t campaigned much against the measure.
According to studies, SB 2 could cost California employers $6 billion to $11.4 billion a year. It would make California the second state after Hawaii to require businesses to provide healthcare coverage.
Proposition 72 only would cover some 1.5 million of the state’s uninsured population, which is estimated at around 6 million.
The measure doesn’t address other issues, including how to check rising treatment costs and improving coverage options for self-employed people and those at small companies.
Wahoo’s Lee calls it a case of “pass-on-the-buck.”
“Employers, insurance, attorneys, union leaders have got to get their act together,” he said. “It’s a problem that we all have to fix,not just let’s get the business owners to pay for it.”
