Gov. Arnold Schwarzenegger’s healthcare reform proposal would be the broadest new mandate for employers since Gray Davis left office in 2003.
The proposal calls for employers with 10 or more workers to offer health insurance or pay 4% of payroll to a state pool. Employer fees are expected to make up $1 billion of the plan’s $12 billion price tag.
For big employers that already offer insurance, the proposal doesn’t mean much. Most offer health plans and will continue to do so to attract workers.
But the proposal would give bigger employers an option they didn’t have before: If health insurance costs become too much, they could opt to nix their plans and pay into the state pool instead.
Smaller businesses, including stores and restaurants, are likely to bear the brunt if the reform makes its way to law.
The issue is a sensitive one. Several large and small businesses contacted by the Business Journal declined requests to talk about Schwarzenegger’s proposal. Most said they don’t know enough about it yet.
Politics also could be an issue: Business leaders here generally vote Republican, while Schwarzenegger’s proposal is seen as a move to the left.
Schwarzenegger’s plan is touted as being market-based. But it does have several things that might grate on business and its Republican allies.
It would require all Californians to get health insurance through private companies or public programs in what’s being called a “shared responsibility and alignment” situation.
Medi-Cal and Healthy Families, a pair of existing government programs, would expand to help provide healthcare coverage to poorer Californians.
Some of the biggest impact could fall on hospitals and doctors. The plan calls for providers to be assessed a fee,or tax, in the words of critics,based on their revenue.
The financing behind Schwarzenegger’s plan: $5.4 billion in expected new federal money; $3.5 billion from hospital and doctor fees; $1 billion from employers; and $2 billion shifted from other state spending.
Some healthcare-related businesses may take comfort in that the governor’s proposal doesn’t shut them out.
Last year, Schwarzenegger vetoed a bill backed by Santa Monica Democratic Sen. Sheila Kuehl that would have cut out insurance companies from a large, lucrative market. It also would have given the state power to gain cost concessions from drug makers and healthcare providers.
In 2004, Schwarzenegger was a low-key backer of efforts to defeat Proposition 72, a measure that would have mandated companies provide healthcare to workers.
Proposition 72, which went down by a narrow margin, would have validated Senate Bill 2, a 2003 law signed by Gov. Davis that required employers to provide healthcare and pick up at least 80% of the costs.
The governor’s proposal could be seen as relative bargain for employers compared to SB 2, which mandated costly types of coverage for workers. Under the 2003 law, some businesses would have gone from paying nothing to covering 80% of healthcare costs for their workers, including for mental healthcare and other extras. With the governor’s proposal, they’d go from nothing to a less dramatic 4% of payroll.
Still, critics have found plenty to dislike in Schwarzenegger’s proposal, part of a larger shift by the governor after his ballot initiative setback in the 2005 election.
Some hold out hope for changes.
“I think there will be something,” said Julie Puentes, a Garden Grove-based vice president for the Hospital Association of Southern California. “One of the reasons I’m optimistic is that it’s an off-election year. I think it’s easier to get folks to come together and be willing to come up with compromises on big issues like this.”
As for a fee on hospital revenue, Puentes said, “It concerns us. But we’re withholding judgment until we can understand better exactly what that means.”
Hospitals want to know how they’ll be reimbursed for care to patients who still might not be insured even under the governor’s plan.
“There must be adequate funding of California’s healthcare safety net system,” said Peter Bastone, chief executive of Mission Hospital in Mission Viejo. “Even by expanding coverage broadly, many individuals may still fall through the cracks.”
Paul Gaarenstroom, president of Laguna Hills-based insurance brokerage Pacific Group, is more critical.
“You have a system that’s working,” he said. “What the governor needs to do is work with us and others,hospitals and doctors,and formulate a plan to work within the system, not to let the government manage it.”
One concern about a state healthcare pool might be that some smaller employers now paying 11% to 13% of their payroll for healthcare could be tempted to switch to cut costs, he said.
“The next thing you know, as opposed to you having a nice HMO plan or a fairly decent PPO plan, you’re left with a $5,000 deductible PPO plan, which your employer’s gladly paying 4% of payroll for,” Gaarenstroom said.
The plan has critics on both sides of the political spectrum.
The California Nurses Association, a key Schwarzenegger rival in the 2005 election, argues the plan doesn’t clamp down enough on what it calls “predatory” rate hikes and practices by insurers.
Republicans and anti-tax activists are likely to file suit if the plan includes a mandatory 4% of payroll payment to a state pool, arguing it would be a tax in need of a constitutionally required two-thirds vote in the Legislature.
Schwarzenegger’s plan isn’t the only one brewing. Democratic leaders have their own healthcare proposals.
Assembly Speaker Fabian Nunez and Senate President Pro Tem Don Perata’s plans also include what’s called a “pay-for-play” element for business. Nunez, however, doesn’t require an individual coverage mandate.
And Senate GOP leaders have put out their own plan that doesn’t require individual mandates or new funding. Instead, they want to shift money from other programs.
“The Senate Republican plan is the only healthcare plan that does not raise taxes or fees while addressing the real problem of accessibility, affordability and responsibility,” said state Sen. Dick Ackerman, R-Tustin.
Puentes calls all of the proposals a result of a “perfect storm.”
“I’m surprised that the issue of healthcare hasn’t imploded before now,” she said. “This has been brewing for several years. I think the Kuehl bill as well as the SB2 legislation referendum just contributed to the fomenting.”
