Business Eyes the California Health Reform Debate

Will the Golden State set the pattern for a national solution?

While Congress starts to gear up for what looks to be a lengthy struggle to come up with a nationwide solution to the health insurance crisis (see SBR, January 26, 2007), the real action remains in the states. And no state is more important than California, home to 12% of the U.S. population. The current debate in Sacramento over how to cover the uninsured and rein in premium costs could set a pattern for the rest of the nation—and have major ramifications for small business owners.

On January 8, 2007, Governor Arnold Schwarzenegger, a Republican, made worldwide headlines by floating a proposal that would require, as part of a comprehensive health care reform package, any company with 10 or more employees to provide a health insurance plan. Companies that choose not to provide a plan would have to pay the equivalent of 4% of payroll into a state health care purchasing pool.

Now, the Governor’s plan and proposals by the state’s two top legislators, both Democrats, are under consideration in Sacramento. A key difference for business owners is that the Democratic measures would require businesses under Schwarzenegger’s 10-employee threshold to provide coverage.

How well the interests of small business are represented in this process is not clear. But at a conference this week sponsored by California’s Insure the Uninsured Project (ITUP) that drew 450 policy experts, foundation executives, health care providers and lobbyists, small business representatives were invited to participate as key stakeholders in the debate.

Scott Hauge, President of Small Business California, a grassroots organization of business owners, spoke at the conference and indicated that he is generally supportive of the reform efforts, but is concerned about costs. "Small businesses want to see a reduction in their health insurance rate increases at or below the inflation rate,” he says. “If this can be accomplished, we are willing to go along with a requirement that all businesses must pay something for their employees’ health insurance—as long as the employees and the government also contribute."

In California, as in other states, small businesses have been screaming about premiums. “Most small business owners want to do the right thing for their employees,” says Celia Canfield, co-founder of Tendo Communications, a 12-person marketing firm in San Francisco. “Unfortunately, the unpredictability in health care costs severely affects cash flow planning.”

"Double-digit annual health care premium increases are crippling small businesses, which is a poison to our economy,” says Herb K. Schultz, senior health policy advisor to Governor Schwarzenegger. “The Governor wants to bring all facets of the debate together to fix our broken system and make health care more affordable."

So far, most small business groups have been restrained in their reactions to the proposals—unlike last year, when they mounted a campaign against a single-payer plan, which passed the legislature and that Schwarzenegger vetoed. The National Federation of Independent Business, many local Chambers of Commerce and other small business organizations have formed the California Small Business Health Coalition to express serious concern about an employer mandate.

Jon Barnato, senior legislative director for the California Restaurant Association., a member of the Coalition, says that all three proposals raise concern for owners of low-margin, low-wage businesses. “Restaurants are in a labor intensive, low-wage, and low-profit industry, and a payroll tax or health care mandate disproportionately impacts these types of small businesses," he says.

The most high-profile opposition has been from the Consumer Alliance for a Strong Economy—led by Chris Wysocki, a partner in the Sacramento-based consulting firm of Gilliard, Blanning, Wysocki & Associates. The alliance has run television ads featuring an animated duck, denouncing the 4% fee on companies that don’t provide health care as a new tax that Californians don’t need.

At this week’s ITUP conference, attendees were positively giddy at the prospect of finally passing a reform bill that can become law. “[The] proposals serve as an excellent starting point,” says Lucien Wulsin, ITUP’s Project Director, who has been in the forefront of health care reform efforts in California for the past 30 years.

As was the case last year in Massachusetts, all three California proposals are based on the concept of “shared responsibility.” Instead of placing the health care burden entirely on business or government or individuals, the Governor’s proposal requires all three to do their share.

In addition to the employer mandate on companies with 10 or more employees, Governor Schwarzenegger has proposed that all individuals must purchase, at a minimum, a high-deductible, catastrophic care policy. The state would provide premium subsidies on a sliding scale for those under 250% of the federal poverty level (FPL). It would also provide subsidized coverage for all children in families under 300% of the FPL, regardless of residency status, a provision opposed by anti-immigration groups.

Senate President Don Perata's proposal would require employers to choose whether to spend a yet-to-be-determined percentage of wages on health coverage or to pay an equivalent amount into a trust fund that would enable individuals to purchase coverage. Perata would require that employees, including the self-employed, to have a minimum level of coverage for themselves and their dependents. Assembly Speaker, Fabian Nuñez, has proposed an employer mandate for businesses that have been around for three years, have more than two employees, and have more than $100,000 in revenues. His proposal does not include an individual mandate.

Like the Governor, both Democrats propose the creation of a health insurance purchasing pool. And all three include cost containment measures: chronic disease management, fitness, wellness incentives, smoking and obesity reduction, expansion of evidence based medicine and electronic medical records, and collection of data on price, quality and clinical efficacy. The governor’s plan would seek to reduce administrative costs by mandating that insurers use 85% of premium revenue for care.

Features of each plan face natural opposition: Businesses and hospitals do not like the employer and provider assessments. Unions and some health care advocates dislike individual mandates, and some health insurers are uncomfortable with the state purchasing pool, underwriting reforms and restraints on administrative spending.

Still, there is a consensus in Sacramento that with the top two Democrats in Sacramento and the immensely popular governor all pushing toward a similar goal, a compromise measure is within reach. Stay tuned.

John Arensmeyer is Founder and CEO of Small Business Majority, a national small business advocacy organization.