Sure-Fire Killer
Play-or-pay mandate madness.


Amid the chaos of the California recall election, State Senate President Pro Tempore John Burton (D., San Francisco) is trying to jam through the state legislature a universal health-care proposal that would be a budget-buster and a jobs killer.

Sen. Burton’s bill (S.2) would require businesses in California with 20 or more employees to provide health insurance or pay a new tax to fund a state-run health-insurance program. This tired “play-or-pay” idea basically says that either employers must “play” in the health-insurance game or “pay” up.

Burton has the bill on a fast track, working toward final passage before the legislature adjourns on Friday — part of an effort to enact as much as possible of the liberal agenda while Democrats still control the governor’s office.

But his employer mandate flies in the face of the message that the citizens of California already are sending about getting state finances under control.

It would create a huge new tax on employers to fund a massive new program in a state that already has one of the most-unfriendly business climates in the country. The Tax Foundation of Washington, D.C., ranks California 49th in its State Business Climate Tax Index.

Many new and marginal companies want to provide health insurance to their employees, but they simply can’t afford it. Health coverage easily costs $2,000 or more for single workers and $6,000 for those with families, soaking up the small amount of profit companies are making. The choice for business owners would be either to cut wages, layoff workers, or shut their doors.

With California’s unemployment rate at 6.6 percent — already higher than the national average of 6.2 percent — these are jobs the state could ill afford to lose.

Further, two-thirds — or 65 percent — of California businesses offered health insurance in 2002, rates that are higher than the national average of 62 percent. (Medicare, Medicaid, and other public programs cover the majority of the others.)

Under the proposed legislation, California businesses with 20 to 200 employees would be required to cover only their workers, but companies with 200 or more employees would also be expected to cover their employees and their families.

If the play-or-pay plan were to pass, the state would eventually dictate what services health insurance must cover, politicizing the decisions and robbing businesses of what authority they have now to decide what level of health insurance they can afford.

Supporters of the measure also wanted to build upfront cost controls into the legislation to allow the state to set hospitals rates, physician fees, prescription drug payments, and insurance premiums. But the unlikely coalition of supporters of the measure — including insurers, hospitals, organized labor, and physicians — balked because it would directly affect their pocketbooks.

Consumer groups said they would be back to fight that battle after the measure passes.

Supporters say the Burton plan would provide health insurance for up to 2.5 million uninsured Californians and would save billions of dollars that now are being spent by private health plans on administrative costs and by hospitals on care for the uninsured.

The state would administer a new state-run plan for those not in the employment-based system. But government-run health-care systems in the U.S. and other developed countries have a history of quickly becoming much more expensive and bureaucratic, ultimately rationing care, cutting back on payments to providers, and politicizing coverage decisions.

The National Federation of Independent Business, the California Manufacturers and Technology Association, the California Chamber of Commerce, and others say that the play-or-pay plan would result in a multibillion-dollar health-care tax increase that would have the effect of increasing the number of unemployed — and put an even larger burden on taxpayers.

Many businesses are trying to rescue the health insurance that they provide to their workers with creative solutions to hold down costs. A recent survey by Harris Interactive for the California HealthCare Foundation found that California employers expected health costs to jump 14 percent this year. Many companies are providing new incentives for employees to make wise decisions about their health spending through consumer-directed health plans and are seeing costs moderate.

These innovative options would likely be wiped out by California’s proscribed state health-insurance mandate.

Play-or-pay is an idea whose time has passed. Employers provided a satisfactory mechanism for workers to pool together to get health coverage during the manufacturing boom of the last century. Workers often would work for one company for much of their careers and could keep their job-based health-insurance plan for decades.

But the Information Age has changed all of that. Workers can expect to switch jobs a dozen or more times during their careers, meaning they likely lose their health insurance every time they change jobs, go back to school, get laid off, or start a new company. The transition between jobs is a major contributor to the fact that 41 million Americans lack health insurance.

It makes no sense for legislators to fly in the face of the trends in the economy toward more job mobility, especially in a high-tech state like California.

Gov. Davis’s aides said he had no position on the legislation, but the bill is strongly favored by core Davis constituencies, like organized labor, who surely would pressure him to sign it.

If he were to sign it, the measure would be subject to court challenges by opponents who would rightly claim that it violates a federal law, the Employee Retirement Income Security Act, which gives the federal government, not the states, authority to regulate pensions and employee benefits.

Yes, uninsured Californians need health insurance, but an employer mandate would put a dark cloud over the state’s future and its prospects for jobs creation and economic growth.

Californians — and all Americans — need insurance policies that they can own and control. At least 25 states as well as the federal government are working on legislation to create refundable tax credits. The credits would help people to purchase private health insurance that they can take with them from job to job.

Washington also is working on legislation to create new pooling mechanisms outside the workplace to enable professional and trade associations, labor unions, churches, and other groups to offer health insurance to their members at group rates.

These solutions would be much better for California’s economy than tying a lead weight to job creation with an expensive, highly regulated, and job-killing new health-insurance mandate.

Grace-Marie Turner is president of the Galen Institute, a not-for-profit research organization that focuses on consumer-driven health care solutions. She is the editor of Empowering Health Care Consumers through Tax Reform from the University of Michigan Press