Commentary By Allan Zaremberg

(July 25, 2003) The California Chamber has a long-standing policy of supporting increased access to health care for California residents. At the same time, the Chamber strongly believes in giving employers incentives to pick up the cost of expanding access to health care, rather than mandating that employers do so.

Instead of swelling the ranks of the insured, mandated health insurance is a “job killer” that will increase the ranks of the unemployed.

'Play or Pay'
When the legislative conference committee begins working on health care legislation, one approach that may loom large is the concept of “play or pay” — requiring employers to provide coverage to employees and their dependents or pay into a state fund. In effect, such a mandate will be a multibillion-dollar health care tax increase that will hurt employers, employees and the state’s economy.

Problems with Mandates
Rather than recognizing that more employers would offer health care coverage if they could afford it, a mandate adds to the burden of businesses already having to cope with rapid increases in workers’ compensation premiums, energy costs and a pending unemployment insurance tax hike, among other expenses.

Not only does this mandate become a cost for employers who can’t afford it, but future costs may greatly outweigh the employers’ ability to increase their revenues.

Moreover, government would have to require the health care tax to increase with the inflationary cost of health care — which has been running upwards of 17 percent per year. Without such a provision, common sense and cost considerations could lead to employers that currently provide health care choosing instead to pay the tax if it were lower than actual premiums.

A mandate that creates additional new costs for employers forces them to choose from the undesirable options of cutting jobs to reduce costs and stay in business, closing shop or relocating jobs out of California. In each case, the California economy is hurt and government not only loses revenues, but ultimately also gains the added expense of providing benefits for the newly unemployed.

For employers who already provide health coverage to employees, a mandate may also create new problems and burdens. In addition to paying the cost of health care coverage for their employees, employers also may be required to pay for coverage of the employee’s dependents. Some proposals call for employers picking up 100 percent of the cost of dependent coverage — a tremendous cost increase for companies not already providing health care coverage at that level.
Businesses may also have to pick up health insurance costs for part-time employees, creating the new record-keeping nightmare of how to determine an employer’s responsibility for an employee with more than one part-time job.

In addition, companies that use independent contractors may be responsible for the health care coverage of those contractors and their dependents as well.

Even a company already offering health care coverage at the level in some proposed mandates would face additional costs as vendors pass along their increased expenses in the form of higher prices.

For larger companies that deal with health care benefits through collective bargaining with labor unions, mandated health care will restrict negotiations by eliminating health benefits as a subject for discussion.

Funding Dilemma
Thinking through the funding implications of expanding the number of Californians with health insurance leads to the conclusion that the “play or pay” formula doesn’t work without a significant state subsidy.

Given that the most affordable health insurance packages are those with large deductibles (and remembering that these employers can’t afford coverage today), consider the following scenario:
An employer finds a $1,500 insurance premium with a $1,500 deductible. If the employer pays 80 percent ($1,200) of that premium, the employee must pay the remaining $300 plus the $1,500 deductible before the employee can use the health care system.

How can the low-wage employee afford that $1,800 up front cost, and will the employee be willing to pay that much for anything short of a catastrophic occurrence?

The employer then faces the dilemma of having to reduce wages or staffing in order to pay $1,200 for a health insurance policy that the employee is not likely to use — unless of course the employee’s share of the deductible and premium is subsidized by government.

But in light of its $30 billion deficit, how can the California government afford to pay for a new program when it can’t afford to pay for existing ones?

Another Funding Issue
Proponents of the heath insurance mandate also want to challenge federal law (ERISA) that exempts self-insured plans from state regulation so that additional coverage could be mandated, such as coverage of dependents, part-time employees and independent contractors. If this were accomplished, multi-state employers may shift jobs to other states where no mandates exist.
If the proponents don’t succeed in overcoming this ERISA pre-emption, however, many California companies may be forced to consider becoming self-insured to keep health care costs affordable, which would take dollars out of California’s health insurance funding pool.

Change Current System First
Before adopting costly new mandates, the Legislature should consider ways to make existing programs work better. For example, the Healthy Families Program combines state and federal funds to provide low-cost insurance to the children of working low-income Californians. California is authorized to include adults in the program, with the state paying 35 percent of the cost and federal funding paying 65 percent.

The state could create a voluntary program to encourage employers of low-wage employees to pay the state’s 35 percent share of health care coverage costs. The employer benefits from having access to a more affordable program. The employee benefits by gaining access to a health care program that doesn’t have a high deductible to pay up front. The state moves toward the goal of expanding access to health care without the unaffordable burden of a new bureaucracy.

This adjustment to an existing, voluntary program is certainly a better approach than a mandate.

Action Needed
Employers, employees and anyone who cares about California’s future should contact their legislators now to oppose a mandate approach to expanding health care coverage. Encourage legislators to look more closely at using the current voluntary system to help make health care more affordable and available to every Californian.

Allan Zaremberg is president and chief executive officer of the California Chamber.