November 2, 2004 Ballot Prop. 72

Introduction

The November 2004 election ballot includes Proposition 72: Health Care Coverage, a referendum on the Health Insurance Act of 2003 (SB2) passed by the legislature and Governor Gray Davis. The Health Insurance Act requires companies with 200 or more employees to buy health insurance for workers and their families by 2006. Firms with 50 to 199 employees are required to buy coverage for their employees starting in 2007. A YES vote on Proposition 72 will approve the Health Insurance Act, while a NO vote will repeal it.

Californians have long debated the merits of proposals to expand health insurance coverage. In 1945 Governor Earl Warren recommended the creation of a compulsory prepaid medical service based on payroll deductions from both employer and employee, a plan that was ultimately defeated by the legislature. In 1992 the California Medical Association (CMA) proposed the California Affordable Basic Health Care Act, requiring all employers in the state to provide health insurance for workers and their families. The proposed legislation, SB248, passed the Senate but stalled in the Assembly. In the 1992 general election CMA sponsored a similar plan as Proposition 166. It was defeated by a two-to-one margin.

By 2002 about 6.4 million Californians, or 18.2 percent of the state's population, lacked health insurance. Senators John Burton and Jackie Speier introduced Senate Bill 2 (SB2), which sought to extend health care to about 1 million uninsured Californians. After intense debate SB2 was passed in the final hours of the 2003 session, and signed by Governor Gray Davis just 48 hours before the special election that resulted in his recall.

California Health Insurance Act of 2003 (SB2)

SB2 is a "pay or play" measure that requires California employers to pay a fee to the state to provide health insurance unless the employer provides coverage directly. Participation requirements vary with firm size; the smallest firms are exempt.

The act includes the following key provisions:

• By January 2006, firms with 200 or more employees must provide state-approved coverage for employees and their dependents or pay a fee to the state. By January 2007, firms with 20 to 199 employees must provide coverage for employees only. Firms with fewer than 20 employees are exempt.
• The legislation exempts firms with 20 to 49 employees from the requirements unless the state provides a tax credit for those firms equal to 20 percent of the employer's net cost of the fee.
• The Employment Development Department will collect the fee from firms that do not offer qualified coverage. To receive credit against the fee, employers must demonstrate coverage of their workers under: (1) health care service plans regulated by the Department of Managed Health Care; (2) group health insurance policies regulated by the Department of Insurance, with limits on out-of-pocket costs; (3) Taft-Hartley health and welfare funds or other collective bargaining agreements.
• Self-insured employer-sponsored plans meeting ERISA requirements, multiple employer welfare arrangements regulated by the Department of Insurance, and coverage for public employees also qualify if they meet the benefits required under items 1 or 2 above.
• The Managed Risk Medical Insurance Board (MRMIB) will administer a new State Health Purchasing Program, which will be responsible for negotiating coverage on behalf of employees and dependents who do not receive coverage through their employer.
• Employer fee to be established by MRMIB based upon estimated coverage costs for all enrollees and dependents.
• Employers providing health coverage receive credit against the fee.
• Employers must contribute at least 80 percent of the cost of coverage. Employee out-of-pocket financial contributions cannot exceed 5 percent of wages for workers below 200 percent of the Federal Poverty Level. MRMIB will establish maximum levels of employee cost-sharing (premiums, deductibles, co payments).

Legal Challenges

Opponents of SB2 may initiate court challenges along two lines: a state lawsuit may claim that the legislation violates the California Constitution, and a federal lawsuit may point to conflicts with the federal Employee Retirement Income Security Act of 1974 (ERISA).

The California Constitution requires that a two-thirds majority of both houses of the state legislature approve any tax increase. Opponents argue that the fee imposed on employers to fund the public health insurance program is a tax, and that SB2 did not receive the two-thirds majority vote. Supporters dispute that the fee is legally a tax. For an analysis of the constitutional vulnerability of SB2, see the California HealthCare Foundation's California Constitutional Barriers to Implementation of SB 2.

Opponents of SB2 also contend that the 1974 federal Employee Retirement Income Security Act (ERISA) preempts certain of it's provisions. A detailed analysis of the legal issues is at the California HealthCare Foundation's ERISA Implications for SB 2. 

Arguments For and Against

Proponents of the Health Insurance Act Proponents include the California Labor Federation, theCalifornia Medical Association, the Foundation for Taxpayer and Consumer Rights, the California Partnership, and Health Access. Save Your Healthcare, a coalition of doctors, nurses, consumers, teachers, and unions, has mounted a Yes on Prop. 72 web site. Supporters hold that the law is an essential first step toward addressing the health care needs of millions of uninsured Californians.

Opponents include the California Chamber of Commerce, Californians Against Government Run Healthcare (a coalition of numerous groups), and the Employment Policies Institute. Opponents object that the measure will lead to lost jobs, lower wages, and reduced benefits as businesses attempt to comply with the mandate.

Official Voter Information

Voter Information Guide

Campaign Finance: 
Individual Campaign Committees
Total Contributions and Expenditures (select "Nov. 2004 election" and "Prop. 59" in dropdown boxes)

Key Websites

Ballotpedia

League of Women Voters 

California HealthCare Foundation 
In accordance with its standard policy, the California HealthCare Foundation (CHCF) does not take a position on SB2 or the referendum to repeal it. 

HealthVote2004.orgHealthVote2004.org provides voters with facts and non-partisan analysis, as well as easy access to information on who supports and opposes the measures, who is paying for the campaigns, how much is being spent, results of statewide polls, and the latest news. HealthVote2004.org is a collaboration between two non-partisan, non-profit organizations-the California HealthCare Foundation and The Center for Governmental Studies.