Embattled California Gov. Gray Davis on Sunday signed legislation that will require large employers to provide health insurance coverage by 2006 or pay into a state fund.
Even if Davis is thrown out of office in the recall election Tuesday--which seems likely, according to polls--observers say it would be hard for lawmakers to undo the "pay or play" legislation, as many employers and Republican lawmakers hope.
Both houses of the state legislature have safe majorities of Democrats, who support the mandate. And a poll released Thursday by a coalition supporting the mandate shows support from 63% of Californians.
The law, the second employer mandate in the nation, after a longstanding Hawaii law, "should serve as a model for the rest of the nation," says Jack Lewin, M.D., CEO of the California Medical Association, in a statement.
Employers say their best hope to defeat the California law is through a legal challenge, not filed yet, on the ground that the law violates the federal Employee Retirement Income Security Act, known as ERISA, which prohibits state regulation of benefits.
California companies claim the law will cost them $11.4 billion a year and force firms to lower wages, cut benefits and lay off workers.
They say the law also will chase businesses out of California. As evidence, the Employment Policies Institute in Washington, D.C., reports that an unnamed Dallas restaurant group announced it was "backing away" from its planned purchase of Chevy's, a chain of restaurants with 58 outlets in California, citing the cost of the bill and "other increases in labor costs."
But the CMA, a main proponent of the bill, says the law will cost businesses $1.3 billion a year. It adds that only large employers, most of whom provide health insurance, would be affected by the mandate that would cover 1 million more Californians.
The mandate would apply to companies with 200 or more employees starting in 2006 and those with 50 to 199 employees by 2007. It also leaves open the possibility of mandating coverage for companies with 20 to 49 people if the state gives them a tax credit.
The CMA adds that the law would "level the playing field" by reducing costs for companies that provide insurance for uncovered spouses of workers, hospitals that provide uncompensated care and for California Medicaid, called Medi-Cal, which covers some uninsured workers.
The CMA estimates insurance premiums are inflated 15% to cover care for the uninsured and provide $620 million in savings to the Medi-Cal system.
In addition to the CMA, supporters of the mandate include the California Hospital Association, Kaiser-Permanente, Blue Shield of California, California Labor Federation, Safeway and Genentech.
For details on the bill from CMA, click here .
For a copy of the employer bill, click here.
