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Schwarzenegger Offers Revised Health Reform Bill

All California residents would be required to obtain health insurance, either individually or through their employers, and the state would subsidize the cost of coverage for some individuals and families.

October 11, 2007
Related Topics: Medical Benefits Law, Benefit Design and Communication, Workforce Planning, Latest News
California Gov. Arnold Schwarzenegger has put his revised health reform proposal into bill form, and the legislation still includes both individual and employer mandates but ties employer contributions to a percent of payroll to provide some relief to small businesses.

The 222-page measure also calls for leasing out the state’s lottery to raise money to help pay for subsidies to poor workers and tax credits for employees earning up to 350 percent of the federal poverty level.

Also under the governor’s revised proposal, all residents would be required to obtain health insurance, either individually or through their employers, and the state would subsidize the cost of coverage for individuals earning less than $25,525 per year and for families whose annual incomes are less than $51,625. Individuals who do not qualify for the subsidies would receive income tax credits to ensure their health insurance costs do not exceed 5 percent of their annual income.

The governor also altered a provision in his original proposal that would have required employers with 10 or more workers to contribute 4 percent of their payroll to help fund universal coverage. Instead, employers that do not offer coverage would be required to contribute anywhere from zero to 4 percent based on their total payroll.

The proposal maintains guaranteed issue by insurers and phases in elimination of medical rating restrictions to protect consumers from significant rate increases based on changes in their health status. The new bill continues to require that insurers spend at least 85 percent of premiums on health care, a provision contained in the governor’s original proposal.

Although the new proposal does not prescribe a minimum coverage level, it requires that insurers structure benefits to promote prevention, wellness and healthy lifestyles and create diabetes, obesity and smoking cessation initiatives as well as establish an actuarially certified standard risk rate with limited variations for age, family size and geography. The new proposal directs the state secretary of health and human services to establish and adopt the minimum benefit level via the regulatory process.

Schwarzenegger’s new bill, like his original proposal, also requires employers to establish Section 125 plans so employees can pay for their insurance premiums and out-of-pocket medical expenses on a pretax basis.

The two Democratic lawmakers whose successful reform measure Gov. Schwarzenegger has threatened to veto praised him for putting his proposal into bill form that can be considered by the Legislature.

“I am pleased the governor will be putting his health care proposal into a bill that can be properly studied and evaluated,” said Assembly Speaker Fabian Nuñez, D-Los Angeles, in a statement.

“The governor’s wise in putting his proposal in legislation,” Sen. Don Perata, D-Oakland, also said in a statement. “It allows interested parties to make comparisons on the facts and merits. Central to the discussion is how to pay for it. We look forward to working on the details as they become public.”

However, the California Labor Federation criticized the plan for maintaining an individual mandate.

“The governor’s proposal still requires everyone to get health insurance, regardless of whether they can afford to buy or use it,” said Art Pulaski, secretary-treasurer of the Sacramento-based organization, in a statement.

“Under the governor’s proposal, employers would contribute as little as zero to 4 percent of payroll towards health care. By comparison, Wal-Mart, widely known to skim[p] when it comes to health care, contributes 7 percent of its payroll towards health care for employees. By advocating such a minuscule employer contribution, the governor is heaving the financial responsibility of health care onto the backs of working families,” Pulaski said in the statement.

The California Teachers Association did not comment regarding the part of the proposal that would lease out the lottery. Currently, proceeds from the California lottery are earmarked for education. The lottery provides schools with an estimated $1.1 billion per year in additional funding.

Republican lawmakers, who had criticized the governor’s plan for mandating that employers provide coverage, announced that they will be introducing their own set of bills to reform health care in California.

The Senate Republican plan will not mandate that all Californians buy health care coverage, according to a press release posted Wednesday on the Republican Caucus’ Web site. Instead, GOP lawmakers will propose tax incentives for individuals, doctors and businesses to alleviate financial obstacles to purchasing coverage voluntarily, the statement said.

The GOP plan is also aimed at reducing demand for expensive emergency room services by expanding low-cost clinics with an emphasis on preventive and primary care medicine, according to the release.

Filed by Joanne Wojcik of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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