Proposition 72: Agribusiness takes closer look at Health Insurance Act

On Nov. 2, California voters will be going to the polls. Among the myriad of issues to decipher, and decisions to make, stands Proposition 72. In this measure, California voters will be asked to approve or reject the Health Insurance Act of 2003, also known as Senate Bill 2 (SB 2), which was signed into law by Governor Gray Davis during his final days in office.

State-Purchased Healthcare Coverage.

The Health Insurance Act of 2003 (SB 2) establishes a “pay or play” system that requires California employers to make healthcare coverage available to employees who work a specified number of hours. Firms who fall under the SB 2 law will pay a fee to the state for state-purchased healthcare coverage for their workers, and in some cases their dependents. Or, firms can apply for a credit against the fee if they pay 80 percent or more of the premiums for existing coverage that meets the state's healthcare coverage requirements.

Specifically, SB 2 requires that firms with 200 or more California employees provide coverage for workers and their dependents beginning Jan. 1, 2006. Firms with 50 to 199 California employees are required to provide coverage for their workers beginning Jan. 1, 2007. Firms with 20 to 49 California employees will be phased into the program when a partial state tax credit is enacted. And, SB 2 calls for the California employees of these firms to be responsible for contributing up to 20 percent of the fee that the state charges their employer.

Costs to California businesses as a result of SB 2 are estimated between $1.3 billion to $11.3 billion. Costs to California employees could be $1.7 billion. Conservative studies reveal that the costs and risks of SB 2 far exceed its potential benefits.

A NO vote on Proposition 72 rejects this government-run healthcare system. A YES vote approves the legislation. If approved, California will become one of only two states in the nation with employer-mandated healthcare coverage.

The Uninsured - on its surface, SB 2 appears to offer relief.

The goal of SB 2 is to reduce the number of uninsured Californians by mandating employer healthcare coverage. Yet, according to research, the legislation will only affect about 1.1 million of California's 4.5 million uninsured population.

Here's why:

Nearly 3 million people (one Californian in 12) are not part of the workforce and lack healthcare coverage. SB 2 does not reduce this number.

Two-thirds of the state's workers who lack healthcare coverage work for businesses not covered by SB 2 (firms with 1 — 19 employees). They will remain uninsured.

It is believed that many workers (who are currently insured) will lose their jobs as a result of SB 2. They will lose their existing employer-sponsored healthcare coverage and the resources to purchase new coverage. Thus, they will join the ranks of the uninsured.

Labor Costs — SB 2 will drive the cost of doing business in California even higher.

SB 2 is expected to drive up labor costs and negatively impact employment. Businesses in California are already under intense pressure with astronomical workers' compensation costs, rising unemployment insurance contributions, and the new paid family leave program. If SB 2, essentially a new payroll tax, is passed by California voters, business owners will have little choice but to take some very aggressive measures. They may be forced to:

Minimize job creation.

Lay off current workers.

Cut back on worker hours.

Outsource services.

Automate job functions.

Use contract workers.

Additional Impact. Increasing labor costs will place a significant burden on agricultural employers in the state. California's agricultural industry is a top exporter to the world. In a highly competitive global environment, SB 2's multi-billion dollar healthcare tax will place an added strain on an industry that supports nearly 8 percent of the state's jobs.

Further, because the law applies to all employers, public education and non-profit organizations will be impacted. Public school teachers will not be directly affected, but nearly half of the employees of public education are non-teachers. Already financially strapped school districts will be required to pay the state fee or provide healthcare coverage for these employees.

“Pay Or Play” — Businesses might opt to “pay.”

Under the “pay or play” system, businesses may choose to “pay.” In particular, small- to medium-size firms could be drawn to the “pay” option for these reasons:

Reduces administrative costs.

Relieves the unwanted responsibility of choosing to cut costs, benefits, or jobs.

Reduces legal liability tied to providing opportunities for treatment.

If choosing to “pay” is a viable choice for employers, the risks to workers could be devastating. The immediate disadvantage is forcing workers to change from their employer-sponsored healthcare plan — which probably has some level of choice - to a state-run plan with little choice. Troubling when you consider that employee satisfaction is deeply connected to satisfaction with their healthcare plan. And that satisfaction is directly related to the number of choices available.

Changing health plans, particularly to a reduced-choice plan, significantly impacts doctor/patient relationships. Can they still exist? Then, consider adjusting medications to fit a new prescription drug plan.

Too, under the “pay” option, employees could be held responsible for contributing 20 percent of the cost of their health insurance premium.

Unintended Consequences.

A real concern for all Californians is the impact SB 2 will have on jobs. Specifically, the provisions of SB 2 add to the increasing cost of firms doing business in the state. Firms will respond by automating, outsourcing, and/or relocating as much of their operation as possible. Californians will lose jobs, and those who might have been hired will remain unemployed. The impact to the uninsured population: SB 2 will increase the ranks of the uninsured.


Our nation is in a healthcare crisis. An answer to the uninsured population clearly needs to be found. But with California's current economic difficulties, now is not the time to burden our businesses with employer-mandated healthcare coverage.

Bill Goodrich is president and CEO of United Agribusiness League (UAL), the united voice for the agricultural industry. He can be reached at [email protected].

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