Employment Update
September 2004

No On Proposition 72


Campaign Gears Up to Repeal Mandatory Employer Provided Health Insurance Law


California voters will have the opportunity to vote to reject this controversial law in the upcoming November election. It is extremely important that voters realize the severe negative impact that the medical insurance requirement will have on Californiaıs businesses.

SB 2 was enacted by former Governor Davis in October 2003, just two days before he was voted out of office. Over 620,000 signatures were gathered to qualify SB 2 for a ballot referendum, as Proposition 72. SB 2 requires companies with 200 or more employees to purchase health insurance for workers and their families, starting January 1, 2006. Medium employers, defined as a public or private entity that employs 20 to 199 employees in California, must begin offering coverage as of January 1, 2007. While the idea of providing health insurance to more employees and their dependents sounds good to many, an in-depth examination of the way this law will be implemented reveals numerous problematic issues for employers, including small businesses, non-profits and school districts, which affect all Californians.

An "employer" is defined broadly in Proposition 72, and includes public entities such as schools, counties and cities, as well as non-profits. These entities are already struggling to manage cut-backs in state funds and donations. Non-profit and school budgets will not be able to absorb this additional fiscal burden, without further reducing the important programs they offer to adults and children who really need them.

This mandatory program will affect all employees, even those who are currently covered by health insurance that is paid for by their employer. Large employers (public or private entities that employ 200 or more persons) will have to pay 80% of the cost of medical insurance coverage for eligible employees and their dependents. Proponents of this law state that more people will be covered by insurance. However, employees may have to pay more for less coverage. Employers who currently pay 100% of their employeesı premium may be forced reduce their contribution to 80%, in order to afford coverage for all of their employees.

Supporters of Proposition 72 will say it is not intended to diminish any medical coverage already provided pursuant to collective bargaining agreements or employer sponsored plans that are already in effect. The fee paid by employers will be based on the cost of coverage for all enrollees and their dependents. Employers will be given a credit for employees that are already covered by pre-existing insurance. However, employers may not receive a credit until the end of the year. In the meantime, the employer must pay a fee for all of its employees. Most small businesses cannot afford to front these insurance costs. This may cause employers to convert current coverage of employees from pre-existing health insurance plans to the government program. Employees may end up paying up to 20 percent of the health insurance cost, even if the entire cost of insurance was previously paid for by their employer, and even if they donıt want the coverage or cannot afford it.

Part-Time Employees Are Eligible for Coverage. Employees who work at least 100 hours per month are eligible for coverage after 90 days of employment. Therefore, part-time temporary employees, who work at least 25 hours a week, would be required to be covered by medical insurance. For many employers, particularly in the restaurant and retail industry, this means that it would be too costly to have numerous part-time positions. A lot of these retail and restaurant positions offer flexible schedules for people who need one such as students, parents, and others who work a second job, for additional income. In order to afford the health insurance requirement, the workforce will need to be reorganized and many such positions will be eliminated out of necessity. Wages may also decline to absorb the cost of health insurance. In California, where it is already expensive to live, no one can afford a reduction in income.

Jobs will be lost as companies restructure to manage the increased health insurance costs. Businesses may have to lay off employees to afford healthcare coverage for existing employees. Proponents will argue that Proposition 72 makes it unlawful for an employer to circumvent the requirements of Proposition 72 by designating an employee as an independent contractor or temporary employee; reducing an employeeıs hours of work; or terminating and then rehiring an employee. Employers face a penalty in the amount of 200 percent of any fee that would have otherwise been paid. The threat of a penalty will make it difficult for employers to restructure their operations to manage the increased cost of the mandated health coverage, but it will happen out of necessity.

Californians Must Pay for Another Government Program. The State Health Purchasing Program will be managed by the newly created Managed Risk Medical Insurance Board ("the Board"). The Program will pool fees paid by employers and enrollees to purchase health care coverage. The Board will not self-insure the health care benefits. This Program does nothing to reduce the rising health insurance premiums. The creation of this Board will result in yet another layer of expensive government bureaucracy--paid for by fees imposed on employers and employees. As health insurance premiums continue increase, the employeeıs share of the premium will also go up.

Every employer should evaluate the potential cost of covering eligible employees and assess the impact of Proposition 72 on their business. While most people in California and nationwide acknowledge that there is a healthcare crisis, with spiraling medical insurance costs, limited access to medical care and numerous uninsured people, forcing employers to shoulder the burden of supplying coverage does little to fix these major problems with the health care system in our country. In California, the increased health insurance costs, in addition to the high workerıs compensation premiums, will force many employers out of business. Californiaıs fragile economy will face additional barriers to achieving economic recovery.

What Can You Do? Tell your friends, family members and co-workers about Proposition 72, and encourage them to visit www.noprop72.org to learn more about how important it is to defeat this measure.

  • Put a No on 72 sign in your window.
  • Place an article in your company or organization newsletter.
  • Send a letter to potential campaign supporters.
  • Place a No on 72 graphic and link on your web site.
  • Pass a resolution against Prop 72.

To join the No 72 campaign or obtain additional information, please contact Californians Against Government Run Healthcare, a Committee Against Proposition 72 at (916) 443-3354 or look up the website www.noprop72.org. The California Chamber of Commerce, the California Restaurant Association and the California Retailers Association, numerous non-profits, major newspapers and many others are working to actively support the No 72 campaign.

This update is only a summary. The Law Offices of Peter A. Singler can help you understand the full impact this proposed law may have on your business. If you have any question, please contact Sandra G. Wickland at (707) 823-8719 or SGW@singler-law.com.


Law Offices of Peter A. Singler copyright ©1999-2004.