The new Health Insurance Act of 2003, signed into law by Gov. Davis, requires many California businesses to either provide health coverage to part- and full-time employees or pay a fee into a state health coverage fund. Here’s a summary of the law.
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Pay or Play
Under the new law—dubbed “pay or play”—employees who work for employers with at least 50 employees may be required to pay no more than 20 percent of the cost of employer-provided health insurance, not including deductibles, co-pays, or other out-of-pocket expenses. Contributions by low-wage earners would be capped at five percent. Employees would be eligible for such coverage if they worked for the employer for a minimum of 100 hours a month for at least three months. Dependents of employees who work for large employers (200 or more employees) would also be eligible for insurance coverage. The health plan would have to meet coverage requirements set by law. And it would be illegal to reduce an employee’s work hours or to terminate and rehire a worker to avoid the measure’s obligations.The bill imposes a fee on employers to fund a new State Health Purchasing Program, which would provide health coverage to workers who don’t receive job-based coverage. However, the fee would be waived for employers that cover the 80 percent cost of health coverage directly.
Small-Business Exemption
Businesses with fewer than 20 employees are exempt from the new law. Those with 20 to 49 employees are currently exempt but would be covered if a special tax credit is established to help offset the health coverage costs.
What Will It Cost?
The financial impact of this legislation is yet to be determined. The bill’s backers estimate its annual cost to run around $1.3 billion, but critics say the actual cost is more likely to be around $5.7 billion. Fortunately, employers will have time to prepare because the new requirements won’t be phased in until 2006 (for businesses with 200 or more employees) and 2007 (for businesses with 50 to 199 employees).
Challenges Coming
In the meantime, legal challenges to the new law are already surfacing. Among other arguments, opponents of the legislation say it’s preempted by the federal Employee Retirement Income Security Act (ERISA), which regulates employee benefits and supersedes state laws that regulate benefits. We’ll watch for any developments.