A truly rotten export

Original Article:

  • Author: Craig Garthwaite

  • Publication Date: October 2003

  • Newspaper: Orange County Register

  • Topics: Health Care

In recent years, the nation’s governors have gotten used to looking at California’s troubles with a mixture of relief and smug self-satisfaction. But as Gov.-elect Arnold Schwarzenegger worries how the Golden State will ever be able to afford the Health Insurance Act (SB 2) signed by Gov. Gray Davis in his administration’s twilight hours, he is far from the only state chief executive who should be concerned.

Davis’ handiwork mandates that every California business with 20 or more full-time employees must provide employee health insurance. The cost, according to former UCLA professor Aaron Yelowitz, a nationally respected health and labor economist at the National Bureau of Economic Research, is a cool $11.4 billion a year.

Emboldened by victory in California, the AFL-CIO is now seeking to make the legislation a national model, devoting resources to a concerted campaign for similar legislation in 25 other states. The policy also has champions in the nation’s capital. Powerful Sen. Edward Kennedy, D-Mass., has called it a “model for the nation.”

If the California campaign is replicated in other states, governors across the nation are about to be bombarded with misleading statistics and half-truths. As in California, it will take a very deceptive campaign to keep hidden the truth about the cost of this proposal.

When pressing their case in Sacramento, the legislation’s supporters issued their own grossly underestimated analyses of SB 2’s costs. One study, by the University of California’s Institute for Labor and Employment, went as far as to characterize the switch in 650,000 Medicaid recipients from that government-funded program to employer coverage as somehow yielding a “savings.” Interestingly, once Yelowitz published his analysis, pointing out this $675 million would instead become an employer cost, the “savings” claim disappeared from the institute’s Web site.

In addition to the fuzzy math, supporters of SB 2 used a classic dishonest ploy to try to manufacture momentum by suggesting the new California employer mandate had precedents in Oregon and Washington. In fact, neither state mandates employers to pay for employee health insurance.

Yet another dishonest strategy first tried in California involved claiming support for SB 2 among the business community. The bill’s advocates publicized a survey which claimed 64 percent of “business respondents” supported employer-mandated coverage. But a closer look at the survey found that a mere 9 percent of those polled actually owned companies that would be paying the bill.

No wonder. Consider Russ Clark, who owns three Carl’s Jr. restaurants in Northern California. His firm offers health insurance to his 20 managers and their assistants, but not to the 100 employees they oversee at his three franchises. The monthly cost of insuring his 20 managers is $6,100. “If I added another 100, that’s an additional $30,000 a month,” Clark says.

How would he meet this challenge? Clark says he would have to sell 150,000 more burgers (average price $2) each month to meet this new obligation. Given that he’d have to sell 1,600-plus more burgers per franchise per day to cover the SB 2 tab, that’s an impossible task.

In the wake of Davis’ ouster and Schwarzenegger’s victory in the Oct. 7 recall, much has been made of California’s long reputation as a trendsetter for the nation. Plainly, when it comes to SB 2, it’s the hope of the AFL-CIO and the law’s champions in Congress that the Golden State again leads the way.

So governors struggling to balance the books while trying to avoid further damaging their flagging state economies should take note: Costly employer health insurance mandates modeled on California’s new law could be arriving on their desks shortly.

The message they should take from California’s experience? Be vigilant – starting with keeping a close watch for health care crusaders bearing false data.