Schwarzenegger Health Plan Raises Doubts

Healthcare routinely ranks No. 1 in polls that gauge the concerns of small-business owners. But there has been some head-scratching this week after California Gov. Arnold Schwarzenegger unveiled his plan to ensure that everyone in the state has health insurance. The impact on small business is far from clear, and the fallout will depend largely on a company's makeup.

As proposed, the plan would require companies with 10 or more employees to pay at least 4 percent of payroll for health insurance or to pay that amount into a general pool. Companies with fewer employees, which the governor's office says make up 80 percent of state businesses, would be exempt. Still, they would have to pay a modest annual fee to help the state provide employee health coverage.

The plan spreads the "poison" around, says Scott Hauge, president of Small Business California, an advocacy group. As the proposal stands, it would benefit many employers that already pay more than 4 percent of payroll for healthcare. It would force competitors to do the same. But employees at some smaller companies, especially those who suffer from the "invincibility-of-youth syndrome," don't want health insurance. Instead, they ask their boss to just hand them the cash. So, in those cases, the plan would force employers to pay for something that's just going to upset employees, says Hauge.

The real trouble for small business may be what comes next, he says. The plan promotes preventive healthcare, which could lower health costs overall. But some small-business lobbying groups worry that while the payout might start at 4 percent, that figure could spiral higher if costs rise. They're also concerned that the Legislature might lower the number of employees that would qualify a company from 10 to, say, five or even one.

Lobbying groups on both sides will weigh in on the controversial plan, making it unlikely that it will be enacted this year. "But it starts the framework for discussion," says Hauge.