Only two days before the California recall election, Gov. Gray Davis took hand to pen and signed SB2, a law requiring most employers to provide health insurance to employees and their families. In a sea of media attention filled with sexual improprieties, Indian gaming contributions, and an unpopular automobile tax - not to mention a porn queen and movie stars - SB2 barely caused a ripple.

The law is based on an employer-required health insurance program in Hawaii that was put into practice nearly 20 years ago. But now, as the reform hits the mainland, California’s action could become a tidal wave felt across the nation, including Wisconsin. In fact, a Wisconsin Medical Society taskforce last year supported just such a proposal, to be phased in over a five-year period.

California’s law requires employers with 20 or more employees to offer individual health insurance. Those with 200 or more employees must offer family health insurance.  Employers must pay 80 percent of the premiums or pay into a state-run system.

The business community contends that such a requirement would bankrupt businesses, force them to move across state lines, lay off employees, and raise prices.  As a last-ditch effort, business leaders in California collected enough signatures to place a measure on the March 2 ballot that would stop the implementation of SB2.

But a UC-Berkley study released days before the California legislative vote showed 64 percent of employers supported such a mandate.  Even more striking, 59 percent of the employers who did not presently offer health insurance supported the concept. The Berkley study showed that 90 percent of employers who did not offer health insurance were in industries where their competitors did not offer insurance.

Health insurance is at the heart of California’s protracted grocery workers’ strike.  But when it came to opposing SB2, many grocers did little to fight the bill.  Grocers, faced with increased competition from discounters like Wal-Mart who do not offer heath insurance for most of their employees, reasoned that SB2 would force discounters to play by the same rules.

Currently most Wisconsin workers are covered by employer-based health insurance. But rising health insurance costs can force employers to drop insurance. Once the abandonment begins, the spiral downward can happen quickly – particularly in non-union companies – with employer after employer choosing to drop coverage.

The business community has its concerns. Service-sector industries see mandatory health insurance as destroying their businesses.  But higher-paying employers worry about the cost of health insurance that they already offer.  The cost of insurance may drive more good jobs out of Wisconsin, jobs we must keep.  If they leave, service industries will have no one to service.

The rising healthcare costs for both private and public employees are partly due to the lack of insurance offered in the private sector.  Medical providers engage in “cost shifting” – charging more to those who carry health insurance to recover the costs of those who don’t.

Employer-required health insurance has great appeal to legislators because they believe it extends health insurance and may lower taxes.  That is because cost shifting contributes to the rise of public employee health insurance costs paid for by your taxes.  Medicaid and Medicare also cause cost shifting because providers claim that federal programs do not adequately compensate for services rendered.

Of course, employers who would be required to provide health insurance will see it as a huge tax increase.  But it is Joe Average looking at his tax bills that votes on Election Day. 

In a study for Milwaukee’s Public Policy Forum, economist Merton D. Finkler of Appleton’s Lawrence University, concludes that cost shifting in the metro area is a symptom rather than the cause of the problem.  In Milwaukee, healthcare providers shift costs because they can.

Finkler contends that employee shortages of the 1990’s forced employers to offer better health insurance benefits abandoning managed-care.  At the same time, Milwaukee experienced a consolidation of healthcare provider networks.  Today Milwaukee’s healthcare costs are driven handful by a of networks dominated by medical specialists. Pay their prices or don’t access their networks.  These providers have been more interested in gobbling up competitors than laying out capital necessary to create efficient systems. Finkler advocates larger employer-based buying pools to counter the power of the healthcare provider networks. 

Getting healthcare networks to cooperate with buying pools may be a tough sell without government support. Yet providers are unlikely to embrace cost controls by the heavy hand of government just as employers may see employer-required health insurance as an insurance Berlin Wall trying to keep employers in the system rather than enacting incentives to stay. 

But timid measures won’t do. Bold action is needed if we wish to preserve our employer-based system, the very core of our health insurance program.

(This article first appeared in Milwaukee Magazine, “Endgame,” March 2004.)

Update: Efforts to overturn the employer-required insurance law failed in California.