The Economic Impact of Proposition 72 on California Employers

On January 1, 2006, California businesses will be subjected to one of the most costly and inefficient pieces of labor law legislation ever created. California’s Senate Bill 2 (referred to in this study interchangeably as SB 2, the Health Insurance Act of 2003, HIA, and Proposition 72) requires all employers in California with more than 20 employees to provide full medical insurance for their employees. This study estimates the costs—both in terms of dollars and jobs—of this devastating legislation. Overall, Dr. Yelowitz estimates that SB 2 will cost California employers between $12.4 billion and $12.9 billion a year. In addition, SB 2 will destroy between 67,000 and 150,000 jobs.

There is currently a ballot initiative (Proposition 72) before the voters that will decide the ultimate fate of this legislation. This study provides California residents and policymakers with the most complete and up-to-date accounting of the costs while evaluating the divergent cost estimates of this legislation. The range of these estimates stems primarily from the incomplete and inaccurate attempts (of other authors) to determine the far-reaching coverage of SB 2.

Many supporters of SB 2 claim that the legislation affects primarily the uninsured, but this group actually makes up only a small portion of the spending under SB 2. The largest group of employees who are affected already have employer-provided insurance; the cost is created by firms having to meet the rich mandated benefit package established under SB 2.

As employers react to these dramatically higher costs by decreasing employment, many of these employees who have insurance will face decreased employment opportunities. The poor targeting and high cost of SB 2 means that it will cost over $6,600 per newly insured individual, significantly more than the cost of coverage. The majority of spending will not benefit the uninsured, and the majority of the uninsured will remain without coverage. As this study shows, SB 2 will do little to address the problem of the uninsured while doing a lot to hurt California’s least-skilled employees.

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