LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

Senate Bill 2

Budget Lacks Funding to Implement Health Insurance Expansion Measure

The Governor's budget proposal does not include funding to implement recent legislation creating a "pay or play" system to expand health coverage for employees and, in some cases, their dependents. The legislation went into effect on January 1, 2004, but was put on hold by a pending referendum that is now expected to be decided by voters in a November 2004 statewide election. We recommend that the administration provide the Legislature with information at budget hearings on the funding and personnel that might be needed in 2004-05 to implement the new law.

Background. In 2003, the Legislature approved and the Governor signed SB 2 (Chapter 673, Burton), which enacted a pay or play system of health coverage for certain employers. Under the measure, specified California employers would be required to pay fees to the state commencing in 2006 to provide health insurance for their employees and, in some cases, for their dependents. Alternatively, the employer could choose to arrange directly with health insurance providers for coverage for these individuals. The measure would also establish a state program to assist lower-income employees to pay for their share of health care premiums.

Senate Bill 2 took effect on January 1, 2004. However, opponents of the measure collected and submitted signatures for a referendum that would put SB 2 to a statewide vote of the public. Supporters of SB 2 contested the legality of the referendum in court. In January, a state appellate court ruled that the referendum effort was valid and placed the measure on the November 2004 ballot. (At the time this analysis was prepared, an appeal of that decision remained a possibility.) Because the referendum qualified for the ballot, SB 2 was put "on hold" and will take effect only if subsequently upheld by voters. If it were approved by voters, SB 2 would take effect immediately.

Advance Activities Required to Implement Legislation. Our analysis indicates that three state agencies—the Managed Risk Medical Insurance Board, the Department of Health Services, and the Employment Development Department—bear major administrative responsibilities related to the implementation of SB 2. Although some components of the new programs established by the measure would not commence operation until 2006, these agencies would require resources during 2004-05 for work related to establishing new information technology systems, program regulations, and staffing in order to implement a number of provisions of SB 2.

Senate Bill 2 does not include an appropriation for these administrative activities, and the Governor's budget plan also does not provide funding to any state agency for this purpose. The administration has indicated it did not include funding for SB 2 in the budget because of the referendum.

Analyst's Recommendation. Because it is possible that SB 2 will go into effect during the budget year, the administration should be directed to provide the Legislature with information at budget hearings regarding the funding and personnel that might be needed in 2004-05 for administrative activities to implement the new law.

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