The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Nearly Half of Employers Already Exceed ABX1-1 Payroll Tax

Posted by Alan on January 16, 2008


The health care reform legislative/initiative combo being advocated by Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez raises a significant amount of it’s $14.4 billion price from employers. California firms would need to spend a specified amount of their payroll on health benefits for their workers or pay a tax to the state. The tax rate ranges from one percent-to-6.5 percent, depending on the size of the payroll. Employees of fee-paying companies would either obtain coverage through a state-run purchasing pool or buy individual coverage. There’s a variety of incentives, however, for most workers to buy through the state’s pool.

Some business groups have charged the payroll tax will cost California jobs and drive businesses from the state. Supporters argue it’s a means of leveling the playing field between employers who provide health care coverage and those who don’t.

The University of California at Berkeley Center for Labor Research and Education is doing a study on the impact of the tax on California payrolls. The folks at Health Access obtained, and were kind enough to post, a preliminary report on the study.

The report contains some interesting statistics, but to get to the bottom line on the tax’s impact on bottom lines: the report’s authors find that “nearly half of all firms (47.3 percent), which account for 54 percent of the workforce, would be required to make no additional payments under the proposed initiative ….”  They predict 82 percent of firms would make payments of less than 1 percent, another 16.6 percent would pay 1.01-to-4.00 percent more of their payroll on health benefits, and only 1.7 percent would pay more than four percent.

There’s a lot of averaging going on in the study. The impact on any particular business could be substantial, but when that pain is spread all enterprises it looks less severe. And, I posted yesterday, there’s a very real possibility the payroll tax rates will be inadequate to fund health care expansion before ABX1-1 is ever implemented.

Both proponents and opponents of the health care reform package will find ammunition in the UC Berkeley Labor Center study. What’s most encouraging is that these issues are finally being addressed — in detail and in public.

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