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San Francisco “play or pay” mandate will negatively affect economy, health coverage for residents

January 7, 2008

The day after Christmas, US District Judge Jeffrey White ruled that San Francisco’s attempt to expand its public health care initiative violated a federal law regarding government regulation of employee benefit plans. Judge White’s ruling halted the implementation of a mandate, scheduled to go into effect on New Year’s Day, that would have required employers to offer their employees health coverage or pay to support “Healthy San Francisco,” the city’s health care program.

The mandate struck down by Judge would have required every business in the city with between 20 and 99 workers to spend $1.17 per employee per hour for health care benefits, and those with more than 100 to spend $1.76 per hour, either on its own plan or in payments to the city.

Until the end of 2007, Healthy San Francisco catered exclusively to individuals whose income was at or below the poverty line. However, in his quest to make San Francisco’s health care apparatus solely the purview of the government, Mayor Gavin Newsom had planned to use the revenue generated by the mandate to expand the Healthy San Francisco program to incrementally include all of the city’s 82,000 uninsured residents, as well as to make switching from private insurance to taxpayer-funded health care a viable option for San Franciscans who already possess coverage.

While providing affordable health care for all San Franciscans is a laudable goal, expanding government control over health care and forcibly taking money from businesses to fund government programs is the wrong way to go about achieving that end. Instead, should Mayor Newsom's "Healthy San Francisco" expansion be funded as originally planned, San Franciscans will experience very negative results, both in economic terms and in terms of the health care they receive.

The money businesses would be forced to spend on health insurance for employees (or to pay to the city) as a result of this mandate would be recouped by cutting wages, laying off employees, and raising prices on goods and services. Contrary to what seems to be popular belief, businesses and corporations do not have endless supplies of capital; in order to avoid going so far into debt that they can no longer afford to stay in business, companies have to compensate for money lost in any one area by making (or saving) more money in another. In the interest of avoiding the hardships associated with increased payroll and tax costs, businesses based in the city may simply decide that “enough is enough” and relocate to places where they are not subject to laws that regulate the amount of benefits they provide to their employees and forcibly take resources from them if they do not sufficiently comply.

Further, other players in the health insurance market will be pushed out by their government-run alternative, which is the one program backed by a guaranteed funding source, since government is the only organization that can legally force others to contribute to it monetarily. The result of this narrowing of the market will be the creation of a health coverage monopoly in the city, leaving consumers with no choice whatsoever in who provides their health care. This creation of a monopoly will also have the effect of stifling innovation and quality in health coverage, as, with no competitors in the marketplace and a guaranteed-by-law source of funding, the single-carrier government program would have no reason to innovate or improve, since its customers – absent relocating from the city – would have nowhere else to go for coverage.

The City of San Francisco has appealed Judge White’s ruling to the Ninth U.S. Circuit Court of Appeals, consistently the most overturned circuit court of appeals in the country, in hopes of having the “play or pay” mandate reinstated, despite the fact that it appears to be a clear violation of federal law. Rather than wasting more of its residents’ money on this appeal, though, Newsom and the government of San Francisco should take the District Court ruling for what it is: an opportunity at a second chance.

The government and the taxpayers of San Francisco have been granted more time to think about what this expansion would do to the city's economy and to its health care market. They should use that time wisely, and act now to bring about real, market-based – not government-based – solutions for those among them who are currently without health care.

Jeff Emanuel is Research Fellow for Health Care policy at The Heartland Institute and is managing editor of Health Care News.

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