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San Francisco health care tax appealed to Supreme Court

February 15, 2008

An association of restaurant operators in San Francisco has asked the U.S. Supreme Court to overrule a decision by the Ninth U.S. Circuit Court of Appeals allowing the city’s health insurance employer mandate law to go into effect. It will be best for all of San Francisco if the Court sides with the association on this one.

The association is seeking reinstatement of a federal judge’s ruling that the city’s Health Care Security Ordinance conflicts with the Employee Retirement Income Security Act (ERISA), a longstanding federal law addressing government regulation of employee benefits.

On December 26, U.S. District Judge Jeffrey White ruled the ordinance violates ERISA. White’s ruling temporarily halted 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.

On January 9, a three-judge panel from the Ninth Circuit stayed White’s ruling, pending a full review of the case, and San Francisco’s “pay-or-play” mandate was allowed to go into effect.

Healthy San Francisco requires 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 employees to spend $1.76 per hour, either on their own plan or in payments to the city.

Until the end of 2007, the program catered exclusively to individuals whose income was at or below the poverty line. In his quest to make San Franciscans’ health care solely the purview of the government, Mayor Gavin Newsom is seeking to use the revenue generated by the mandate to expand Healthy San Francisco incrementally until it includes all of the city’s 82,000 uninsured residents. The program is designed to make switching from private insurance to taxpayer-funded health care a viable option for those who already have coverage.

While ensuring affordable health care for all San Franciscans is a laudable goal, expanding government control and forcibly taking money from businesses to fund a one-size-fits-all government program is the wrong way to go about it. Newsom’s Healthy San Francisco expansion will harm both individual San Franciscans’ health care and the city’s economy.

Businesses would have to recoup the money they were forced to spend on health insurance as a result of this mandate by cutting wages, laying off employees, raising prices on goods and services, or forestalling needed investments and dividend payouts.

Businesses do not have endless supplies of capital, after all, so they have to compensate for money lost in any one area by making (or saving) money in another. Preferring to avoid the hardships associated with increased payroll and tax costs, many businesses based in the city may simply decide “enough is enough” and relocate to places that don’t subject them to laws regulating their employees’ benefits and forcibly take resources from them if they do not comply.

Another problem with the program is that other players in the health insurance market will be pushed out by the government-run alternative, the one program backed by a guaranteed funding source, since government is the only organization that can legally force others to contribute. This will stifle innovation and quality in health coverage because with no serious competitors in the marketplace and a legally guaranteed source of funding, the government monopoly will have no reason to innovate or improve—it can’t lose customers unless they take the big step of leaving the city.

This situation is being watched closely by city and state governments across the nation. If the Supreme Court refuses to take up the case or decides San Francisco can indeed require employers to offer health benefits or be forced to pay stiff penalties, copycat programs could sweep across the nation in a very short period of time, destroying health care markets everywhere.

This would be catastrophic for state and local economies and would cause even more problems for America’s health care system by replacing what’s left of the market system with a patchwork of government-regulated and -controlled programs that stifle innovation and reduce the quality of care. A win for Healthy San Francisco could lead to a very unhealthy nation.

Jeff Emanuel is a fellow with The Heartland Institute and managing editor of Health Care News.


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