Tax To Pay For Schwarzenegger's Health Reforms

by Mike Godfrey, Tax-News.com, Washington

10 January 2007

California Governor Arnold Schwarzenegger has proposed that companies must pay new taxes as part of a plans aimed at reforming the state's healthcare system.

In a speech delivered on Monday, Schwarzenegger said that his reforms would fix California's "broken" health care system by addressing the hidden costs that result in billions of dollars in higher premiums and taxes.

In a bid to raise an additional $10-$15 billion for hospitals and health services, Schwarzenegger's plan calls for the introduction of a 4% payroll tax, or "in-lieu fee," on companies employing ten or more people who do not provide health insurance coverage. The smallest businesses, making up 80% of California's total, will be exempt.

In addition, a coverage dividend of 2% on doctors and 4% on hospitals will be assessed to help cover the increased Medi-Cal rates.

Furthermore, the more than 1 million Californians earning 250% of of the federal poverty level would effectively be forced to provide their own health insurance.

"Unpaid medical bills mean billions of dollars in hidden taxes for the rest of us because those services all have to be paid for. So we pay higher deductibles, costs for treatment, premiums and co-pays," said Schwarzenegger.

"Nearly three million people in California whose jobs do provide coverage turn it down because they think they're healthy and don't need it, or they don't want to pay their share of ever-higher premiums. We have to aim high and attack the entire system from top to bottom. We can create a model the rest of the nation can follow," he added.

Schwarzenegger cited a recent New America Foundation white paper which estimated that the average family pays about $1,186 a year in "hidden taxes" through health insurance premiums to cover the uninsured.

The governor's plan would align state tax laws with federal laws by allowing persons to make pre-tax contributions to individual health care insurance Health Savings Accounts. It would also require employers to establish "Section 125" plans so that employees can make tax-sheltered contributions to health insurance and save employers additional FICA contributions.

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