Californians Beware: “Healthy” San Francisco’s Tax Hikes May Be Coming Your Way

Governor Arnold Schwarzenegger invested a lost year in health reform, allying himself with former Assembly Speaker Fabian Nuñez in support of a bill to increase taxes and spending on government-mandated health care by more than $12 billion annually. Fortunately for Californians, the bill stalled in the Senate, and the state’s budget crisis pushed health “reform” off the agenda, for now.

San Francisco Mayor Gavin Newsom has had an easier time of it. San Francisco’s Board of Supervisors unanimously passed the Worker Health Care Security Ordinance in July, 2006, creating “Healthy San Francisco” (HSF). Similar in principle to the Schwarzenegger-Nuñez deal, the measure seeks to achieve “universal” health care by taxing employers and workers who do not have health insurance. Like the Schwarzenegger-Nuñez bill, the justification for the tax is that uninsured patients flood into emergency rooms, don’t pay their bills, and become a burden on the taxpayer.

San Francisco General Hospital has become “Ground Zero,” and the city has increased taxes in order to bail out this taxpayer-owned operation. Just to be clear, the city has not reduced other taxes, such as property rates, to compensate for the taxes raised by the new ordinance. According to HSF’s skimpy records, it looks like employers paid in $17.5 million by the end of August, and employees were also forced to pay about half a million dollars in enrolment fees. All the money went to the city’s public health department and community clinics, therefore it remains unclear how much was used to provide preventive or timely acute care, delivered by private physicians.

Perhaps aware that HSF was about to be unmasked as a simple tax hike to fund an expanded government bureaucracy, Newsom declared in July that private hospitals had also decided to participate. Hospitals owned by Catholic Healthcare West, Sutter Health, and the University of California will treat patients enrolled in Healthy San Francisco. And get this: “The hospitals are providing services to HSF participants without reimbursement.”

The University of California can probably lose money without consequences, but the other two are private, non-profit, hospital systems. The commitment is likely little more than a PR stunt. HSF only had 25,000 patients in the first year, and probably only a small fraction of them needed expensive hospitalization. Of course, hospitals need all the good PR they can get. A report last January concluded that they receive millions of dollars of tax breaks without providing adequate charity care. But it’s still disturbing that they are playing along with the mayor’s pretension that his program is “free.”

San Francisco’s small businesses did not fall into line so easily. The Golden Gate Restaurant Association sued the city, claiming that the ordinance violates a federal law, the Employee Retirement Income Security Act (ERISA). This defense has worked to roll back similar laws elsewhere in the country, but the city has won the latest round of the legal battle, courtesy of a three-judge panel of the Ninth Circuit Court of Appeals.

And so, HSF grows without interruption. At the beginning of October, almost 31,000 San Franciscans were conscripted, of an estimated 60,000 eligible residents. Currently, the mandate corrals only those San Franciscans earning less than 300 percent of the Federal Poverty Level (FPL). The city wants to bump it up to 500 percent of FPL, which will conscript another 14,500 residents.

Mayor Newsom knows that the current tax burden will not fund the desired growth of government. He is upset with eight city supervisors and their allies who are promoting Proposition B, a ballot initiative that will allocate 2.5 cents of every $100 of property taxes for so-called “affordable housing.” According to Mayor Newsom, allocating this tiny fraction of property taxes to “affordable housing” will force heavy cuts to health care and other services.

Mayor Newsom is a potential candidate for governor in two years. Any Californian who thinks that the demise of Governor Schwarzenegger’s health tax hike killed the chances for expensive, bureaucratic, government-run health care in the Golden State had better be prepared for the next round.

John R. Graham is the director of health care studies at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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