Gov., Nunez forge a health plan

Families earning more than that but no more than four times the poverty level -- $82,600 for a family of four -- would be able to fully deduct any premium costs that exceed 5.5% of their incomes, which translates to $4,543 for a family at the top of that range. There would also be tax credits for people who retire before they qualify for Medicare at age 65 so that they would not spend more than 10% of their savings on insurance.

Under the plan, California employers with payrolls of up to $250,000 a year would have to spend at least 1% on healthcare for their workers. Those that didn't would pay into a state-run health insurance pool that would help secure coverage for the employees. Companies with payrolls up to $1 million would have to pay 4% and those with payrolls up to $15 million would have to pay 6%. All larger companies would pay 6.5%.

The plan would extend coverage to 800,000 low-income children and many impoverished adults who currently do not qualify for public programs. It would omit about 1 million illegal immigrants as well as another 500,000 people who are poor but either refuse public coverage or cannot document that they are legal residents.

The bill the Assembly will consider Monday would upend the way California's insurance market works. Insurers would be barred from denying coverage to people because of existing medical ailments and would have to spend at least 85% of premiums on medical care.

Many insurers, including Kaiser Permanente and Blue Shield of California, have supported this approach for months, but the state's largest insurer, Blue Cross of California, is preparing to fight the ballot measure.

The plan also contains a $2.3-billion tax on hospitals, supported by the industry, that would pay for increased MediCal payments to doctors and institutions that treat the poor. That tax would also qualify California to draw another $2.3 billion from the federal government.

Those involved in the negotiations said the only major piece still to be ironed out is the tax on tobacco. Schwarzenegger and Nunez have been negotiating with the tobacco companies to see if they can craft the provision in a way that will win their acquiescence, if not their support. But aides said they are also still discussing whether $1.50 a pack will be enough to fund the plan, or whether they will need $2 a pack -- an amount tobacco industry leaders say they will oppose.