The best-known constraint is the two-thirds vote requirement for tax increases, added as Article XIIIA of the Constitution by Proposition 13 in 1978.  The threshold argument is whether the various payroll or provider levies are “fees” or “taxes.”  If legislation is passed by a majority vote and signed by the Governor, and a court finds the levies are indeed “taxes,” then the financing structure for the legislation will be invalidated and – if the coverage expansions are crafted as entitlements – the state budget would be liable for financing the entitlements.

As further noted by the California Supreme Court in the Sinclair Paint decision, the determination of whether a levy is a fee or a tax is based upon its operation and intent, not upon its label. Fees serve to reimburse the state for specific costs associated with providing some benefit, service, or regulation, and cannot require the collection of more than the amount reasonably necessary to cover the cost of the state’s regulatory activities.

The key distinction between a tax and a fee is that a true "fee" is an exaction on a person or business in exchange for (1) a direct benefit to the fee payer, (2) to mitigate a harm caused by the fee payer, or (3) to pay for a regulatory program directly related to the fee payer's activities.

It seems that under the most generous interpretation, that the only proposal that might qualify as a “fee” would be the levy on hospitals, since virtually every hospital does at least some Medi-Cal business or provides uncompensated care.  The same could certainly not be said for physicians, many of whom do exclusively private or Medicare business.

The employer pay-or-play mandates - a 4% payroll tax proposed by the Governor and a 7.5% payroll tax proposed by legislative leaders - also fall far short of the nexus test.  These "services" procured by these levies do not directly benefit the employer-payer, after all, the health care is received by the employee.  And for that matter, the health care benefit ultimately received via this fee may be at the expense of salary increases or other other forms of compensation, undermining the argument that the employer will benefit from a better-compensated workforce. 

In addition, the "benefits" of the fee supported health care pool are poorly targeted to the employer-payer's employees.  It is highly likely that many individuals who will receive subsidies from a fund financed by employer fees will not be employees of fee-paying employers:  the unemployed uninsured or uninsured employees working for exempt employers.  On the other hand, employers who do not offer coverage and pay the fee may have employees who do not take advantage of the subsidy: high-wage employees, part-time workers who receive health care from another employer, or workers who are on their spouse’s or partner’s health insurance. 

The nexus between the fee paying employer and any benefit is too tenuous to qualify as a fee.  For a pay-or-play payroll tax to survive a constitutional challenge, it should be approved by a two-thirds legislative vote (or a vote of the people).