At the height of the Great Depression of the 1930s, nearly one-quarter of the nation's work force had lost their jobs, causing great hardship. There was no mandatory unemployment insurance system in the country. Prior to that time, unemployment insurance had been considered a rather wild idea. In public discussions, opponents invariably charged that only college professors believed in unemployment insurance.
Public attitude changed when the Depression caused a national unemployment rate of 24.9 percent, compared to average present-day rates of approximately 5 percent. In the presidential election year of 1932, candidates for public offices were sensitive to the plight of the unemployed - a sizeable bloc of voters. A campaign promise, part of the national platform of the Democrats, was to provide unemployment insurance by means of state laws.
Franklin Delano Roosevelt was elected president and, as part of the New Deal, Congress began seriously to consider developing a compulsory unemployment insurance system.
Much of the argument against the 60 bills introduced in state legislative sessions in the early 1930s centered around "interstate competition." No state wanted to put a tax on the payrolls of its employers to pay the cost of unemployment insurance benefits unless all states did. The question for the president and Congress became "how can all states be persuaded to impose a tax to pay for jobless benefits?"
Congress provided "a carrot and a stick" approach in the Social Security Act that it passed in 1935. The act imposed a federal excise tax on employer payrolls, but made no provision for payment of unemployment insurance benefits. However, if a state enacted a law which called for a tax on payrolls to finance benefits, then employers in that state would be excused from paying 90 percent of the imposed 3 percent federal tax. The remaining 10 percent of the tax would be used to pay the cost of administering the state unemployment insurance laws.
The approach worked. No state was willing to see payroll tax dollars go to Washington, D.C., with no funds returning to help its unemployed workers. As a consequence, all states enacted federally approved unemployment insurance laws. California was the fifth state to do so. The California Legislature, anticipating what Congress would do before the end of 1935, passed the Unemployment Reserves Act of 1935 (now called the California Unemployment Insurance Code) almost two months before Congress passed the Social Security Act of 1935. The payroll tax became effective January l, 1936. The safety net of unemployment insurance benefit payments became effective in California in 1938.
The original law specifically excluded certain employers from mandatory coverage. Among those excluded were nonprofit hospitals. Thereafter, for more than three decades, employees of nonprofit hospitals received no benefits if laid off unless their hospitals had elected coverage and paid the tax required of for-profit employers by state law. (Only 67 hospitals in California elected this voluntary coverage.)
During this same period, the mid-1930s, the California Hospital Association (CHA) was organized as the trade association for California hospitals, most of which were nonprofit. Since the law exempted nonprofit employers from the obligation to provide unemployment insurance coverage for its employees, this area of law was of little interest to CHA or to most of its members (other than those few hospitals that had voluntarily elected to provide unemployment insurance coverage). Thirty-five years passed before hospitals had to address this subject seriously. In 1970, Congress passed a law extending mandatory unemployment insurance coverage to employees of nonprofit organizations, effective January 1, 1972. The law allowed two methods of coverage for this obligation: (l) paying taxes in the same manner as for-profit employers, or (2) reimbursing the state fund for the cost of actual UI benefits paid to former employees (self-insurance). Nonprofit employers that elected self-insurance were allowed to form groups or joint accounts to mutualize the risk. (The second method, the reimbursement option, is ordinarily less expensive than paying the unemployment insurance tax and is allowed by the government in recognition of the benefits that nonprofit hospitals and other nonprofit employers provide to communities.)
Nonprofit members of CHA were in a quandary. Having had little or no experience with unemployment insurance, they needed help in making a choice between allowable methods of financing the cost of benefits and in handling unemployment insurance claims and appeals.
In 1970, CHA appointed a committee to study the issues and make recommendations to CHA's Board of Trustees regarding which option would be most advantageous to nonprofit members. The result was the formation of the CHA Joint Unemployment Insurance Program (JUIP). Under the JUIP, each member was self-insured, but also was part of a joint pool. CHA hired staff, under the newly-formed CHA UI Division, to administer the program and to reimburse the state from the joint account for benefits paid to former employees. The staff would provide a complete claims handling service. They would file written protests to claims for unemployment insurance benefit payments, where appropriate; the program would provide professional representatives to appear with employers before administrative law judges and would write strong appeals, as appropriate, to the California Unemployment Insurance Appeals Board. Catastrophic insurance, as well as actuarial and legal oversight, were automatically provided as a benefit of membership. Members also received advice, guidance and supervisory training designed to help avoid future unemployment insurance costs. The CHA Joint Unemployment Insurance Program became effective January l, 1972.
In 1978 district hospitals were added to the list of those required by law to provide unemployment insurance coverage to their employees. Forty-two district hospitals chose to join the CHA JUIP at that time.
In 1984 CHA widened its services to include an alternative unemployment insurance administrative program on a fee basis, for both nonprofit and for-profit hospitals and other health care providers. (Although for-profit employers are prohibited by law from joining the JUIP, they may participate in the fee-based program and enjoy the full benefits of the UI Division staff's more than 150 years of unemployment insurance expertise.)
Today hundreds of California hospitals and health care employers enjoy the beneficial and professional services of the UI Division. The successful program has saved its members literally millions of dollars through its high-quality unemployment insurance service.