Landmark health insurance legislation that would extend coverage to millions of California's uninsured residents was approved by the Assembly late Monday afternoon on a 46-31 vote.

Assembly Bill 1X1, the result of a weekend deal between Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Nunez, requires most residents to carry health insurance but also mandates employers who do not provide health insurance contribute up to 6.5 percent of payroll to a state health care fund.

"California has taken a big step forward on an issue that many said could not be done," said Gov Arnold Schwarzenegger during a press conference following the vote. The governor this fall vetoed an earlier bill he contended placed too harsh a burden on the state's employers.

Schwarzenegger's early proposals had set a 4 percent cap, and the Democratic bill he had vetoed set the payroll tax as high as 7 percent. Additional funding under the compromise would come from cigarette and hospital taxes. The plan funds subsidies and tax credits for low-income earners.

"This (passage) brings us one step closer to making health care a right afforded to everybody in this state, and not just a privilege afforded to those with deep pockets," said N & #250; & #324;ez, D-Los Angeles, following the vote.

There's no guarantee that the bill will pass by the end of the year. It could be blocked in the Legislature's other chamber by state Sentate President Pro Tem Don Perata. The San Francisco Bay-area Democrat is concerned about a projected $14 billion state budget deficit in the next fiscal year. Cuts to Medicaid and other health care programs are under consideration as ways to help cover the deficit.

In addition, voters will have to approve the funding package for the reform program, possibly in November.

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