Gov. Arnold Schwarzenegger suffered a major defeat Monday when his $15 billion health care reform bill which would have required businesses to pay for employee insurance coverage went down to defeat.

ABX-1, a compromise worked out with Assembly Speaker Fabian N & #250; & #324;ez, was rejected by the Senate Health Committee when only one senator voted in favor of it. With the state facing a $14.5 billion deficit next year, legislators were concerned that the state could not afford it.

"It doesn't matter how many good things are in the bill if there isn't money to pay for them," Sen. Sheila Kuehl, D-Santa Monica, and the committee's chairwoman, told the Sacramento Bee.

The bill would have required many businesses not already providing health care to employees to contribute around 7 percent of their payroll into a state-run insurance fund to subsidize coverage. It also included a personal mandate for all individuals to sign up for coverage.

Business interests critical of the legislation's employer mandate were jubilant.

"Small business owners can breathe a sigh of relief," said John Kabateck, executive director of the Federation of Independent Business/California, in a statement. "We urge the governor and legislature to take the time to sit down and have an honest conversation about affordability and adequate funding."

Democrats and labor interests also were concerned about the bill's requirement that all residents obtain health coverage would be unaffordable for many middle and lower income families, who despite subsidies might at best be able to afford only a bare-bones plan.

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