San Francisco is not the only place to adopt a pay or play initiative. In the past few years, Maryland, Massachusetts, and Suffolk County, New York have all adopted such statutes. California adopted a pay or play statute in 2003, but it was overturned by Proposition 72 in the 2004 election. These statutes required employers to spend at least a specified percentage of their payroll (Maryland) or a specific amount per worker per hour (Suffolk County) or their "fair share" of the cost of coverage (Massachusetts).
The Maryland statute was enjoined by the 4th Circuit in Retail Industry Leaders Association v. Fiedler, 475 F.3d 180 (4th Cir. 2007). The Suffolk County ordinance was also enjoined by the District Court and was not appealed to the 2nd Circuit. The Massachusetts statute has not yet been challenged, and the (comparatively) modest imposition on employers makes it less likely it will be preempted under ERISA. For a detailed examination of that issue, see this paper by Professor Amy Monahan of Minnesota.
The Maryland statute and Suffolk County ordinance, although facially neutral, were nonetheless carefully targeted: the Maryland statute was widely known as the "Wal-Mart bill," since it was drafted so as to exclude every other company in the state, and the Suffolk County ordinance targeted non-unionized retail stores selling groceries. Both were strongly backed by local and national unions. Public choice, anyone?
Finally, pay or play strategies dovetail nicely with the widespread perception that employers are paying for health insurance for their employees -- and employers who fail to contribute are shirking their responsibility. In reality, employer contributions toward health coverage for their employees are simply another form of compensation -- meaning that it is workers who bear the costs of coverage -- whether it is provided voluntarily, or as the result of a "pay or play" mandate.