While Obama, Clinton and Edwards trot out their plans for giving all Americans access to health insurance, a working blueprint for universal health care may be unfolding far from Capitol Hill.

The state of California--where 6.6 million people, or 19% of the population (the highest of any state), are uninsured--is wrestling with that issue right now. Earlier this month, Gov. Arnold Schwarzenegger called a special legislative session to hammer out a palatable universal health care bill. Lawmakers could draft a proposal in the next few weeks.

One deeply interested party is California's small business lobby. While small companies provide over half of America's private sector jobs, many of them can't afford to offer health benefits--which means they can't attract the talent they need to compete and grow.

The rest of the country is watching too: If passed, the bill could set the stage for policy battles in other states and Washington.

"If California demonstrates that it's possible to get something done, everyone will take notice," says Larry Levitt, a vice president with the Kaiser Foundation, a national health care research foundation.

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With health care costs through the roof and climbing, no one doubts that something has to give--but who's going to pay for all that care?

Whatever plan lawmakers gin up, entrepreneurs in California will likely feel a sting in the form of stiffer taxes. The incentive for small businesses to sign on: In theory, those dollars would help make health care more affordable for potential employees, thus leveling the playing field in the struggle to hire talent away from larger competitors that can afford to offer insurance. Second-order result: A healthier population puts a smaller strain on the overall health care system (emergency rooms and so forth) and ultimately reduces overall health care costs--again, in theory.

In the past, small businesses have bristled at health care-related tax hikes. But with health care costs rising 10% or more a year, they too are starting to listen.

"There's a sense that something is going to happen," says Scott Hauge, president of Cal Insure, a health insurance firm, and president of Small Business California, a nonprofit advocacy group. "There's a pressure that wasn't there five years ago."

Two key proposals are at the center of the California debate. Both are "play-or-pay"--meaning that either small businesses offer insurance, or they pay a tax penalty.

Governor Schwarzenegger's plan calls for a 4% payroll tax on businesses with 10 or more employees that don't currently provide health insurance. The plan also includes an "individual mandate" requiring that all residents buy health insurance or face a tax penalty.

The other proposal, put forth by Democratic State Assemblyman Fabian Nunez (called AB 8), is even pricier. Small businesses--of all sizes--that don't offer insurance, or contribute less than 7.5% of Social Security wages (capped at $97,500 for each employee), would be on the hook for a 7.5% payroll tax. And unlike Schwarzenegger's plan, all citizens would not have to buy insurance.

There are other proposals floating around too. The California Restaurant Association, for example, has advocated an increase in the sales tax to subsidize health care.

While Schwarzenegger's session is into its third week, this debate is still in its early stages. According to quirky California rules, any new tax proposal must pass in the State legislature by a two-thirds majority; if not, California residents will vote on it themselves. That probably won't happen until the next presidential election. Surely the candidates--and entrepreneurs nationwide--will be eyeing the proceedings over the coming weeks and months.

The hard truth: Universal health insurance plans will only achieve so much without other ways of keeping costs in check, such as pricing transparency, wellness incentives and limiting superfluous procedures. "If the state is just putting their fingers in the dyke, there will be more problems," says Cal Insure's Hauge. "We don't want to pay into a broken system."