By JORDAN RAU
LOS ANGELES TIMES

SACRAMENTO -- The California Assembly on Monday approved the first phase of a $14.4 billion plan to extend medical insurance to nearly all residents, giving Gov. Arnold Schwarzenegger and his Democratic allies their first victory in a risky yearlong campaign to overhaul the state's health care system.

The measure, negotiated by Schwarzenegger and Democratic Assembly Speaker Fabian Núñez of Los Angeles, requires almost everyone in California to hold insurance starting in 2010, and provides subsidies and tax credits to those who would have trouble paying their share of the premiums.

The authors say the plan would bring medical coverage to 3.6 million Californians, including 800,000 children, who currently lack it.

The bill passed on a party-line vote, 45-31. The North Coast's Democratic Assembly members, Patty Berg of Eureka, Noreen Evans of Santa Rosa and Jared Huffman of San Rafael all voted for the bill.

The measure, which contains the rules for a new health care system but none of the financing, faces a more skeptical reception in the state Senate, where Democratic leaders are questioning whether it makes sense to adopt such a giant change at a time when California is facing a $14 billion budget gap.

Democratic Senate President Pro Tem Don Perata of Oakland issued a statement before the vote offering muted praise to the Assembly for making "progress" toward a health care plan. But he said he was "very concerned" about the projected deficit.

Perata suggested he would not call the Senate into session any time soon to vote on the bill. And he requested an analysis from the independent legislative analyst's office of the plan's long-term fiscal impact in combination with Schwarzenegger's next proposed budget, due in three weeks.

No law would go into effect unless the electorate approved a proposed ballot initiative in November 2008 that would finance the health care overhaul by placing new taxes on businesses, tobacco products and hospitals.

Several employer groups, the state's largest insurer and tobacco companies would be likely adversaries in such an effort.