Movement came suddenly this week, after months of deadlock. On Monday, Democrats agreed to a requirement that all Californians obtain health insurance, the cornerstone of the reform plan Schwarzenegger unveiled in January.

But they put in an escape clause that would exempt those forced to spend more than 6.5 percent of their income on health care. Schwarzenegger is resisting that idea, although on Thursday he gave some ground on other issues, and Democrats said they were pleased.

“It is time to settle our remaining differences and get the job done,” the Legislature’s top Democratic leaders, Assembly Speaker Fabian Nunez, D-Los Angeles, and Senate President Pro Tem Don Perata, D-Oakland, said in a joint statement.

The two sides are trying to agree on a way to cover the 4.9 million people who have no insurance on any given day in California.

Both want to create a pay-or-play system for employers, requiring them to spend a set amount on health care or pay into a state-sponsored insurance pool that would offer policies to people below a certain income threshold.

The poorest of the uninsured would be eligible for expanded public health programs, such as Medi-Cal and Healthy Families. Those with higher incomes would get tax credits to make their premiums more affordable.

The key sticking point is how much small employers will be required to pay, and whether the state will be able to raise employers’ obligation in future years if it needs more money to fund the program.

Both want a sliding scale for employers, but the Democrats’ plan is crafted to make many more small businesses pay the maximum amount.

Democrats say firms with annual payrolls above $250,000 should pay their maximum: 6.5 percent. Schwarzenegger would only require firms with payrolls above $1 million to contribute his maximum: 5.5 percent.

Democrats also want higher tax credits to make insurance more affordable for middle-income earners. On Thursday, Schwarzenegger agreed to a tax credit for people earning up to 400 percent of the federal poverty level, about $41,000 for a single person and nearly $83,000 for a family of four. Democrats want to go to $46,000 for a single person and $93,000 for a family of four.

The two sides still disagree on some of the financing. More money is needed to fund the $14 billion plan, in addition to what employers, individuals, hospitals and the federal government will be asked to pay.

Schwarzenegger wants to raise it by leasing the lottery to a private firm, while Democrats want to raise the tobacco tax $2 a pack.

Even if the governor and the Democrats arrive at a deal, they will need voter approval to fund the plan. Both sides are aiming for the November 2008 ballot.

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