A lower court in December struck down key provisions of the program, dubbed Healthy San Francisco, which requires companies with at least 20 workers to provide health coverage or pay the city a fee to help offset the program's estimated $200 million price tag.

The Golden Gate Restaurant Association, a powerful lobby, sued the city, arguing that the mandatory contributions the city sought placed a costly burden on members already struggling to make a profit.

But a three-judge panel for the 9th U.S. Circuit Court of Appeals said Wednesday it appeared the program would ultimately prevail.

"There may be better ways to provide health care than to require private employers to foot the bill," Judge William Fletcher wrote in a unanimous ruling. But he wrote that it wasn't up to the court to "evaluate the wisdom" of the plan, only its legality.

Fletcher wrote that the city and the labor unions that joined San Francisco in defending the lawsuit "have a probability, even a strong likelihood of success."

City officials hope the program, the first of its kind in the nation, will eventually cover about 80,000 people. Mayor Gavin Newsom said that nearly 8,000 people have already signed up and that the city hopes to enlist about 40,000 more people by the end of the year.

The "ruling is an important victory for uninsured San Franciscans," Newsom said Wednesday.

U.S. District Court Judge Jeffrey White in December knocked out the business fee when he agreed with the restaurant owners and ruled that the program violated federal law.

A telephone message left Wednesday for an attorney representing the restaurant owners was not immediately returned.

General Motors Corp. said Monday that it expects to transfer $16 billion from its internal health-care trusts, in addition to a $2.5 billion cash infusion, to a new United Auto Workers trust in order to fund a new independent voluntary employees' beneficiary association, or VEBA.

The VEBA, seen as a critical element of a new contract between the two parties, effectively will free the auto maker from UAW hourly retiree health-care liabilities permanently, the company said, and the UAW will no longer be able to negotiate such benefits.

Instead, the UAW will manage the trust, allowing GM to cut its own retiree health-care liability to an estimated range of $2 billion to $9 billion by 2013, down from more than $60 billion currently.

The move should deliver an estimated $2.6 billion to $3.4 billion in annual pretax savings, primarily due to changing the plan. GM expects its net UAW hourly health-care balance sheet liability to be about $6 billion to $13 billion in 2010. It currently carries an estimated $47 billion in UAW hourly health-care obligations.

GM outlined some of its financial expectations for the contract in a slide deck posted on its investor Web site in advance of a 9:30 a.m. Eastern conference call. The company also addressed its VEBA contribution in a filing with the Securities and Exchange Commission.

GM shares soared Thursday and Friday, hitting their highest level in three years, amid optimism about the savings that will be realized as a result of the UAW deal. GM shares have gained nearly 50% since early September.

By 2010, GM sees positive VEBA cash-flow, reversing a negative $3.3 billion outflow it currently reports based on retiree health care. It expects to post $3.3 billion in positive cash-flow associated with VEBA-related savings by 2011. Year-end liquidity will fall by $2.6 billion due to an exclusion of short-term VEBA assets it currently accounts for.

Among other savings highlights: the establishment of a second-tier pay and benefits scale for new noncore hires. These people will make an "all-in" compensation -- including benefits -- of $25.65 an hour in 2008, with increases thereafter. GM's "U.S. hourly people cost" will fall to an estimated $10.1 billion in 2007 from $18.4 billion in 2003.

About 65% to 75% of GM current UAW hourly employees will be eligible for retirement during the current contract, which expires in late 2011.

Democrats, who wrote the legislation and provided most of its votes, generally portray themselves as champions of the poor. They do not dispute that the tax plan would hit poor communities disproportionately, but they say it is worth it to provide health insurance to millions of modest-income children.

All the better, they say, if higher cigarette taxes discourage smoking.

"I'm very happy that we're paying for this," Senate Majority Leader Harry Reid, D-Nev., said in an interview Friday, noting that the plan would not add to the deficit. "The health of the children is extremely important," he said. "In the long run, maybe it'll stop people from smoking."

Congress probably will revisit the cigarette tax issue soon because President Bush has pledged to veto the proposed $35 billion expansion of the State Children's Health Insurance Program. The decade-old program helps families buy medical coverage if their income is too high to qualify for Medicaid.

Bush has proposed a more modest growth for the program, and both political parties seem inclined to pay for it through a tax on an unpopular group, cigarette smokers.

By most measures, the average smoker is less privileged than the average nonsmoker. Nearly one-third of all U.S. adults living in poverty are smokers, compared with 23.5 percent of those above the poverty level, according to government statistics.

The American Heart Association reports that 35 percent of people with no more than 11 years of schooling are smokers. Those with 16 or more years of formal education smoke at a 12 percent rate.

Non-Hispanic black men smoke at slightly higher rates than do non-Hispanic white men. But the reverse is true among women.

The demographics of smoking and taxation received scant attention during last week's House and Senate debates, perhaps because many Democrats and Republicans agree that cigarettes are the best target for tax increase if the insurance program were to grow. A few lawmakers, however, took a swing.

"I know there is very little sympathy for smokers these days," Rep. Jack Kingston, R-Ga., said during the House debate. "But it is still a tax increase on the backs of the smokers. And in order to get enough money to pay for this, it would require 22 million new smokers."

Rep. Frank Pallone, D-N.J., defended putting the burden of expanded medical care on smokers.

"The tobacco tax is a great way to pay for it," he said, "because if you tax people who are smoking and they smoke less, then we have less health problems."

Rep. Jim McCrery, R-La., did not buy that logic. "To propose funding a growing program with a declining revenue source is, I would submit, irresponsible fiscal policy," he said.

If the federal cigarette tax nears $1 per pack, smokers in many states will pay hefty sums into government coffers unless they kick their habit. On top of the federal tax, New Jersey levies a $2.57 per pack tax on cigarettes, followed by Rhode Island at $2.46.

California is near the middle, at 87 cents a pack. Three states tax cigarettes at less than 30 cents per pack. South Carolina is the lowest at 7 cents.

Bill Phelps, spokesman for Philip Morris USA, based in Richmond, Va., said a steep federal tax increase could accelerate the national decline in smoking to the point that the insurance would have to find other revenue sources.

The average U.S. price of a pack of cigarettes has risen by 80 cents since 1999, Phelps said, largely because of state tax increases. State and federal governments received more than $21 billion in cigarette excise taxes in the 2006 budget year, he said, "so we think this trend is unfair to adults who smoke and to retailers who sell tobacco products."

In Congress, these groups receive little sympathy. But some lawmakers say voters should know the details of the insurance program's proposed funding structure.

Rep. Mike Pence, R-Ind., who spoke against the bill in last week's debate, said: "The headline ought to read, 'Smokers in America to pay for middle-class welfare.'"