Businesses Say ‘Enough’ to State’s Health Insurance Law
By VITA REED
Reaction to California’s new law mandating employer-funded healthcare has been swift: It stinks, businesses say.
“It unfairly penalizes employers who have done well,” said Vic Tanon, president of StaffPay Inc. in Irvine. StaffPay provides payroll and other human resources services to businesses with about 4,000 workers, including 2,500 who don’t have healthcare benefits.
“I’d have to raise rates and take on some of the hit myself (to profits),” said Tanon, who estimates his costs will rise by $600,000 when Senate Bill 2 goes into effect. That’s a sizeable cost for StaffPay, which has revenue of $4 million to $5 million a year.
Many details of the law,known as SB2 before it was signed by outgoing Gov. Gray Davis days before the recall election,still need to be fleshed out. That’s raised caution flags among employers, healthcare providers and health insurers.
“To some extent, there’s a lot still up in the air,” said Charlie Rosson, a senior vice president at insurance brokerage Marsh Inc.’s Newport Beach office. Rosson sells insurance policies primarily to medium and large employers.
Governor-elect Arnold Schwarzenegger has noted his distaste for the law but has not outlined a remedy.
Rosson said his clients are concerned about higher costs, along with “a lot of regulation and burden placed on California employers that they don’t face elsewhere,” Rosson said. “This is an additional responsibility that falls on top of high workers’ compensation and other costs.”
The law’s implementation dates are some time away, with a phase-in period for large employers in 2006, medium-sized employers in 2007 and small employers in 2008.
SB2 requires companies with more than 50 workers either to pay 80% of employees’ health coverage or to pay an equivalent fee into a state pool that provides coverage.
Companies with more than 200 workers additionally must provide health coverage for spouses and children, according to the law. It exempts unionized companies, which stands to give a big boost to the state’s labor unions.
Particularly hard hit could be midsized companies with more than 200 workers.
“This is absolutely impossible for us to comply with this law as it’s written and remain in business,” said John Ginger, owner of Riverside-based John Ginger Masonry Inc. Ginger is an OC resident.
Ginger, who provides healthcare coverage for his 350 workers but not dependents who can buy coverage under his plan, said SB2 puts his company at a disadvantage when bidding for homebuilding work.
“Many of our competitors are much smaller companies and fall into the under-200 category and even the under-50 category,” Ginger said. Ginger estimates his costs would be 5% to 6% higher than a smaller competitor under SB2.
One potential solution: Ginger said he likely would have to cut his staff below the 200-worker threshold to stay competitive.
Studies say the law, which makes California just the third state behind Maine and Hawaii to mandate employer-sponsored healthcare, could cost employers anywhere from $6 billion to $11.4 billion.
A University of California, Berkeley study says 1.6 million more state residents will be covered under the law, while Washington, D.C.-based Employment Policies Institute says 2.3 million more will get insurance. The state has an estimated 6.5 million uninsured residents.
Companies near the cutoff levels will be forced to make key decisions: cut a few workers to get under or take a deep breath and pay up.
Kim Jorgenson, owner of Plum’s Caf & #233; and Catering in Costa Mesa, which averages 47 to 51 workers, isn’t against offering health insurance for her workers.
“But to mandate it? We’re just getting mandated to death,” Jorgenson said. “Businesses like to get creative. They don’t like to be told what to do.”
Jorgenson said she occasionally polls her employees to see if they want insurance coverage. Most haven’t needed it because they already are covered through their spouses.
Plum’s doesn’t have much breathing room below the 50-worker cutoff, particularly if the company expands as expected next year. Companies in competitive, low-paying industries will be particularly hard hit, observers say. They may have to outsource more work to stay below the minimum cutoff.
Meanwhile, some larger companies,those who already provide health benefits,are more ambivalent about the law.
“Larger employers might benefit slightly,” said Joe Deacon, director of human resources for Aliso Viejo-based engineering services provider Fluor Corp. “As a large employer, we want to see a level playing field.”
Deacon said the new law could lower the healthcare burden on large companies by slashing the number of uninsured and bringing smaller companies into the coverage mix. Large companies like Fluor, which pays for 75% of its workers’ health coverage, have been subsidizing healthcare costs such as emergency services, Deacon said.
But that’s not to say that Fluor, which has about 3,000 workers in Orange County and 44,000 employees companywide, doesn’t have its own issues with SB2.
For one, it’s worried about the health of smaller businesses that it partners with.
“If there’s a pass-through of higher costs, some of our suppliers could leave the state” or raise costs, Deacon said. Companies that Fluor contracts work out to could raise fees.
Rosemead-based Southern California Edison Co. fought the bill.
An Edison spokesman said the company was part of a business coalition organized by the California Chamber of Commerce to “oppose SB2 as too costly and unduly burdensome on the California business community.” Edison has 3,700 workers in OC.
And Cypress-based HMO PacifiCare Health Systems Inc. said in a statement it “has strong concerns about the burden SB2 will place on small businesses in California. We believe any solution to the uninsured in California should be built on the existing private market, employer-sponsored system.”
Two nonprofit health plan providers, Blue Shield, which has some 250,000 members in OC, and Kaiser Permanente, the county’s largest HMO operator with more than 343,000 members, broke ranks with other for-profit health insurers to support SB2.
Challenges to the legislation are likely, says Michael Shaw, assistant state director of the National Federation of Independent Business.
A ballot referendum or state or federal court contest are possibilities, he said.
There’s been talk that SB2 might interfere with the federal Employee Retirement Income and Security Act of 1974. Under that law, states don’t have the power to regulate employee benefits, which include health coverage that workers get on the job. States do, however, have the authority to regulate the health insurance industry.
SB2 falls into an ERISA gray area. Recent U.S. Supreme Court decisions have given states a voice in shaping health benefits for workers, particularly when those cases have pitted state patients’ rights statutes against ERISA.
And Schwarzenegger has said he is opposed to SB2. But Democrats have strong majorities in both chambers, which could make it difficult to repeal the law.
To the relief of some businesses, SB2 won the day over rival healthcare reform.
A competing bill authored by Sen. Sheila Kuehl, D-Santa Monica, would have been more onerous, they say. Kuehl’s bill would have set up a government-run universal healthcare system.
Staff reporter Sherri Cruz contributed to this story.
