‘Pay-or-Play’ Health-Care Plan May Leave Employers Ailing : Insurance: The congressional Democrats’ proposal is assailed as unfairly placing the onus of a national problem on business.

A plan for mandatory health insurance for U.S. workers, proposed by leading congressional Democrats, is causing ill feelings among some companies based in the San Fernando Valley and Ventura County.

“I don’t like it at all,” said Richard K. Herzer, chairman of IHOP Corp., the Glendale parent of the International House of Pancakes restaurant chain. “It’s economically unfeasible.”

If enacted into law, the so-called “pay-or-play” plan would require employers to offer health insurance to all full-time and part-time workers or pay a tax into a public fund that would provide coverage for the uninsured. The tax is expected to equal about 7% of an employer’s payroll costs.

The plan--one of many being proposed by both parties in Washington to reform the nation’s $700-billion-a-year health-care system--was recently blasted by the White House and other key Republicans. They said it would raise employers’ costs by $30 billion annually, which in turn would force companies to cut expenses by eliminating jobs and slashing other benefits.

Many businesses also would drop private insurance and let their workers be covered by the public fund “because the government plan, subsidized by taxpayers, would be the cheaper alternative,” Louis Sullivan, U.S. Secretary of Health and Human Services, wrote in an editorial in The Times recently.

Later this month the Bush Administration is expected to unveil its own health-insurance reforms. Among the ideas reportedly being considered by President Bush are tax credits to help people buy their own coverage and a plan for helping small businesses obtain lower-priced coverage. The president’s proposals are expected to be included in his State of the Union speech next Tuesday.

Some big corporations that already provide health coverage for their workers favor pay-or-play. That’s because they believe too many small firms are not paying their fair share of health insurance, forcing the companies with coverage to pay excessively high rates.

But smaller local companies are critical of the plan. Chief among them are restaurant chains, which typically operate with thin profit margins and, to limit their costs, don’t offer health insurance to waitresses, dishwashers and other lower-level workers.

“It becomes very expensive, especially when you’re already dealing with other employer costs that are going up, like workers’ compensation in California,” said Diane Hardesty, vice president for human resources at Hudson’s Grill of America Inc., a Ventura-based operator of 17 moderately priced restaurants that have a total of 750 workers.

In defending their plan, Democrats said employer-paid health coverage is increasingly being reduced or withheld from workers because of the coverage’s soaring cost, leaving about 36 million Americans without insurance.

The current system means “families are being shifted from private coverage to no coverage,” Sen. John D. (Jay) Rockefeller IV (D-W.Va.) said earlier this month. He and Senate Majority Leader George J. Mitchell (D-Me.) are among the pay-or-play plan’s advocates.

Indeed, Pinkerton’s Inc., the Van Nuys-based operator of the nation’s largest security-guard force, is seeing fewer and fewer clients pay for health insurance for the Pinkerton guards they hire, said Joe Hausser, Pinkerton’s director of compensation and benefits.

The only way a Pinkerton guard can get coverage is if the client pays for it--and about 60% to 65% of Pinkerton’s clients currently do not--or if the guard buys it voluntarily, Hausser said. The company has roughly 16,000 full-time guards and 12,000 part-time guards.

Nonetheless, Pinkerton’s also is against the Democrats’ plan. “We don’t like having the government involved in these things because you get a bureaucratic approach to something that’s already going to be a financial burden,” Hausser said.

IHOP’s Herzer said “I’m not sure what the answer is” to containing health-care costs and making coverage more accessible. But he said the pay-or-play plan is unfair because it places the onus of the problem on business.

“That’s a fairly narrow band of the population they’re concentrating on,” said Herzer, whose company and its franchises employ 18,000 people.

The United Chambers of Commerce of the San Fernando Valley also objects to business paying the entire tab, said the group’s president, David Honda. “We agree that something has to be done” to make health insurance more available to all workers, “but it’s not a matter of one group or association that should pay for all the costs,” he said.

Companies nationwide already have been trying to at least slow the growth of their health-care expenses. Among other things, businesses are requiring workers to make higher co-payments and are limiting the choices of care available. Both steps have prompted employees to complain that too much of the burden is being placed on them.

Some businesses also are replacing staff members with temporary workers for whom the employers don’t have to provide health-care benefits.

Robert Fain, chairman of Raycomm Transworld Industries Inc., an Encino-based supplier of temporary technical personnel to aerospace companies and other industries, said Raycomm’s referred workers--like Pinkerton’s guards--get health insurance only if his corporate clients provide it. Only about 20% do, he said.

But under pay-or-play, Raycomm itself would have to provide coverage for all of the 3,500 temporary workers it now has in the field. “It would have a dramatic effect” on Raycomm’s finances because Raycomm would have to find ways to absorb the additional cost, he said.

Fain said Raycomm would try to pass on some of the extra expense to its customers and that the clients probably would pay it because they would not want to “destroy the availability of our labor force.”

The pay-or-play plan also calls for the government to establish a set of core benefits to be provided to workers, and that concerns Superior Industries International Inc., an automotive wheel maker in Van Nuys that employs 3,000 nationwide.

Superior, like many companies, currently limits its costs by requiring workers to pay for part of their health care or to work at Superior for six months before becoming eligible for health insurance, said Jeffrey Ornstein, its chief financial officer.

“It could have an impact” on Superior’s costs “if they said we had to pay 100% of the benefits from day one” of a person’s employment at Superior, he said.